EDGAR 10-K Filing

Company CIK: 1701859
Filing Year: 2021
Filename: 1701859_10-K_2021_0001640334-21-000617.json

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ITEM 1. BUSINESS
Item 1. Business
General Overview
The Company was established on December 1, 2016 in Nevada, USA. On September 14, 2018, the Company and Arcus Mining Holdings Limited (“Arcus”) entered into a Share Exchange Agreement, dated September 14, 2018 (the “Share Exchange Agreement”), with 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, through its wholly owned subsidiaries, is engaged in the exploration, mining, processing and sale of fluorite in Mongolia.
Arcus currently owns three fluorite projects through its subsidiaries. Its official mining licenses in Mongolia are shown below:
Details of Three Fluorite Projects transferred to the Company by Arcus
Mining Project
Fluorite
Reserves
Covered
Area
License No.
Expiration
Date
Current
Status
Altan Ovoo
(Mine A)
To be explored
39.35 hectares
(97.24 acres)
MV-009918
December 29, 2034
In exploration stage. Trial production has been in place since 2019.
Oosmonskogo 1
(Mine B)
To be explored
98.37 hectares
(243.08 acres)
MV-016819
April 28, 2041
In exploration stage since 2015. Trial production has been in place since 2018.
Oosmonskogo 2
(Mine C)
To be explored
300.96 hectares
(743.69 acres)
MV-017305
April 23, 2043
Ready for exploration.
According to the staged exploration results, there are abundant resources as well as a large potential to expand the resource base of the mines, laying a solid foundation for the sustainable development of the Company.
Arcus strives to create more value through efficiency in mining. The initial expected annual production capacity of fluorite (“CaF2”) for 2021 and 2022 is described below:
Type
Metallurgical Grade
Acid Grade
CaF2 Content
40%
80% to 90%
97%
Estimated Capacity in 2021
35,000 tons
8,000 tons
10,000 tons
Estimated Capacity in 2022
40,000 tons
8,000 tons
9,000 tons
Final Product
Granule
Granule/Powder
Powder
Arcus intends to start producing 97% Acid Grade powder products and further increase the production of the metallurgical grade products in third quarter of 2021.
Nevertheless, there are several areas where Arcus expects to outperform the market:
·
Abundant fluorite resources for a long-term sustainable business; and
·
Experience in mine construction, mining and marketing of fluorite.
In summary, the Company intends to make full use of Mongolia’s fluorite resource advantages and market under the guidance of our experienced management team.
Arcus Company Background
The founders and the management of Arcus have extensive experience in the mining industry in Africa, China, Russia and Mongolia. Their industrial experience includes exploration, mining and mineral investment. With extensive experience in the manufacture and sale of fluorite and related products, Arcus believes the Company will be able to produce the raw material needed for various high standard industrial products, including the manufacture of acid grade fluorite, metallurgical grade fluorite and more.
To meet ever-changing demands from customers, Arcus established a management team comprised of several experienced persons in the industry, as well as financial and marketing experts from international and local markets. The mines use advanced production equipment to produce high-quality products for the market.
In 2014, the Mongolian Parliament waived several restrictions on issuing new minerals exploration licenses and introduced a series of new regulations to encourage foreign investments in the Mongolian mining sector. Arcus is well positioned to take advantage of new opportunities in this promising business environment.
Arcus Company Structure
Arcus indirectly holds three fluorite projects in Mongolia through its wholly owned subsidiaries incorporated in Hong Kong, namely Best Metro (Hong Kong) Limited, China Aim (Hong Kong) Limited, which in turn wholly own Mongolian based fluorite mining companies Khan Shashir LLC (“Khan Shashir”), Shek Hung Gold LLC (“Shek Hung”) respectively. Arcus Hong Kong Limited wholly own the PRC based Best Metro Import & Export Trading (Inner Mongolia) Limited as a trading arm.
The demand for metallurgical grade fluorite in China and other Asian countries currently exceeds supply, and current market conditions are expected to continue for the foreseeable future, creating excellent opportunities for the Company. Inherent uncertainties in the mining industry as well as the changing legal and political environment in Mongolia potentially bring additional business risks, as detailed under “Risk Factors” below.
Shek Hung currently owns a project called Altan Ovoo, while Khan Shashir owns the mines Oosmonskogo 1 and Oosmonskogo 2.
Mining Licenses
The three fluorite projects in Mongolia are Altan Ovoo (“Mine A”), Oosmonskogo 1 (“Mine B”) and Oosmonskogo 2 (“Mine C”).
The three projects have all been issued official mining licenses. The mining licenses allow the right to conduct mining activities throughout the license areas and to construct structures within the license areas that are related to its mining activities.
Mine A is located in Uulbayan soum, Sukhbaatar province, 530 kilometers (“km”) from Ulaanbaatar, the capital of Mongolia. Mine A’s mining license, reference number MV-009918, is valid until December 29, 2034. Mine A covers an area of 39.35 hectares (97.24 acres).
Mine B is located in the Bayan-Ovoo soum, Khentii province, 440 km from Ulaanbaatar. Mine B’s license, reference number MV-016819, is valid until April 28, 2041. Mine B covers an area of 98.37 hectares (243.08 acres).
Mine C is adjacent to Mine B. Mine C’s license, reference number MV-017305, is valid until April 23, 2043. Mine C covers an area of 300.96 hectares (743.69 acres).
The location map of Mines A, B and C are shown below:
Resources and Reserves
After years of exploration, a significant potential for high grade fluorite resources for Mine A and Mine B has been positively demonstrated.
The historic exploration of Mine A and Mine B can be divided into three phrases:
·
An investigation conducted by the former Soviet Union governmental agencies in the last century;
·
An investigation conducted by an independent consultant from the United States in 2012; and
·
An investigation conducted by SRK Consulting in 2014, a leading mining consulting services provider.
Arcus’ own geological team will continue to search for other resources through continued exploration in the areas surrounding existing deposits.
Mine A
Phase 1: Investigation conducted by former Soviet Union government agencies in 1980’s
The former Soviet Union politically governed Mongolia between 1925 and 1991. Its governmental agencies performed the first systematic exploration on Mine A between 1985 and 1987. Only one vein was located, east-trending with a strike length of 600 to 700 meters. The major work performed included drilling and digging six trenches three to four meters deep along the vein.
Phase 2: Investigation conducted by an independent surveyor in 2012
Since the date of the report by the Soviet Union governmental agencies, 27 new holes were drilled (2,916 m) underneath the trenches excavated in the 1980s to investigate the resource in Mine A. Most holes were drilled vertically or at an angle of 60° to the north, as the vein dips approximately 45° to the south.
Phase 3: Investigation conducted by SRK Consulting
Considering the advice from the independent explorer on the possibility of re-drilling some core holes to increase output of Mine A and Mine B, Arcus formally engaged SRK Consulting to perform a formal survey on both mines.
In late 2014, a specialist from SRK Consulting visited both Mine A and Mine B. SRK Consulting collected 43 extra drill core samples in Mine A during its visit. The finding by SRK Consulting is at a better grade with an average CaF2 of 34%.
