TGS International Ltd.
Consolidated Balance Sheets
(unaudited)
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
133,522
|
|
|
$
|
69,401
|
|
Accounts receivable
|
|
|
632,858
|
|
|
|
787,023
|
|
Other receivables
|
|
|
570,568
|
|
|
|
532,943
|
|
Prepayments and deposits
|
|
|
93,540
|
|
|
|
205,169
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,430,488
|
|
|
|
1,594,536
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
2,285,730
|
|
|
|
2,307,570
|
|
Intangible assets
|
|
|
1,097,362
|
|
|
|
1,097,362
|
|
Deposit
|
|
|
50,219
|
|
|
|
50,299
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,863,799
|
|
|
$
|
5,049,767
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
457,988
|
|
|
$
|
457,824
|
|
Accrued charges
|
|
|
225,990
|
|
|
|
123,241
|
|
Other payables
|
|
|
1,682,789
|
|
|
|
1,568,875
|
|
Income tax payable
|
|
|
22,959
|
|
|
|
22,951
|
|
Amount due to a stockholder
|
|
|
65,371
|
|
|
|
-
|
|
Amount due to a director
|
|
|
-
|
|
|
|
77,964
|
|
Loan from a related person
|
|
|
386,296
|
|
|
|
386,916
|
|
Convertible bond payable, net
|
|
|
-
|
|
|
|
190,954
|
|
Other loans
|
|
|
221,462
|
|
|
|
27,837
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,062,855
|
|
|
|
2,856,562
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Amounts due to stockholders
|
|
|
360,001
|
|
|
|
376,246
|
|
Amount due to a director
|
|
|
1,015,448
|
|
|
|
951,569
|
|
Other loans
|
|
|
151,384
|
|
|
|
147,326
|
|
Provision for asset retirement obligations
|
|
|
35,363
|
|
|
|
35,350
|
|
Provision for exploration asset compensation
|
|
|
119,379
|
|
|
|
119,336
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
1,681,575
|
|
|
|
1,629,827
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,744,430
|
|
|
|
4,486,389
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2021 and December 31, 2020
|
|
|
1,496
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
11,483,220
|
|
|
|
11,483,220
|
|
Accumulated deficit
|
|
|
(11,395,036
|
)
|
|
|
(10,951,630
|
)
|
Accumulated other comprehensive income
|
|
|
29,689
|
|
|
|
30,292
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
119,369
|
|
|
|
563,378
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
4,863,799
|
|
|
$
|
5,049,767
|
|
The accompanying notes are an integral part of these interim consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
38,760
|
|
|
$
|
-
|
|
|
$
|
92,723
|
|
Cost, expenses and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
(108,335
|
)
|
|
|
(45,988
|
)
|
|
|
(112,482
|
)
|
|
|
(99,380
|
)
|
Selling and distribution
|
|
|
(6,967
|
)
|
|
|
(9,991
|
)
|
|
|
(15,527
|
)
|
|
|
(56,628
|
)
|
Depreciation of factory equipment
|
|
|
(8,108
|
)
|
|
|
(9,073
|
)
|
|
|
(17,129
|
)
|
|
|
(18,289
|
)
|
Administrative
|
|
|
(148,804
|
)
|
|
|
(318,304
|
)
|
|
|
(278,642
|
)
|
|
|
(659,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(272,214
|
)
|
|
|
(344,596
|
)
|
|
|
(423,780
|
)
|
|
|
(741,408
|
)
|
Other income
|
|
|
23,205
|
|
|
|
15,591
|
|
|
|
23,206
|
|
|
|
15,593
|
|
Interest expense
|
|
|
(21,729
|
)
|
|
|
(24,372
|
)
|
|
|
(42,832
|
)
|
|
|
(54,193
|
)
|
Loss before provision for income taxes
|
|
|
(270,738
|
)
|
|
|
(353,377
|
)
|
|
|
(443,406
|
)
|
|
|
(780,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(270,738
|
)
|
|
|
(353,377
|
)
|
|
|
(443,406
|
)
|
|
|
(780,008
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(10,365
|
)
|
|
|
62,811
|
|
|
|
(603
|
)
|
|
|
125,136
|
|
Comprehensive loss
|
|
$
|
(281,103
|
)
|
|
$
|
(290,566
|
)
|
|
$
|
(444,009
|
)
|
|
$
|
(654,872
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
14,962,298
|
|
|
|
14,903,177
|
|
|
|
14,962,298
|
|
|
|
14,868,292
|
|
The accompanying notes are an integral part of these interim consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
|
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
Accumulated other comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
deficit
|
|
|
income
|
|
|
Total
|
|
