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. 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 and have been ongoing since that time.
Due to the global outbreaks of COVID-19 pandemic (the "Pandemic"), since
February 2020, the Mongolian Government has implemented various precautionary
measures, including but not limited to closing ports of entry from and into
China until May 31, 2021 ("Precautionary Measures"). The Mongolian Government
proposes to lift the measure on May 31, 2021. Our business could be materially
and adversely affected, and may continue to affect, by the outbreak of a
widespread Pandemic, causing labor shortages and increasing government
regulations, all of which may negatively impact the business, financial
condition, growth strategies and results of operations of the Company.
Our operation of Mine B, which generates major operation income for the Company,
has been suspended since late November 2019 due to the regular winter break and
the outbreak of COVID-19 since the first quarter of 2020. There has been
extremely low operation income for the year ended December 31, 2020 which was
generated mainly from Mine A and there was no operation income in the first
quarter in 2021 from Mine A as it was 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. Further,
there were high expenses in our three offices: the Hong Kong headquarters, the
Erenhot office in China and the Mongolian office.
The construction of the refinery at Mine B was completed in late November 2019
while the last step of power supply upgrade at Mine B is still in progress. We
expect to get the power supply upgraded in 2021 once our Chinese workers are
permitted to enter Mongolia. The entire refinery could be put to trial once it
is ready.
The resolution of current Pandemic remains uncertain - as well as the
government's response to the changing situation. The global economic outlook for
2021 remains pessimistic, given it dependency on the future development 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 on 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 and unpredictable.
Currently, we have been strictly prudent towards 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.
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Results of Operations
Comparison of the Three Months Ended March 31, 2021 and 2020
Revenue
Revenue consisted mainly of fluorspar products generated from the productions at
Mine A. For the three months ended March 31, 2021, we had nil revenue, as
compared to a total $53,963 revenue in the three months ended March 31, 2020.
The decrease was due to no sales activities due to the Precautionary Measures
imposed by the Mongolian Government due to the Pandemic.
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 $53,392 for the first three months in 2020 to $4,147 for the
first three months in 2021. The decrease was mainly due to the decrease in
construction service fee as no operating activities were carried out.
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 $46,637 for the first three months in 2020 to
$8,560 for the first three months in 2021. The 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 $341,530 for the first
three months in 2020 to $129,838 for the first three months in 2021. The
significant decrease was mainly due to the net effect of the decrease in net
foreign exchange losses and the decrease in lease expenses and legal and
professional fees.
Interest expenses
Interest expenses mainly included other loan interest, related party loan
interest and bond interest arising from convertible bonds.
Interest expenses decreased from $29,821 for the first three months in 2020 to
$21,103 for the first three months in 2021. The decrease was due to the
convertible bond interest.
Net loss
As a result of the factors described above, we had a net loss of $172,668 for
the three months ended March 31, 2021 as compared to $426,631 for the three
months ended March 31, 2020. Although we had nil revenue in the first three
months in 2021, the net loss resulted mainly from the decrease in exploration
cost, selling and distribution cost and net foreign exchange losses.
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Liquidity and Capital Resources
Cash and cash equivalents are short-term, highly liquid investments with
original maturities of three months or less. As of March 31, 2021 and December
31, 2020, the Company's cash was $76,470 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 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 parties 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 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 March 31, 2021, we had $76,470 in cash and cash equivalents, as compared
to $69,401 on December 31, 2020.
Net cash used in operating activities
Our net cash used in operating activities decreased significantly to $10,151 for
the first three months of 2021 from $458,546 for the first three months of 2020.
Net cash used in operating activities for the first three months of 2021
primarily reflected our net loss of $172,668 and the add-back of non-cash items,
mainly consisting of depreciation of property, plant and equipment of $11,811,
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
$3,383, non-cash interest expenses related to other loans of $17,543, and
changes in operating assets and liabilities primarily consisting of a decrease
in accounts receivable of $119,310, an increase of other receivables of $37,677,
an increase of deposits and prepayments of $63,111, and a decrease of trade and
other payables of $16,232.
Net cash used in investing activities
Our net cash used in investing activities increased to $2,697 for the first
three months of 2021 from $1,373 for the first three months of 2020. This was
represented by 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 $19,929
for the first three months of 2021 from $487,065 for the first three months of
2020. This was mainly the result of decrease in advances from stockholders of
$111,165 and no proceeds from other loan and issuance of convertible bonds in
the first three months of 2021.
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 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 $172,668 for the three months ended
March 31, 2021, and as of that date, the Company's current liabilities exceeded
its current assets by $1,384,100. Notwithstanding the operating loss incurred
for the three months ended March 31, 2021 and the net current liabilities as of
March 31, 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 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 mid-2021. 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.
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TGS INTERNATIONAL LTD. 