Mine B
Phase 1: Investigation conducted by former Soviet Union government agencies in 1930s to 1950s
Former Soviet Union governmental agencies performed the first systemic exploration on Mine B in 1937 and continued until approximately 1950. The main vein located was north-striking. It was traced by trenching and defined to be at least 400 meters in length in the 1940’s.
Major work performed in Phase 1 included:
1.
Over 160 trenches dug along the vein surface, which are now mostly deteriorated;
2.
Over 35 vertical drill holes; and
3.
A 35-meter underground tunnel along the main vein zone.
Phase 2: Investigation conducted by an independent surveyor in 2012
The Company has drilled 9 vertical core holes with an aggregate length of 877 meters in 2011 to update information on Mine B. Based on the samples obtained from the 9 vertical core holes drilled and assays of 4 drill hole cores in the Soviet Union period.
Phase 3: Investigation conducted by SRK Consulting
During the site visit to Mine B, the specialist consultant from SRK Consulting observed that most of the fluorite ores in Mine B have a grade of more than 90% CaF2 and could be used for ornamental and lapidary purposes.
Based on the samples taken by SRK Consulting, the average grade of CaF2 is 67%.
Mine C
No exploration or resource estimate has been done on Mine C, but initial surface investigations suggest that the resource of Mine B may extend onto the license of Mine C.
Future development
The Company is planning to continue with a second round of exploration in Mine A and Mine B and start a first round of exploration in Mine C. The primary objective would be to gain a better understanding of the geological structure to assist in mine planning and to upgrade the identified inferred resource to the indicated resource category.
According to SRK Consulting, the drill holes in Mine A do not provide consistent coverage of all areas. Therefore, another round of exploration would allow a more detailed understanding of the resource allocation and help upgrade much of the inferred resource into the indicated resource category. Full feasibility studies for Mine A and Mine B will be prepared once it’s the right time. These feasibility studies will be conducted by external specialist consultants together with Arcus’ experienced team.
Mine C is adjacent to Mine B, and given the large cover area of Mine C, we are optimistic regarding the resources of Mine C. Based on preliminary estimates by the geologists, it is possible that the resource of Mine C could be greater than that of Mine B. Conducting a thorough exploration of the resource will allow better planning on mining Mine C and ensure sustainability of the Company’s growth.
Operations
Both Mine A and Mine B were in the exploration stage in 2020. Revenue generated during the year was $753,694 by Mine A and nil by Mine B. We expected to further extend the operation of Mine A and Mine B in the third quarter of 2021.
There are two types of products available from Mine B, metallurgical and acid grade fluorite. Metallurgical grade fluorite is sold mainly to steel manufacturers for use as flux in steel production. Acid grade fluorite which is used to manufacture hydrofluoric acid, a feedstock for many different chemical processes. At the moment, there is only metallurgical grade fluorite available from Mine A.
The Company ran trial productions at Mine A in 2020. Below is the summary of revenue for 2020 from the trial productions.
Type of Finished Products
Grade Mined
Quantities
(In tons)
Mining
Recovery
Average
Price (USD)
Metallurgical Fluorite
Concentration 32% - 50%
57,247
%
13.17
Workflow of Operations
The operation at Mine A and Mine B of the Company involves several steps as shown below:
Mine Preparation
Preparing a mine involves investigation, exploration, evaluation and the construction of necessary infrastructures and utilities facilities, among other tasks.
Both Mine A and Mine B are now equipped with the necessary facilities, but the infrastructure in Mine B is more comprehensive. The basic facilities information of Mine A and Mine B is shown below:
Mine A
Mine B
Water Resources
Drilled water wells
Drilled water wells
Electricity Resources
Local wind turbine generators
Bayan-Ovoo soum electrical power grid
Mining Method
Open pit mining
Underground mining
Shafts
Not applicable
4 in production
Water Resources
It is probable that there is sufficient water from drilled wells for mining and processing operations in Mine A and Mine B. Several such wells have been completed at both Mine A and Mine B. All the water will be recycled, but in the dry climate, evaporation is high.
Electricity Resources
Mine B is currently connected to the Bayan-Ovoo soum electrical power grid. Power generation in Mine A is currently supported by a set of wind turbines. Both Mine A and Mine B have sufficient power to meet daily usage, and each has two sets of contingent diesel generators.
Infrastructures
At Mine B, the construction of offices, living quarters and explosive stores has been completed. Of the four shafts built in Mine B, one shaft and the other shaft has been excavated with a 150 meter long and 180 meter long development drive in the fluorite ore respectively. There was no vertical development in 2020. Construction on excavating an underground tunnel to connect the four shafts was completed in 2019.
Mining activities are halted for the winter break, which takes place between January and March every year. Since mining activities are conducted underground, which is more dependent on the weather condition, the winter break for the mining activities is one month longer than the winter break for the production line. We have adopted open-pit mining at Mine A which is different from Mine B. Although mining activities are subject to weather, open-pit mining is more flexible. Production of both Mine A and Mine B is to be continued after the winter break. Mine B is expected to commence after the gate of Mongolia open.
Mine A is planned as an open pit mine because the mineralization outcrops on the surface are relatively easy to begin mining. Four temporary offices and storage containers have been set up at Mine A. Since the resource in Mine A is large, management plans to develop Mine A in stages. Mining of the open pit has been commenced in 2019, while the deeper ores will be subjected to further exploration.
Mine A is originally planned to produce fluorite powder. However, in order to cope with our business development, the management decided to put the construction of refinery at Mine A on hold for now. Once it is the suitable time for further expanding our business, the management may resume the plan of the construction of refinery at Mine A.
Mining
A strategic open pit exploration at Mine A has been started since 2019. The refinery operations described below apply only to Mine B but can serve as a general reference regarding the future production of Mine A. Starting from year 2019, we have outsourced the mining activities to subcontractors.
Refining
The Company will not outsource its core fluorite processing to third parties but rather work together with the strategic partners. Major fluorite processing of metallurgical grade fluorite includes gravity separation, which refines the fluorite granules, followed by sorting the granules by sizes in accordance with a customer’s needs.
The major machines employed in Mine B are the shakers and the jiggers. A jigger is a vertical container where a pulsing action divides ores into different layers according to their densities. When sorted by a shaker, ore is placed on a horizontal water surface, and the shaker applies longitudinal forces. As ores of different densities respond to longitudinal forces, they are sorted accordingly. Both shakers and jiggers are common tools in conducting gravity selection, but jiggers mainly divide coarse ores into different size groups (30 mm - 80 mm) and shakers mainly refine smaller ores (3 mm - 10 mm or 1 mm - 3 mm).
Sales and Marketing
From 2015 throughout 2020, the mines have still been in exploration stage so the Company decided to sell metallurgical grade fluorite within the territory of Mongolia to avoid incurring cross-border freight and transportation. The Company would like to further expand its production in the third quarter of 2021. Some of the ultimate target customers include foreign steel manufacturers.