Balance as of January 1, 2021
|
|
|
14,962,298
|
|
|
$
|
1,496
|
|
|
$
|
11,483,220
|
|
|
$
|
(10,951,630
|
)
|
|
$
|
30,292
|
|
|
$
|
563,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(443,406
|
)
|
|
|
-
|
|
|
|
(443,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(603
|
)
|
|
|
(603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2021
|
|
|
14,962,298
|
|
|
$
|
1,496
|
|
|
$
|
11,483,220
|
|
|
$
|
(11,395,036
|
)
|
|
$
|
29,689
|
|
|
$
|
119,369
|
|
The accompanying notes are an integral part of these interim consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Cash Flows
(unaudited)
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(443,406
|
)
|
|
$
|
(780,008
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
22,739
|
|
|
|
24,989
|
|
Loss on disposal of property, plant and equipment
|
|
|
2,197
|
|
|
|
4,137
|
|
Net foreign exchange (gains)/losses
|
|
|
(7,479
|
)
|
|
|
260,097
|
|
Amortization of right-of-use asset
|
|
|
-
|
|
|
|
104,288
|
|
Amortization of non-cash interest expenses and bond discount related to convertible bonds
|
|
|
1,354
|
|
|
|
15,734
|
|
Non-cash interest expenses related to other loans
|
|
|
9,908
|
|
|
|
8,598
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
154,410
|
|
|
|
(39,192
|
)
|
Other receivables
|
|
|
(37,751
|
)
|
|
|
(65,012
|
)
|
Prepayments and deposits
|
|
|
112,361
|
|
|
|
2,023
|
|
Accrued charges
|
|
|
45,860
|
|
|
|
(84,860
|
)
|
Accounts payable
|
|
|
-
|
|
|
|
36,139
|
|
Other payables
|
|
|
170,486
|
|
|
|
(15,670
|
)
|
Lease liabilities
|
|
|
-
|
|
|
|
(104,288
|
)
|
Net cash generated from/(used in) operating activities
|
|
|
30,679
|
|
|
|
(633,025
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(3,048
|
)
|
|
|
(16,769
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
351
|
|
|
|
1,077
|
|
Net cash used in investing activities
|
|
|
(2,697
|
)
|
|
|
(15,692
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Advances from stockholders
|
|
|
48,553
|
|
|
|
316,050
|
|
Advances from a director
|
|
|
66,122
|
|
|
|
11,789
|
|
Repayment to a director
|
|
|
(78,577
|
)
|
|
|
(74,213
|
)
|
Proceeds from new loan – other
|
|
|
-
|
|
|
|
25,641
|
|
Proceeds from issuance of convertible bonds
|
|
|
-
|
|
|
|
333,332
|
|
Net cash provided by financing activities
|
|
|
36,098
|
|
|
|
612,599
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
64,080
|
|
|
|
(36,118
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
41
|
|
|
|
(2,718
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
69,401
|
|
|
|
106,850
|
|
Cash and cash equivalents, end of period
|
|
$
|
133,522
|
|
|
$
|
68,014
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
14,762
|
|
|
$
|
12,562
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for amounts included in measurement of lease liabilities
|
|
$
|
-
|
|
|
$
|
104,288
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Capitalization of advances from stockholders
|
|
$
|
-
|
|
|
$
|
102,564
|
|
Conversion of convertible bond and accrued interest into common stock
|
|
$
|
-
|
|
|
$
|
334,027
|
|
Recognition of Beneficial Conversion Feature (“BCF”) discount at inception of convertible bonds
|
|
$
|
-
|
|
|
$
|
7,624
|
|
The accompanying notes are an integral part of these interim consolidated financial statements.
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
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 Mr. 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 June 30, 2021 and the date of this report, the Company owns three mining rights in Mongolia (Mining license numbers: MV-009918, MV-016819 and MV-017305). 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 implemented various precautionary measures, including but not limited to closing all ports of entry from and into China (“Precautionary Measures”). The Company has not been able to perform any exploration work at Mine B which is located in Bayan-Ovoo soum, Khentii province (Mining license number: MV-016819) since early 2020.
