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 has not contributed any revenue yet.
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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 2022, in terms of labor supply and downsizing government regulations, all of
which may positively affect to the business, financial condition, growth
strategies and results of operations of the Company.
The operation of Mine B, which generally generated the majority of the 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. Due to
gradual loosening of limitations on entry ports in Mongolia, the workers have
arrived at both mining sites for the preparation work in October 2021.
The construction of the refinery at Mine B was completed in November 2019. Its
power supply upgrade was completed in September 2021 and it is currently
awaiting the inspection and approval of the Mongolia government. With the
arrival of the workers, the preparation work was resumed in October 2021. It is
expected that the construction of the refinery is able to operate steadily in
the coming winter break in 2021.
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
Precautionary 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 Nine Months Ended September 30, 2021 and 2020
Revenue
For the nine months ended September 30, 2021, we had nil revenue due to no sales
activities under the Precautionary Measures imposed by the Mongolian Government.
Revenue of $107,351 in the nine months ended September 30, 2020 consisted mainly
of fluorspar products generated from the trial productions at Mine A.
For the three months ended September 30, 2021, the decrease compared to the
three months ended September 30, 2020 is similar to the discussion above.
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Exploration costs
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 nine months ended September 30, 2021, exploration costs increased from
$114,454 to $225,211, representing a significant increase of approximately 97%
as compared to the nine months ended September 30, 2020. The significant
increase was mainly due to salaries incurred preparing for the opening of the
border and maintaining minimal operations. Operating activities in 2020 were
reduced significantly due to the Pandemic.
For the three months ended September 30, 2021, exploration costs increased from
$15,074 to $112,729, representing a significant increase of approximately 648%,
as compared to the three months ended September 30, 2020. The reason for such
significant increase was similar to the discussion above.
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.
Selling and distribution costs decreased from $64,043 for the nine months ended
September 30, 2020 to $48,409 for the nine months ended September 30, 2021,
representing a decrease of approximately 24%. The decrease was mainly due to the
decrease in royalty tax paid to the Mongolian Government due to the minimal
operations during the Pandemic.
Selling and distribution costs increased from $7,415 for three months ended
September 30, 2020 to $32,882 for the three months ended September 30, 2021,
representing a significant increase of approximately 343%. The significant
increase was mainly due to business travelling cost of the workers for
preparation of the resumption of mining work.
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 from $927,545 for the nine months ended
September 30, 2020 to $407,587 for the nine months ended September 30, 2021,
representing a significant decrease of approximately 56%. The significant
decrease was mainly due to the net effect of the decrease in net foreign
exchange losses, lease expenses and directors' remuneration.
For the three months ended September 30, 2021, administrative expenses decreased
from $267,711 to $128,945 for the three months ended September 30, 2021,
representing a significant decrease of approximately 52%. The significant
decrease was mainly due to the net effect of the decrease in net foreign
exchange losses, lease expenses and directors' remuneration.
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Interest expenses
Interest expenses mainly included other loans interest, related party loan
interest and bond interest arising from convertible bonds.
Interest expenses decreased from $74,888 for the nine months ended September 30,
2020 to $67,241 for the nine months ended September 30, 2021, representing a
decrease of approximately 10%. The decrease was mainly due to the decrease in
convertible bond interest.
For the three months ended September 30, 2021, interest expenses increased from
$20,695 to $24,409 for the three months ended September 30, 2021, representing
an increase of approximately 18%. The increase was mainly due to the increase in
loan from shareholder since the first quarter of 2021.
Net loss
As a result of the factors described above, we had a net loss of $750,242 for
the nine months ended September 30, 2021 as compared to $1,083,705 for the nine
months ended September 30, 2020, representing a decrease of approximately 31%.
Also, we had a net loss of $306,836 for three months ended September 30, 2021 as
compared to $303,697 for the three months ended September 30, 2020, representing
an increase of approximately 1%. Although we had nil revenue in the first nine
months in 2021, the net loss resulted mainly from the net effect from an
increase in exploration cost, a decrease in selling and distribution costs and a
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 September 30, 2021 and
December 31, 2020, the Company's cash was $201,136 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 we expect will be 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.
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Cash Flows
As of September 30, 2021, we had $201,136 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 $687,547 for the first nine months of 2020 to a net cash inflow of $12,257
for the nine months ended September 30, 2021. Net cash generated from operating
activities for the first nine months of 2021 primarily reflected our net loss of
$750,242 and the add-back of non-cash items, mainly consisting of depreciation
of property, plant and equipment of $33,401, 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 $21,109, and changes in operating assets and
liabilities primarily consisting of an increase in accounts receivable of
$373,755, a decrease of other receivables of $25,702, an increase of deposits
and prepayments of $108,101, and an increase of other payables of $79,984.
Net cash used in investing activities
Our net cash used in investing activities decreased significantly to $2,697 for
the first nine months of 2021 from $82,558 for the first nine 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
$122,216 for the first nine months of 2021 from $750,778 for the first nine
months of 2020. This was mainly the result of a decrease in advances from
stockholders of $384,783 and no proceeds from other loan and issuance of
convertible bonds in the first nine months of 2021.
Future Financings
We anticipate continuing to rely on related party and other 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, related party and other loans during the
period, 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.
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Going Concern
The Company incurred an operating loss of $750,242 for the nine months ended
September 30, 2021 and, as of that date, had a working capital deficit of
$1,792,929 and a net deficit $209,978. Notwithstanding the operating loss
incurred for the nine months ended September 30, 2021, the net current
liabilities and net deficit as of September 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 ability of the Company to emerge from the
exploration stage depends upon the success of 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. The
management expects formal production will gradually resume after the
Precautionary Measures in Mongolia are relaxed. Based on our current level of
operations, the management believes its future cash flows from operating
activities and existing balances of cash will be sufficient to meet our cash
requirements for at least the next 12 months. Future operating activities are
expected to be funded by loans from directors, major shareholders and related
parties until we have ongoing sources of revenue.
Operating and Capital Expenditure Requirements and Contractual Obligations
There have been no material changes to our operating and capital expenditure
requirements and contractual obligations during the nine-months ending September
30, 2021.
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