Customers
The Company intends to develop a pool of customers to reduce its distribution risk. The Company’s targeted customer base is set forth below:
·
Korean steel manufacturers;
·
Chinese steel manufacturers;
·
Other foreign steel manufacturers (e.g., Japanese, Indian, American, etc.);
·
Online sales platforms;
·
Fluorochemical companies, mainly in China due to large demand;
·
Chinese and other foreign aluminum manufacturers.
The Market for Fluorite in Mongolia
Fluorite and its Applications
Fluorite, commercially termed as fluorspar, is a transparent halide mineral of various colors, composed primarily of calcium fluoride (CaF2). Fluorite is the dominant source for the chemical element fluorine. Due to its unique chemical properties, fluorine is largely irreplaceable in its use. The major applications of fluorite and the corresponding requirement of content percentage are summarized below:
Most of the world demand for fluorite is for acid-grade fluorite, which is used to manufacture hydrofluoric acid, a feedstock for many different chemical processes. The second greatest demand is for metallurgical grade fluorite, used as flux in steel and aluminum production. A small portion is produced as ceramic grade fluorite for the manufacture of ceramics and enamels due to the high content percentage requirement.
Competition
There are a number of listed companies that are primarily focused on mining fluorite. We have presented them in the table set forth below.
Comparable company
Mexichem
China King Resources
Do-Fluoride
Country
Mexico
China
China
Exchange Listed
Mexico
Shanghai
Shenzhen
Location of fluorite deposit
Mexico
China
China
Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements
Licenses
The three projects owned by the Company all hold official mining licenses from the Mineral Resources and Petroleum Authority of Mongolia. The mining licenses allow the holder the right to conduct mining activities throughout the license areas and to construct structures within the license areas that are related to its mining activities.
Mine A is located in Uulbayan soum, Sukhbaatar province, 530 kilometers from Ulaanbaatar, the capital of Mongolia. Mine A’s mining license, reference number MV-009918, is valid until December 29, 2034. Mine A covers an area of 39.35 hectares (97.24 acres).
Mine B is located in the Bayan-Ovoo soum, Khentii province, 440 kilometers from Ulaanbaatar. Mine B’s license, reference number MV-016819, is valid until April 28, 2041. Mine B covers an area of 98.37 hectares (243.08 acres).
Mine C is adjacent to Mine B. Mine C’s license, reference number MV-017305, is valid until April 23, 2043. Mine C covers an area of 300.96 hectares (743.69 acres).
Government Approval and Regulation of the Company’s Principal Products or Services
The Mineral Law of Mongolia governs our operations. The Company endeavors to ensure the safe and lawful operation of its facilities in its operations and the distribution of its products and believes it is in compliance in all material respects with applicable laws and regulations.
Employees
The Company currently has approximately 40 employees.
Principal Executive Offices
Our principal executive office is located at Room 20, 8/F., Woon Lee Commercial Building, 7-9 Austin Ave., Tsim Sha Tsui, Kowloon, Hong Kong.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Risks Related to our Business
Our limited operating history makes it difficult to evaluate our future prospects and results of operations.
The Company is in the process of developing its mines and bringing its fluorite products to the market. Accordingly, we have a limited operating history. You should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving geographical areas such as Mongolia. Some of these risks and uncertainties relate to our ability to:
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offer products of sufficient quality to attract and retain a larger customer base;
·
attract additional customers and increase spending per customer;
·
increase awareness of our products and continue to develop customer loyalty;
·
respond to competitive market conditions;
·
respond to changes in our regulatory environment;
·
maintain effective control of our costs and expenses;
·
raise sufficient capital to sustain and expand our business; and
·
attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the risk factors listed in this section and the following factors may affect our operating results:
·
Our ability to continue to attract customers;
·
Our ability to generate revenue from the products we offer;
·
The amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses; and
·
Our focus on long-term goals over short-term results.
Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results.
Our business operations may be adversely affected by present or future governmental regulations or political changes.
Mongolia, the country where the Company’s mines are situated, is currently undergoing rapid development. Our operations may be affected by changes to Mongolian regulation of the mining sector or changing levels of political involvement in mining.
The Mongolian Parliament passed an amendment to the Minerals Law on July 1, 2014 to ease certain restrictions on the mining industry and also to give some incentives to foreign mining companies and investors. These changes have clarified many areas of the law and settled issues around government interests in mines of national or strategic importance. These changes have brought potential benefits to the Company. Visits paid by Chinese president Xi Jinping to Mongolia have indicated Chinese support for strengthening cooperation between Mongolian and Chinese entities in the future. Corresponding lobbying by the Chinese government may help ensure that the Mongolian government respects the rights of foreign mining companies investing in Mongolia.
Our business operations may be adversely affected by the recent COVID-19
An outbreak of respiratory illness caused by COVID-19 in late 2019 and has been expanding globally. The Mongolian government officially announced that it will close all ports of entry from and into China with immediate effect since January 31, 2020. The above measure has been extended more than ten times throughout 2020 and prolonged until April 30, 2021. None of our Chinese workers could enter into Mongolia during 2020 which resulted in large-scale suspension of mining work, especially at Mine B.
The COVID-19 pandemic has impacted the global economy and created significant volatility and disruption of financial markets. We expect the COVID-19 pandemic to have a material adverse impact on our business and financial performance.
If our business does not generate sufficient cash flows from operating activities, we may not be able to cover our expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm our business.
The full extent of the COVID-19 pandemic’s impact on our business. The results of operations depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets and any new information that may emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, among others. Therefore, we cannot reasonably estimate the full extent of COVID-19 on our business and results of operations.
Deviations between inferred resources and actual mineable resources may have an adverse effect on the Company’s results.
Actual mine output usually deviates to a certain extent when compared to the inferred resource, as every estimation model is based on certain assumptions made in the calculation. In order to enhance estimation accuracy and maximize output quantity and quality, the Company engaged SRK Consulting, a leading mining consultant company, to conduct a detailed resource and reserve assessment. However, there can be no assurance as to the accuracy of SRK Consulting’s estimate.
Adverse weather conditions may limit the periods during which the Company may conduct its operations or may cause a disruption in its utilities or the delivery of its products to its customers.
Due to the severe weather in Mongolia during the winter, we have scheduled a regular winter break between January and March for mining activities and processing every year. However, it is possible that severe weather conditions may occur outside their normal range in some years, which would hinder the Company’s mining and production operations and require the extension of the scheduled winter break. Severe weather may also cause a disruption in the Company’s essential utilities. Although the production lines will be roofed to minimize the impact of severe weather and the Company will maintain a backstock of ore to reduce the chances of production suspension from interruptions in mining, there can be no assurance that these measures will be adequate to compensate for the effects of especially severe weather. As a further precaution, we will also maintain a sufficient inventory level in our Baganuur warehouse to secure a continuous supply to customers during the winter, but there can be no assurance that our rail and trucking transportation methods will not be disrupted by weather events.
We may suffer losses resulting from industry-related accidents.