Basis of Presentation
These accompanying unaudited Consolidated Financial Statements as of and for three and six months ended June 30, 2021 have been prepared in accordance with accounting principles generally accepted in United States of America (“U.S. GAAP”) for interim financial statements. Accordingly, the Consolidated Financial Statements do not include all the information and footnotes required by U.S. GAAP for complete annual consolidated financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2020 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm. These Consolidated Financial Statements should be read in conjunction with the annual financial statements and notes thereto in the Company’s Form 10-K for the year ended December 31, 2020. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year or for any future periods.
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
Going Concern
The Company incurred an operating loss of $443,406 for the six months ended June 30, 2021, and as of that date, the Company’s current liabilities exceeded its current assets by $1,632,367. Notwithstanding the operating loss incurred for the six months ended June 30, 2021 and the net current liabilities as of June 30, 2021, 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 management expects the formal production will gradually resume after the Precautionary Measures in Mongolia are relaxed. 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. The ability of the Company to emerge from the exploration stage depends upon the success management's plans. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Comparative amounts
Certain comparative figures have been reclassified to conform with the current period’s presentation and disclosures.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent issued accounting standards
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. Topic 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. Topic 326 was originally to be 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 (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this ASU simplify the accounting for income taxes, eliminate certain exceptions to the general principles in Topic 740 and clarify 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 (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 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.
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
NOTE 3 – OTHER PAYABLES
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Tax and social insurance payable
|
|
$
|
96,512
|
|
|
$
|
86,601
|
|
Contract liabilities
|
|
|
258,663
|
|
|
|
296,657
|
|
Temporary receipts
|
|
|
735,982
|
|
|
|
739,948
|
|
Other
|
|
|
591,632
|
|
|
|
445,669
|
|
|
|
$
|
1,682,789
|
|
|
$
|
1,568,875
|
|
Other represents temporary fund transfers from employees to support short-term operations.
NOTE 4 – CONVERTIBLE BONDS
As of June 30, 2021 and December 31, 2020, the Company had the following convertible bonds outstanding:
|
|
As of
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
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
|
|
Less: Bond discount
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,354
|
)
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
190,954
|
|
|
$
|
10,564
|
|
Convertible bond agreements of HK$1.5 million
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 had a maturity date of 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 was 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 was 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 of the discount and recognized non-cash interest of $9,634 to interest expenses. The unamortized debt discount on the convertible bond as of December 31, 2020 was $1,354.
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
For the six months and three months ended June 30, 2021, the Company amortized $1,354 and $341 of the discount and recognized non-cash interest of $3,161 and $790 to interest expenses. For the six months and three months ended June 30, 2020, the Company amortized $2,863 and $1,576 of the discount and recognized non-cash interest of $4,786 and $2,399 to interest expenses. All the debt discount on the convertible bond has been amortized as of June 30, 2021. On April 30, 2021, the Company signed a supplementary agreement with the bondholder to further extend the maturity date from April 30, 2021 to May 20, 2021, change the interest rate from 5% to 8%, and revoke the convertible option. As a result, the HK$1.5m is reclassified to other loans. The further development of the loan is disclosed in note 6.
Other convertible bond agreements
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 year 2020 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 8). In addition, the Company recognized a beneficial conversion feature discount to the bond of $7,390 that was amortized and recognized non-cash interest of $695 on these bonds during the year ended December 31, 2020.
NOTE 5 – SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
(a) Loan from a related person
As of June 30, 2021 and December 31, 2020, loan from a related person included HK$3 million (equivalent to $386,296 and $386,916, respectively) borrowed from the wife of one of the Company’s stockholders on May 21, 2018. The loan is unsecured, is guaranteed by three stockholders and carried 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, repayable on May 20, 2019 and subsequently extended to May 20, 2020. The related party lender borrowed the funds that were loaned to Arcus Mining Holdings Limited (“Arcus”), a subsidiary of the Company. Arcus has guaranteed the repayment by the related party of the funds borrowed by the related party. 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. As of the date of this report, no further agreements have been signed. Our management is negotiating the repayment schedule and/or renewal terms with the loan holder. Until such time as the negotiations achieve more favorable terms, the loan is repayable on demand.
