UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended June 30, 2021

or

For the transition period from ____________ to ____________

Commission File Number 333-217451

(+852) 2116-3863

(Registrant’s telephone number, including area code)

Former address

Room 20, 8/F., Woon Lee Commercial Building, 7-9 Austin Ave., Tsim Sha Tsui, Kowloon, Hong Kong

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes     ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes     ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. (Check one)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes     ☒ No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ☐ YES     ☐ NO

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

14,962,298 shares of common stock issued and outstanding as of August 6, 2021.

TGS INTERNATIONAL LTD.

FORM 10-Q

TABLE OF CONTENTS

Contents

PART I – FINANCIAL INFORMATION

The accompanying notes are an integral part of these interim consolidated financial statements.

The accompanying notes are an integral part of these interim consolidated financial statements.

The accompanying notes are an integral part of these interim consolidated financial statements.

The accompanying notes are an integral part of these interim consolidated financial statements.

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021.

Our management, with the participation of our chief executive officer (our principal executive officer) and chief financial officer (principal accounting officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer (our principal executive officer) and chief financial officer (principal accounting officer and principal financial officer) concluded that, as of the end of such period, our disclosure controls and procedures were effective to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Evaluation of Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our president and chief executive officer (our principal executive officer) and chief financial officer (principal accounting officer and principal financial officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

An evaluation of the effectiveness of our internal control over financial reporting, with the participation of our president and chief executive officer (our principal executive officer) and chief financial officer (principal accounting officer and principal financial officer), will be conducted annually in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above during the six months ended June 30, 2021 that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting. Management concluded that as of June 30, 2021, our Company’s internal control over financial reporting was effective.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

Item 1A. Risk Factors

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On May 11, 2021, we changed independent accountants from Moore Stephens CPA Limited to MSPC Certified Public Accountants and Advisors, P.C. In our three most recent fiscal years, there were no changes in and no disagreements with either of our principal independent accountants on any matters with regard to our accounting and financial disclosure.

Item 6. Exhibits

_________

*Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.