Despite the safety precautions taken by the Company in its mining operations, there can be no assurance that we will not suffer losses resulting from industry-related accidents. To minimize the occurrence of industrial incidents, we regularly monitor mine site construction in order to identify and implement practical protective measures.
We may not be successful in implementing important strategic initiatives, which may have a material adverse impact on our business and financial results.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in a material adverse impact on our business and financial results. These strategic initiatives are designed to drive long-term stockholder value and improve our results of operations.
We face significant competition, and if we do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely affected.
Increased competition could reduce our profitability and result in a loss of market share. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources, and may successfully mimic and adopt our business models. We cannot assure you that we will be able to successfully compete against new or existing competitors.
Failure to manage our growth could strain our management, operational and other resources, which could materially and adversely affect our business and prospects.
We intend to expand our operations and plan to expand as rapidly as possible. The continued growth of our business will result in, substantial demand on our management, operational and other resources. In particular, the management of our growth will require, among other things:
·
increased sales and sales support activities;
·
improved administrative and operational systems;
·
enhancements to our information technology system;
·
stringent cost controls and sufficient working capital;
·
strengthening of financial and management controls; and
·
hiring and training of new personnel.
As we continue this effort, we may incur substantial costs and expend substantial resources. We may not be able to manage our current or future operations effectively and efficiently or compete effectively in new markets we enter. If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected.
Attracting skilled personnel are essential to growing our business.
We face competition for attracting skilled personnel. If we fail to attract and retain qualified personnel to meet current and future needs, this could slow our ability to grow our business, which could result in a decrease in market share.
We may need additional capital and we may not be able to obtain it at acceptable terms, or at all, which could adversely affect our liquidity and financial position.
We may need additional cash resources due to changed business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
·
investors’ perception of, and demand for, our securities;
·
conditions of the U.S. and other capital markets in which we may seek to raise funds;
·
our future results of operations, financial condition and cash flow;
·
Mongolian governmental regulation; and
·
economic, political and other conditions in Mongolia.
We do not have a majority of independent directors serving on our Board of Directors, which could present the potential for conflicts of interest.
We do not have a majority of independent directors serving on our Board of Directors. In the absence of a majority of independent directors, our executive officers could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our stockholders, generally, and the controlling officers, stockholders or directors. However, we are going to invite different professionals as our independent directors gradually.
We have limited insurance coverage.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited insurance products. We have determined that the risks of disruption or liability from our business, the loss or damage to our property, including our facilities, equipment and office furniture, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China except for insurance on some company owned vehicles. Any uninsured occurrence of loss or damage to property, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.
Similarly, although it has been 80 years since the introduction of insurance in Mongolia, the penetration of insurance is still low and its development is still immature which the insurance industry is still yet to be up to international standard. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in Mongolia except for insurance on some company owned vehicles. Any uninsured occurrence of loss or damage to property, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.
If we are unable to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of SOX 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Lack of experienced officers of publicly-traded companies may hinder our ability to comply with Sarbanes-Oxley Act.
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent auditor certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.
We incur increased costs as a result of being a public company.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC, has required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we incur additional costs associated with our public company reporting requirements. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate that there is a high probability of additional costs we may incur or the timing of such costs.
Risks Relating to Our Securities
There may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.
There is currently only a limited public market for our common stock, which is listed on the Over-the-Counter (“OTC”) Pink Sheets, and there can be no assurance that a trading market will develop further or be maintained in the future.
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Pink Sheet quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Our common stock may be considered a “penny stock” and may be difficult to sell.
The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.
The market for penny stocks has experienced numerous frauds and abuses, which could adversely impact investors in our stock.
OTC Pink Sheet securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTC Pink Sheet reporting requirements are less stringent than those of the stock exchanges or NASDAQ.
Patterns of fraud and abuse include:
·
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
·
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
·
“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
·
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
·
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
Our management is aware of the abuses that have occurred historically in the penny stock market.
We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be limited to the value of our stock. We plan to retain any future earnings to finance growth.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
The Company’s corporate headquarters is located at Room 20, 8/F., Woon Lee Commercial Building, 7-9 Austin Ave., Tsim Sha Tsui, Kowloon, Hong Kong. We believe that our existing mining and processing facilities in Mongolia, which are described above, are well maintained and in good operating condition, and will be sufficient for our production goals for the next year.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine and Safety Disclosure
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently traded on the OTC Pink Sheets under the trading symbol “TGSI”. There is a limited trading market in our securities.
Our transfer agent is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY, 11598, telephone: (212) 828-8436, fax: (646) 536-3179.
Holders
As of March 19, 2021, there were 88 holders of record of our common stock and 14,962,298 shares of our common stock were issued and outstanding.
Dividends
We have not declared or paid any cash dividends since inception. We intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future. There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
In 2020, there were four convertible bond agreements entered into between the Company, Arcus and third party investors. All of the four bonds matured in 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). In November 2019, one 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 was originally matured on May 25, 2020 with a conversion price of $3.60 per share. In May 2020, the Company signed an extension letter with the bondholder to extend the maturity date from May 25, 2020 to September 30, 2020. In September 2020, the Company signed an extension letter with the bondholder to further extend the maturity date from September 30, 2020 to April 30, 2021.
The shares issued in connection with the transactions were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant Section 4(a)(2) of the Securities Act and Regulation S promulgated thereunder.
Equity Compensation Plans
We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.
Purchases of Equity Securities by the Company
We did not purchase any of our shares of common stock or other securities during the fiscal year ended December 31, 2020.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
As a “smaller reporting company”, we are not required to provide the information required by this Item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This annual 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 audited 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-K. 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 annual report.
In this annual 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 annual 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 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. During 2015 to 2017, we were setting up infrastructure at Mine B and appointed SRK Consulting China Limited for resource exploration for 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.
The global COVID-19 situation shows no sign of improvement in most countries and regions. We expect that the global economy will take a considerably long time to stabilize and recover from the ongoing pandemic as the situation remains very volatile and uncertain. Although COVID-19 vaccines are now available, no side effects and 100% success rate are not guaranteed at this point and the World Health Organization and health experts have advised that COVID-19 will not be eradicated without effective treatment and vaccination.
Many countries around the world have imposed travel restrictions in response to the outbreak of COVID-19, including Mongolia. The Mongolian Government has implemented the measure of closing all ports of entry from and into China, effective until April 30, 2021. Continuously evolving government responses to the pandemic may create challenges for us. For example, the Mongolian Government has extended the measure of closing ports since early 2020, and has not changed their stance after reviewing more than ten times. It is difficult to predict if the Mongolian Government will further extend the measures in place. Our Chinese workers are not allowed to enter into Mongolia, which has led to no activity at Mine B. Furthermore, with limited operation income which is generated mainly from Mine A, is compounded with the high expenses in our three offices: the Hong Kong headquarters, the Erenhot office in China and the Mongolian office.
The Company is always ready and prepared for the ports to reopen - our office in Ulaanbaatar has liaised with the relevant government departments to prepare visa applications for our Chinese workers, in case workers are allowed to enter into Mongolia.