(b) Interest expense incurred to related persons
During the six months ended June 30, 2021 and 2020, interest expense of HK$202,671 (equivalent to $26,108) and HK$225,000 (equivalent to $28,989), respectively, was incurred to related persons.
During the three months ended June 30, 2021 and 2020, interest expense of HK$103,801 (equivalent to $13,369) and HK$97,897 (equivalent to $12,613), respectively, was incurred to related persons.
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
(c) Amounts due to stockholders
As of June 30, 2021, amount due to a stockholder, Kwing Chun Chu, was HK$507,671 (equivalent to $65,371). The amount due is unsecured, carries interest at 5% per annum and is repayable on September 11, 2021.
As of June 30, 2021, amounts due to stockholders, Kwong Bun Mak, Xianqin Pan and Kwing Chun Chu, were $360,001, and as of December 31, 2020, amounts due to stockholders, Kwong Bun Mak, Xianqin Pan and Kwing Chun Chu, were $374,246. The stockholders advanced $48,553 of working capital to meet the financing requirements for the six months ended June 30, 2021. 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
On December 10, 2020, Mr. Chi Kin Loo was appointed as a director of the Company. As of June 30, 2021 and December 31, 2020, there was an amount due to the director of HK$7,886,026 (equivalent to $1,015,448) and HK$7,378,106 (equivalent to $951,569), respectively. During the six months ended June 30, 2021, he advanced HK$513,300 (equivalent to $66,122) to the Company. The amount due 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.
As of December 31, 2020, amount due to a director, Mr. Tak Shing Eddie Wong, of HK$604,500 (equivalent to $77,964) was unsecured, had no collateral or guaranty and was interest-free. The amount was fully repaid on March 3, 2021. Mr. Tak Shing Eddie Wong resigned as director on March 31, 2021.
NOTE 6 – OTHER LOANS
As of June 30, 2021 and December 31, 2020, a loan of HK$226,412 (equivalent to $29,154) and HK$217,133 (equivalent to $27,837), respectively was outstanding from an unrelated party. The loan is unsecured, has no collateral or guaranty, carries interest at 10% per annum, and repayable on June 23, 2021 and was further extended to December 23, 2021.
On April 30, 2020, at the maturity of the convertible bond of HK$1,500,000 (equivalent to $192,308) (see note 4), the Company signed a supplementary agreement that revoked the conversion option and renewed the loan to May 20, 2021. As a result, the convertible bond has been reclassified to other loans, and on May 21, 2021, the Company signed an amended loan agreement with the unrelated party. The loan is repayable on May 31, 2021, carries interest at 8% per annum and is guaranteed by a director of the Company. As of the date of this report, no further agreements have been signed. Our management is negotiating the repayment schedule and/or renewal terms with the loan holder. Until such time as the negotiations achieve more favorable terms, the loan is repayable on demand.
As of June 30, 2021 and December 31, 2020, a loan of $151,384 and $147,326, respectively was outstanding from an unrelated party. The loan is unsecured, has no collateral or guaranty, carries interest at 11.61% per annum and the indebtedness of $395,801 will be repaid on December 31, 2029.
NOTE 7 – NET LOSS PER SHARE
The following table presents the computation of basic and diluted net loss per share for the three and six months ended June 30, 2021 and 2020:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(270,738
|
)
|
|
$
|
(353,377
|
)
|
|
$
|
(443,406
|
)
|
|
$
|
(780,008
|
)
|
Weighted-average number of common shares outstanding – basic and diluted
|
|
|
14,962,298
|
|
|
|
14,903,177
|
|
|
|
14,962,298
|
|
|
|
14,868,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (Note)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
Note: During the three and six months ended June 30, 2021 and 2020, the Company had warrants 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.
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
NOTE 8 – CAPITAL STOCK
For the year ended December 31, 2020, there was a total of four new convertible bond agreements entered into between the Company, 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).
TGS International Ltd.
Notes to Consolidated Financial Statements
June 30, 2021
(Unaudited)
|
NOTE 9 – WARRANT EQUITY
In 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 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.
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 $
|
|
2019
|
|
|
66,000
|
|
|
|
1.91
|
|
|
|
125,900
|
|
As at June 30, 2021 and December 31, 2020
|
|
|
66,000
|
|
|
|
|
|
|
$
|
125,900
|
|
NOTE 10 – SUBSEQUENT EVENTS
The Company is dependent on its workforce, mainly Chinese workers, to perform the mining work, resume exploratory and construction 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 subsequent periods 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 once the Precaution Measures were removed.
