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.
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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.
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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.
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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 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.
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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.
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TGS INTERNATIONAL LTD. 