The construction of the refinery at Mine B was almost completed in late November 2019, while the last step of power supply upgrade at Mine B is still underway. We expect to get the power supply upgraded in 2021 once our Chinese workers are allowed to enter into Mongolia. The entire refinery could be put to trial once it is ready. Nonetheless, keeping workers safe is at the top of our priority. Paramount importance will be given to the health and safety of all of our workers, even if the Mongolian Government lifts the above measures.
In this unprecedented time, COVID-19 has transformed the world since earlier 2020, affecting every corner of society and shaking the global economy. The global economy has been dramatically impacted by the COVID-19 pandemic which continues to have a profound impact on our operations and markets around the world. Despite the unpredictable nature of the pandemic, our response has remained strong - the management has been endeavoring to do their best to minimize the negative impact on our operations and trial production. We have worked extremely hard and tried every single possible way to keep the Company’s operations running in these most challenging circumstances.
On September 22, 2020, two directors, Mr. Shaowei DENG and Miss Ka Yi POON, resigned from the Company for personal reasons.
On December 10, 2020, Mr. Chi Kin LOO was appointed as a director of the Company.
There were a total of four convertible bond agreements entered into between the Company, a subsidiary of the Company, Arcus Mining Holdings Limited (“Arcus”), and third party investors during 2020.
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).
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564).
On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710).
On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to a director of HK$430,855 (equivalent to $55,238).
Apart from the exploration and infrastructure work at the mine sites, the Company might consider further fund raising activities through the capital markets and from stockholders with the aim of speeding up the development of the Company.
Results of Operations
Comparison of Years Ended December 31, 2020 and December 31, 2019
Revenue
Revenue consisted mainly of fluorite products generated from production at Mine A. In 2020, we had total revenue of $753,694, as compared to revenue of $282,857 during 2019. The percentage of such increment was approximately 166% as a result of the adoption of open-pit mining at Mine A. This method is more flexible to cope with weather conditions. Although revenue in Mine A increased in 2020, nil revenue was generated from Mine B as a result of the closure of Mongolia since January 31, 2020 due to COVID-19.
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 $737,248 in 2019 to $467,745 in 2020. The percentage of such decrease was approximately 37% and was mainly because of the decrease in mining overheads and utilities cost as no operating activities were carried out in Mine B in 2020.
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 slightly from $105,279 in 2019 to $102,715 in 2020. The percentage of such decrease was approximately 2% and was mainly due to the net effect of the increase in tax paid to the Mongolian Government and the decrease in transportation costs.
Administrative expenses
Administrative expenses included salaries and benefits, consulting, audit, tax, legal, insurance, rent, utilities, net foreign exchange losses and other general operating expenses.
Administrative expenses decreased significantly from $1,645,900 in 2019 to $1,252,925 in 2020. The percentage of such decrease was approximately 24% and was mainly due to commission expenses related to subscription package in 2019, but nil was incurred in 2020, and also the net effect of the increase in net foreign exchange losses, and the decrease in staff salaries, entertainment, legal and professional fees, travelling and other general operating expenses in 2020.
Other income
Other income decreased significantly from $195,576 in 2019 to $31,958 in 2020. The percentage of such decrease was approximately 84% as a result of the net effect of a waiver of consultancy fee and a write back of receipt in advance due to the dissolution of our customer in 2019, but nil in 2020, and the increase of subsidies received from Hong Kong and Mongolian Governments in 2020 resulting from the outbreak of COVID-19 so as to ease the effects impacted on the corporation’s business.
Interest expenses
Interest expenses mainly included other loan interest, related party loan interest and bond interest arising from convertible bonds.
Interest expenses increased from $76,824 in 2019 to $124,040 in 2020. The percentage of such increment was approximately 61% and was mainly due to the net effect of the increase in amortization of non-cash interest expenses and bond discount related to the convertible bonds and non-current loan interest and the decrease in related party loans interest as a result of repayment of related party loans in 2019.
Net loss
As a result of the factors described above, we had a net loss of $1,218,463 for the year ended December 31, 2020 as compared to a net loss of $2,115,716 for the year ended December 31, 2019. The net loss decreased mainly resulted from the increase in revenue and decrease in cost on mining infrastructure project. This was within our management expectation since our mine is still under trial production and we expect to further increase the productions and revenue in 2021.
Liquidity and Capital Resources
Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. As of December 31, 2020 and 2019, the Company’s cash was $69,401 and $106,850, 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 party 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 and cash equivalents 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 obtain financing, if at all or upon terms that will be acceptable to us.
Cash Flows
As of December 31, 2020, we had $69,401 in cash and cash equivalents, compared to $106,850 on December 31, 2019.
Net cash used in operating activities
Our net cash used in operating activities decreased to $1,070,424 in 2020 from $1,228,886 in 2019. Net cash used in operating activities for the year ended December 31, 2020 primarily reflected our net loss of $1,218,463 and the add-back of non-cash items, mainly consisting of depreciation of property, plant and equipment of $48,884, loss on disposal of property, plant and equipment of $4,089, amortization of non-cash interest expenses and bond discount related to convertible bonds of $21,059, exchange difference of $327,779, non-cash interest expenses related to other loans of $17,603 and changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $727,979, an increase of other receivables of $68,596, an increase of deposits and prepayments of $48,607, decrease in accrued charges of $125,594 and offset by an increase of trade and other payables of $648,012, an increase in income tax payable of $23,212, an increase in provision for asset retirement obligations of $3,300 and an increase in provision for exploration asset compensation of $24,877.
Net cash used in investing activities
Our net cash used in investing activities decreased to $55,416 in 2020 from $976,818 in 2019. This was mainly due to a decrease of acquisition of property, plant and equipment at mine sites.
Net cash provided by financing activities
Our net cash provided by financing activities decreased to $1,092,060 in 2020 from $2,216,864 in 2019. This was mainly due to a decrease of proceeds from unrelated party loan, issuance of common stock and convertible bonds.
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 loans from others, 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, and capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The critical accounting policies we employ in the preparation of our consolidated financial statements are those which involve impairment of long-lived assets, intangible assets and income taxes.
Below, we discuss these policies further, as well as the estimates and judgments involved. We believe that our other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For a discussion of all our significant accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this Annual Report.
Impairment of Long-Lived Assets and Intangible Assets
Long-lived assets held and used by the Company and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets calculated using a discounted future cash flows analysis.
Income Taxes
The Company complies with ASC 740 which prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of ASC 740. The Company’s accounting policy is to treat interest and penalties as a component of income taxes.