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 on its results of operations, financial condition, or liquidity for the 2021 fiscal year.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated 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-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly 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 quarterly 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 Mr. 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. We have three offices in Hong Kong, in China, and in Mongolia for our operations. Between 2015 to 2017, we set up infrastructure at Mine B, which is located in Bayan-Ovoo soum, Khentii province, Mongolia (Mining license number: MV-016819) (“Mine B”), and appointed SRK Consulting China Limited for resource exploration for Mine A, which is located in Uulbayansoum, Sukhbaatar province, Mongolia (Mining license number: MV-009918) (“Mine A”), and Mine B. The trial production at Mine A and Mine B started in 2019 and 2018 respectively. Mine C, which is located adjacent to Mine B (Mining license number: MV-017305) ("Mine C"), is currently in the mine preparation stage and did not contribute any revenue yet.
Due to the global outbreaks of COVID-19 pandemic (the “Pandemic”) since 2020, the Mongolian Government has implemented various Precautionary Measures. As the borders are gradually reopening, our business is expected to recover gradually in the second half of 2021, in terms of labor supply and downsizing government regulations, all of which may bring positive effect to the business, financial condition, growth strategies and results of operations of the Company.
The operation of Mine B, which generally generated the majority operation income for the Company, has been suspended since late November 2019 due to the regular winter break and the outbreak of COVID-19. The operation of Mine A has been suspended since December 2020 due to the Precautionary Measures. We expect to gradually resume the operations of Mine A and Mine B after the Mongolian Government re-opens the ports of entry.
The construction of the refinery at Mine B was completed in late November 2019 while the power supply upgrade at Mine B is still in progress. We expect to complete the power supply upgrade once our Chinese workers are permitted to enter Mongolia.
The resolution of the current Pandemic remains uncertain – as well as the government’s response to the changing situation. The global economic outlook for 2021 remains pessimistic, given its dependency on the future easing of global trade tensions, the monetary policy stance of major central banks, and the impact of COVID-19. Taking a strictly prudent response, the Company is stringent in managing working capital, from both existing and potential investors, to ensure we have sufficient cash flow for daily operations, which is vital to weathering the currently difficult operating and economic environment.
The financial situation of the Company is currently volatile but the Precaution Measures are expected to be relaxed in Mongolia and China. Currently, we are still operating conservatively due to the Pandemic. The Company will continuously and closely monitor the developments of COVID-19, evaluate and proactively address its impact on the Company’s financial position and performance. For the remainder of 2021, the management will continue to be diligent in keeping the operations streamlined and optimizing operations, endeavoring to do our best so to minimize the negative impact on our operations and trial production.
Results of Operations
Comparison of the Three and Six Months Ended June 30, 2021 and 2020
Revenue
For the six months ended June 30, 2021, we had nil revenue due to no sales activities under the Precautionary Measures imposed by the Mongolian Government. Revenue of $92,723 in the six months ended June 30, 2020 consisted mainly of fluorspar products generated from the trial productions at Mine A.
For the three months ended June 30, 2021, the decrease compared to the three months ended June 30, 2020 is similar to the discussion above.
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.
For the six months ended June 30, 2021, exploration costs increased from $99,380 to $112,482, representing an increase of approximately 13% as compared to the six months ended June 30, 2020. The increase was mainly due to increase in salary and social insurance expenses.
For the three months ended June 30, 2021, exploration costs increased from $45,988 to $108,335, representing a significant increase of approximately 136%, as compared to the three months ended June 30, 2020. The result of such significant increase was mainly due to increase in salary and social insurance expense.
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 significantly from $56,628 for the six months ended June 30, 2020 to $15,527 for the six months ended June 30, 2021, representing a significant decrease of approximately 73%. The decrease was mainly due to the decrease in royalty tax paid to the Mongolian Government due to the minimal operations under the Pandemic.
Selling and distribution costs decreased from $9,991 for six months ended June 30, 2020 to $6,967 for the six months ended June 30, 2021, representing a decrease of approximately 30%. The result of such decrease was mainly due to the decrease in royalty tax paid to the Mongolian Government due to the minimal operations under the Pandemic.