Amounts in the consolidated financial statements related to income taxes are calculated using the principles of ASC 740 and ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASC 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting bases and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Future tax benefits, such as net operating loss carry forwards, are recognized as deferred tax assets. Recognized deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Going Concern
The Company incurred an operating loss of $1,218,463 for the year ended December 31, 2020, and as of that date, the Company’s current liabilities exceeded its current assets by $1,262,026. Notwithstanding the operating loss incurred for the year ended December 31, 2020 and the net current liabilities as of December 31, 2020, 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 Company’s business forecast indicates that the Company will have positive cash inflow after the commencement of formal production in 2022. 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements, together with the report of our independent registered public accounting firm, begin on page 21 of this Annual Report and are incorporated herein by reference.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of TGS International Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TGS International Ltd. and subsidiaries (collectively, the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty related to Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered an operating loss of $1,218,463 for the year ended December 31, 2020, and as of that date, the Company’s current liabilities exceeded its current assets by $1,262,026, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the Board of Directors and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment assessment of property, plant and equipment (“PPE”)
Critical Audit Matter Description
As described in Notes 2 and 3 to the consolidated financial statements, management reviews and evaluates the net carrying amount of property, plant and equipment for impairment upon the occurrence of events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. The test for recoverability is based on undiscounted future cash flows that will be generated from operations at each mining site. The total PPE balance was $2,307,570 as of December 31, 2020. Management performed a carrying amount analysis and concluded the undiscounted cash flows and estimated value of the PPE exceeded their carrying amounts and an impairment was not recognized. The carrying amount analysis is sensitive to the assumptions used including quantities of recoverable minerals, expected fluorite prices, production levels and operating cost of production and capital, based upon the projected remaining future fluorite production from each mining site.
We identified PPE as a critical audit matter because of the significant estimates and assumptions management makes in developing the undiscounted cash flows. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecast quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital of each mining site.
How the Critical Audit Matter Was Addressed in the Audit
Our primary procedures related to address this critical audit matter included:-
·
We evaluated the reasonableness of management’s assumptions by comparing the forecasts to historical results, internal communications to management and the Board of Directors, and publicly available information about the industry.
Impairment assessment of intangible assets - acquired mining rights (“acquired mining rights”)
Critical Audit Matter Description
As described in Notes 2 and 4 to the consolidated financial statements, management reviews and evaluates the net carrying amount of acquired mining rights for impairment upon the occurrence of events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. The test for recoverability is based on an estimate of fair values of acquired mining rights. The Company utilized a third-party valuation specialist to assess the fair value of acquired mining rights using the discounted cash flow model and the income approach. The determination of the fair value requires management to make significant estimates and assumptions related to forecasts of quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital, based upon the projected remaining future fluorite production from each mining site and discount rate. The total acquired mining rights balance was $1,097,362 as of December 31, 2020. Based on the third-party valuation specialist’s report, the fair value exceeded its carrying amounts as of the measurement date and, therefore, no impairment was recognized. The fair value is sensitive to changes in forecasts of quantities of recoverable minerals, expected fluorite prices, production levels and operating cost of production and capital as well as discount rate.
We identified acquired mining rights as a critical audit matter because of the significant estimates and assumptions management makes in estimating its fair value. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital as well as discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our primary procedures related to address this critical audit matter included:-
·
We evaluated the independence and skills, knowledge, and expertise qualifications of the third-party valuation specialist engaged by the Company.
·
We evaluated the reasonableness of management’s assumptions by comparing the forecasts to historical results, internal communications to management and the Board of Directors, and forecasted information included in the fair value measurement reported by the third-party valuation specialist.
·
We evaluated the reasonableness of the Company’s calculation of fair value by:
-
Assessing the appropriateness of the valuation methodology used to determine the company-specific risk premiums in calculating the discount rate.
-
Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.
-
Evaluating the reasonableness of the estimated fluorite price through comparison to publicly available information about the industry.
/s/Moore Stephens CPA Limited
Certified Public Accountants
We have served as the Company's auditor since 2015.
Hong Kong
March 19, 2021
TGS International Ltd.
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019
Note
December 31,
December 31,
Assets
Current assets
Cash and cash equivalents
$ 69,401
$ 106,850
Other receivables
532,943
459,846
Prepayments and deposits
205,169
197,995
Accounts receivable
787,023
58,825
Total current assets
1,594,536
823,516
Non-current assets
Property, plant and equipment
2,307,570
2,406,368
Intangible assets
1,097,362
1,097,362
Right-of-use assets
-
189,456
Deposit
50,299
-
Total assets
$ 5,049,767
$ 4,516,702
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$ 457,824
$ 9,769
Accrued charges
123,241
228,283
Other payables
1,568,875
1,304,355
Lease liabilities
-
189,456
Income tax payable
22,951
-
Amount due to a director
14(d)
77,964
73,950
Loan from a related person
14(a)
386,916
385,158
Convertible bond payable, net
190,954
187,995
Other loan
27,837
-
Total current liabilities
2,856,562
2,378,966
Non-current liabilities
Amounts due to stockholders
14(c)
376,246
872,968
Amounts due to directors
14(d)
951,569
45,045
Other loan
147,326
132,423
Provision for asset retirement obligations
35,350
33,443
Provision for exploration asset compensation
119,336
98,742
Total liabilities
4,486,389
3,561,587
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 December 31, 2020 and 14,790,896 shares issued and outstanding as of December 31, 2019
1,496
1,479
Additional paid in capital
11,483,220
10,824,927
Accumulated deficit
(10,951,630 )
(9,733,167 )
Accumulated other comprehensive income/(loss)
30,292
(138,124 )
Total stockholders’ equity
563,378
955,115
Total liabilities and stockholders’ equity
$ 5,049,767
$ 4,516,702
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019
Years ended December 31,
Note
Revenue
$ 753,694
$ 282,857
Cost, expenses and other:
Exploration
(467,745 )
(737,248 )
Selling and distribution
(102,715 )
(105,279 )
Depreciation of factory equipment
(33,478 )
(28,898 )
Administrative
(1,252,925 )
(1,645,900 )
Loss from operations
(1,103,169 )
(2,234,468 )
Other income
31,958
195,576
Interest expense
(124,040 )
(76,824 )
Loss before provision for income taxes
(1,195,251 )
(2,115,716 )
Income taxes
(23,212 )
-
Net loss
(1,218,463 )
(2,115,716 )
Other comprehensive income, net of tax:
Foreign currency translation adjustments
168,416
129,599
Comprehensive loss
$ (1,050,047 )
$ (1,986,117 )
Net loss per share:
Basic and Diluted net loss per share
$ (0.08 )
$ (0.15 )
Weighted average number of common shares outstanding:
Basic and diluted
14,900,748
14,532,189
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019
Additional
Accumulated
other
Common Stock
Paid-in
Accumulated
comprehensive
Note
Shares
Amount
Capital
deficit
(loss)/income
Total
Balance as of December 31, 2018
14,165,000
$ 1,417
$ 8,937,243
$ (7,617,451 )
$ (267,723 )
$ 1,053,486
Proceeds from issuance of common stock
625,896
1,887,684
-
-
1,887,746
Net loss
-
-
-
(2,115,716 )
-
(2,115,716 )
Foreign currency translation adjustments
-
-
-
-
129,599
129,599
Balance as of December 31, 2019
14,790,896
$ 1,479
$ 10,824,927
$ (9,733,167 )
$ (138,124 )
$ 955,115
Proceeds from issuance of common stock
171,402
658,293
-
-
658,310
Net loss
-
-
-
(1,218,463 )
-
(1,218,463 )
Foreign currency translation adjustments
-
-
-
-
168,416
168,416
Balance as of December 31, 2020
14,962,298
$ 1,496
$ 11,483,220
$ (10,951,630 )
$ 30,292
$ 563,378
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
Year ended December 31,
Note
Cash flows from operating activities
Net loss
$ (1,218,463 )
$ (2,115,716 )
Adjustments to reconcile net loss to net cash used in operating activities:-
Depreciation of property, plant and equipment
48,884
51,898
Loss on disposal of property, plant and equipment
4,089
-
Net foreign exchange losses
327,779
246,346
Stock compensation expenses
-
122,100
Waiver of consultancy fee
-
(34,556 )
Write back of receipt in advance
-
(160,542 )
Amortization of right-of-use asset
202,357
206,643
Amortization of non-cash interest expenses and bond discount related to convertible bonds
21,059
13,732
Non-cash interest expenses related to other loans
17,603
-
Changes in assets and liabilities:-
Accounts receivable
(727,979 )
(60,314 )
Other receivables
(68,596 )
(394,560 )
Prepayments and deposits
(48,607 )
(56,795 )
Accrued charges
(125,594 )
(40,022 )
Accounts and other payables
648,012
1,196,364
Income tax payable
23,212
-
Lease liabilities
(202,357 )
(206,643 )
Provision for asset retirement obligations
3,300
3,179
Provision for exploration asset compensation
24,877
-
Net cash used in operating activities
(1,070,424 )
(1,228,886 )
Cash flows from investing activities
Proceeds from the sale of property, plant and equipment
1,065
-
Acquisition of property, plant and equipment
(56,481 )
(976,818 )
Net cash used in investing activities
(55,416 )
(976,818 )
Cash flows from financing activities
Advances from stockholders
726,362
517,329
Repayment to stockholders
(20,156 )
-
Advances from directors
139,819
165,392
Repayment to a director
(112,938 )
-
Repayment of loan from a related person
-
(127,648 )
Proceeds from issuance of common stock
-
825,000
Proceeds from new loan - other
25,641
131,663
Proceeds from issuance of convertible bonds
333,332
705,128
Net cash provided by financing activities
1,092,060
2,216,864
Net (decrease)/increase in cash and cash equivalents
(33,780 )
11,160
Effect of exchange rate changes on cash and cash equivalents
(3,669 )
(2,431 )
Cash and cash equivalents, beginning of year
106,850
98,121
Cash and cash equivalents, end of year
$ 69,401
$ 106,850
Supplemental disclosures:-
Interest paid
$ 54,148
$ 66,377
Income tax paid
$ -
$ -
Cash paid for amounts included in measurement of lease liabilities
$ 202,357
$ 206,643
Non-cash investing and financing transactions:-
Capitalization of advances from stockholders
14(c)
$ 261,274
$ -
Capitalization of advances from a director
14(d)
$ 55,238
$ 121,133
Capitalization of loans from related persons
$ -
$ 289,578
Recognition of Beneficial Conversion Feature (“BCF”) discount at inception of convertible bond
$ 7,771
$ 16,047
Conversion of convertible bond and accrued interest into common stock
$ 334,027
$ 513,888
Stock compensation expenses
$ -
$ 122,100
Right-of-use assets obtained in exchange for lease obligations
$ -
$ 369,874
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
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 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 December 31, 2020 and the date of this report, the Company owns three mining rights in Mongolia (Mining license numbers: MV-016819, MV-017305 and MV-009918). For the year ended December 31, 2020, 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 closed all ports of entry from and into China since early 2020. The Company could not perform any exploration work at Mine B which is located in Bayan-Ovoo soum, Khentii province (Mining license number: MV-016819) during 2020.
Going Concern
The Company incurred an operating loss of $1,218,463 for the year ended December 31, 2020, and as of that date, the Company’s current liabilities exceeded its current assets by $1,262,026. Notwithstanding the operating loss incurred for the year ended December 31, 2020 and the net current liabilities as of December 31, 2020, 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. 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 2022. 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of the Company, TGS, and all of the wholly owned subsidiaries of TGS. All intercompany balances have been eliminated in consolidation.
Use of estimates in the preparation of consolidated financial statements
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the consolidated financial statements include, but are not limited to, deferred tax valuation allowances, income-tax uncertainties, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, depreciation and amortization periods, recoverability of long-lived assets including intangible assets, valuation of warrant equity, and valuation and impairment losses on mining rights and valuation of asset retirement obligations and exploration asset compensation.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
Concentration and credit risks
Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on cash and cash equivalents to date. The Company does not require collateral or other securities to support financial instruments that are subject to credit risk.
The Company operates principally in the People’s Republic of China (“PRC”) (including Hong Kong) and Mongolia and grants credit to its customers in these geographic regions. Although the PRC is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s operations.
As of December 31, 2020 and 2019, the Company had credit risk exposure of uninsured cash and deposits with maturities of less than one year in banks of $25,625 and $96,495, respectively.
The net sales to customers representing at least 10% of net total sales are as follows:
Year ended
December 31, 2020
Amount
%
Customer A
$ 700,762
Year ended
December 31, 2019
Amount
%
Customer B
$ 40,907
Customer C
60,314
Customer D
181,636
$ 282,857
The following customers had balances of at least 10% of the total accounts receivable as follows:
Year ended
December 31, 2020
Amount
%
Customer A
$ 681,503
Customer C
105,520
$ 787,023
Year ended
December 31, 2019
Amount
%
Customer C
$ 58,825
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
Accounts receivable
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in administrative expenses.
The Company recognizes an allowance for doubtful receivables to ensure accounts and other receivables are not overstated due to uncollectibility. Allowance for doubtful receivables is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional allowance for individual accounts is recorded when the Company becomes aware of customers’ or other debtors’ inability to meet their financial obligations, such as bankruptcy filings or deterioration in the customer’s or other debtor’s operating results or financial position. If circumstances related to customers or debtors change, estimates of the recoverability of receivables will be further adjusted. Accounts receivable are written off when deemed uncollectible. As of December 31, 2020 and 2019, there were no allowance of accounts receivable.
Cash and cash equivalents
Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. As of December 31, 2020 and 2019, the Company’s cash amounted to $69,401 and $106,850, respectively, and there were no cash equivalents.
Intangible assets
Intangible assets consist of acquired mining rights and are initially measured at fair value as at the date of acquisition. Following the initial recognition, intangible assets are stated at cost less accumulated amortization and impairment losses.
Intangible assets are amortized on the units-of-production method utilizing only proven and probable fluorite reserves in the depletion base.
Property, plant and equipment
(i)
Property, plant and equipment are stated at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 15 to 40 years, representing the shorter of the remaining term of the mining right or the expected useful life to the Company.