Administrative expenses
Administrative expenses included salaries and benefits, consulting, audit, tax, legal, insurance, rent and utilities, net foreign exchange losses and other general operating expenses.
Administrative expenses decreased significantly from $659,834 for the six months ended June 30, 2020 to $278,642 for the six months ended June 30, 2021, representing a significant decrease of approximately 58%. The significant decrease was mainly due to the net effect of the decrease in net foreign exchange losses, lease expenses and legal and professional fees.
For the three months ended June 30, 2021, administrative expenses decreased from $318,304 to $148,804 for the three months ended June 30, 2021, representing a significant decrease of approximately 53%. The significant decrease was mainly due to the net effect of the decrease in net foreign exchange losses, lease expenses and legal and professional fees.
Interest expenses
Interest expenses mainly included other loans interest, related party loan interest and bond interest arising from convertible bonds.
Interest expenses decreased from $54,193 for the six months ended June 30, 2020 to $42,832 for the six months ended June 30, 2021, representing a decrease of approximately 21%. The decrease was mainly due to the decrease in convertible bond interest.
For the three months ended June 30, 2021, interest expenses decreased from $24,373 to $21,729 for the three months ended June 30, 2021, representing a decrease of approximately 11%. The decrease was mainly due to the decrease in convertible bond interest.
Net loss
As a result of the factors described above, we had a net loss of $443,406 for the six months ended June 30, 2021 as compared to $780,008 for the six months ended June 30, 2020, representing a decrease of approximately 43%. Also, we had a net loss of $270,738 for three months ended June 30, 2021 as compared to $353,377 for the three months ended June 30, 2020, representing a decrease of approximately 23%. Although we had nil revenue in the first six months in 2021, the net loss resulted mainly from the net effect from increase in exploration cost, decrease in selling and distribution costs and decrease in net foreign exchange losses.
Liquidity and Capital Resources
Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. As of June 30, 2021 and December 31, 2020, the Company’s cash was $133,522 and $69,401, 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 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 parties loans, and proceeds from issuance of common stock.
We expect to continue to make capital expenditures to maintain minimal operations on our mining sites, which are funded by issuance of convertible bonds and other loans in the future. We expect that the proceeds from the above and our existing cash 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 to obtain financing, if at all or upon terms that will be acceptable to us.
Cash Flows
As of June 30, 2021, we had $133,522 in cash and cash equivalents, as compared to $69,401 on December 31, 2020.
Net cash generated from operating activities
The net cash flow from operating activities has reversed from a net cash outflow of $633,025 for the first six months of 2020 to a net cash inflow of $30,679. Net cash generated from operating activities for the first six months of 2021 primarily reflected our net loss of $443,406 and the add-back of non-cash items, mainly consisting of depreciation of property, plant and equipment of $22,739, loss on disposal of property, plant and equipment of $2,197, amortization of non-cash interest expenses and bond discount related to convertible bonds of $1,354, non-cash interest expenses related to other loans of $9,908, and changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $154,410, a decrease of other receivables of $37,751, an increase of deposits and prepayments of $112,361, and an increase of trade and other payables of $170,486.
Net cash used in investing activities
Our net cash used in investing activities decreased significantly to $2,697 for the first six months of 2021 from $15,692 for the first six months of 2020. This was represented by the net effect of acquisition of property, plant and equipment at mine sites and proceeds from disposal of property, plant and equipment.
Net cash provided by financing activities
Our net cash provided by financing activities decreased significantly to $36,098 for the first six months of 2021 from $612,599 for the first six months of 2020. This was mainly the result of a decrease in advances from stockholders of $267,497 and no proceeds from other loan and issuance of convertible bonds in the first six months of 2021.
Future Financings
We anticipate continuing to rely on related party and unrelated party loans 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. 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 other loans, 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.
Going Concern
The Company incurred an operating loss of $443,406 for the six months ended June 30, 2021, and as of that date, the Company’s current liabilities exceeded its current assets by $1,632,367. Notwithstanding the operating loss incurred for the six months ended June 30, 2021 and the net current liabilities as of June 30, 2021, 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 management expects the formal production will gradually resume after the Precautionary Measures in Mongolia are relaxed. 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. The ability of the Company to emerge from the exploration stage depends upon the success management's plans. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.