(ii)
Other categories of property, plant and equipment are recorded at cost and depreciated to their estimated residual values using the straight-line method over their estimated useful lives, as follows:
·
Leasehold improvements: 5 years or, if shorter, the remaining term of the lease
·
Furniture and equipment: 3 to 10 years
·
Motor vehicles: 3 to 10 years
·
Factory equipment: 3 to 10 years
·
Mineral properties: Unit-of-production
(iii)
Normal repairs and maintenance are charged to operating expenses as incurred, while costs incurred that extend the useful life of an asset, improve the safety of our operations, or improve operating efficiency are capitalized.
Impairment of long-lived assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows or upon an estimate of fair value that may be received in an exchange transaction. Future cash flows are estimated based on quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital, based upon the projected remaining future fluorite production from each mining site. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of fluorite that will be obtained after taking into account losses during processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, fluorite prices, production levels and operating costs of production and capital are each subject to significant risks and uncertainties. As of December 31, 2020 and 2019, there was no impairment of long-lived assets.
Income taxes
Deferred income taxes are provided using the asset and liability method in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 740, “Income Taxes”. Under this method, deferred income taxes are recognized for all significant temporary differences at enacted rates and classified as a non-current asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all, the deferred tax assets will not be realized.
FASB ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in years, disclosure and transition. Interest and penalties from tax assessments, if any, are included in income taxes in the statements of operations and comprehensive income.
A tax position must be more likely than not of being sustained in order to be recognized in the consolidated financial statements. As of December 31, 2020 and 2019, the Company did not have any uncertain tax positions or accrued interest and penalties related to uncertain tax positions. The Company does not expect to have a material change to its income tax provisions in the next year.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
Restoration and remediation costs (Asset retirement obligations)
In Mongolia, the mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality for its mine projects to the pre-existing mine area average quality after completion of the mining activities.
Future reclamation and remediation costs, which include extraction equipment removal and environmental remediation, are accrued at the end of each period based on management’s best estimate of the costs expected to be incurred for each project. Such estimates consider the costs of future surface and groundwater activities, current regulations, actual expenses incurred, and technology and industry standards.
In accordance with FASB ASC 410, “Asset Retirement and Environmental Obligations”, the Company capitalizes the measured fair value of asset retirement obligations to mineral properties. The asset retirement obligations are accreted to an undiscounted value until the time at which they are expected to be settled. The accretion expense is charged to earnings and the actual retirement costs are recorded against the asset retirement obligations when incurred. Any difference between the recorded asset retirement obligations and the actual retirement costs incurred will be recorded as a gain or loss in the period of settlement.
On a regular basis, the Company reviews the assumptions used to estimate the expected cash flows required to settle the asset retirement obligations, including changes in estimated probabilities, amounts and timing of the settlement of the asset retirement obligations, as well as changes in any regulatory or legal obligations for each of its mineral projects. Changes in any one or more of these assumptions may cause revision of asset retirement obligations for the corresponding assets.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606 when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company recognizes revenue when it satisfies a performance obligation in accordance with the provisions of a customer order or contract. This is achieved when control of the product has been transferred to the customer, which is generally determined when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product. In determining when and how much revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. The sales of the Company’s products to its customers represent a single performance obligation for which revenue is recognized at a point in time. Based on the foregoing, no significant judgment is required to determine when control of a product has been transferred to a customer.
The Company measures revenue based on the consideration it expects to be entitled to receive in exchange for its products. The standard terms and conditions of customer orders and contracts does not provide its customers with the right of return (except for quality), price protection, rebates or discounts. All sales are based on firm customer orders with fixed terms and conditions, which generally cannot be modified.
See note 13 regarding the Company’s revenue disaggregated by reporting segment.
Provision for exploration asset compensation
The Government of Mongolia issued a policy that requires all mining companies to pay compensation to the Government if the exploration work on their mining license area was funded by the Government. The compensation amount for the exploration work done has been estimated by the Mineral Resources and Petroleum Authority of Mongolia.
The provision for exploration expenditure is calculated as the discounted net present value of estimated future net cash outflows of the reclamation and closure costs.
Exploration costs
Exploration costs are expensed as incurred. Costs to identify new mineral resources and to evaluate potential resources are considered exploration costs.
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.
Administrative expenses
Administrative expenses include salaries and benefits, consulting, audit, tax, legal, insurance, rent, utilities, net foreign exchange losses, and other general operating expenses.
Shipping and handling costs
Shipping and handling costs are expensed as incurred.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
Foreign currency transactions and translations
These consolidated financial statements are presented in United States dollars (“USD”), which is different from TGS subsidiaries’ functional currencies. The functional currency of the subsidiaries in Mongolia, Khan Shashir LLC and Shek Hung Gold LLC, is the Mongolian Tugrik (“MNT”). The functional currency of the subsidiary in the People’s Republic of China (“PRC”), Best Metro Import & Export Trading (Inner Mongolia) Limited is the Chinese Renminbi (“RMB”), while the functional currency of all other subsidiaries is the Hong Kong dollar (“HKD”).
The functional currency of TGS is the USD. The financial statements of foreign subsidiaries where HKD, MNT and RMB are the functional currencies and which have transactions denominated in non-HKD/MNT/RMB currencies are translated into HKD/MNT/RMB at the exchange rates existing on that date. The translation of local currencies into HKD/MNT/RMB creates transaction adjustments which are included in administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. The amounts of foreign currency translation were ($327,779) and ($246,346) for the years ended December 31, 2020 and 2019, respectively.
The financial statements of TGS’s foreign subsidiaries, where non-USD currencies are the functional currencies, are translated into USD using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for the statement of operations. Adjustments resulting from translation of these financial statements are reflected as a separate component of stockholders’ deficit.
Comprehensive loss
Comprehensive loss is defined as all changes in equity/(deficit), exclusive of transactions with stockholders, such as capital investments. Comprehensive loss includes net loss and changes in certain assets and liabilities that are reported directly in equity.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common stock equivalents outstanding during the period. Dilutive loss per share excludes all common stock equivalents if their effect is anti-dilutive.
As of December 31, 2020, the Company had warrants and convertible bonds 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.
Fair value measurement
The Company complies with FASB ASC 820, “Fair Value Measurements”, which clarifies the definition of fair value, prescribes methods for measuring fair value and establishes a fair value hierarchy to classify the inputs used in measuring fair value.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:-
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Financial instruments are measured as follows:-
The notional amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values.
The fair value of balances with related parties have not been determined as the timing of the expected cash flows of these balances cannot be reasonably determined because of the relationship.
Conversion Option - Convertible bonds
The Company accounts for convertible bond in accordance with the guidelines established by ASC 470-20, “Debt with Conversion and Other Options”. The Company separates the convertible bond into liability and equity components. The Beneficial Conversion Feature ("BCF") of a convertible bond, which is the equity component and recorded as additional paid-in capital, is normally characterized as the convertible portion or feature of certain bonds payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible bond when issued.
To determine the effective conversion price, the Company first allocates the proceeds received to the convertible instrument, and then uses those allocated proceeds to determine the effective conversion price. The intrinsic value of the conversion option should be measured using the effective conversion price for the convertible instrument on the proceeds allocated to that instrument.
The accounting for a BCF requires that the BCF be recognized by allocating the intrinsic value of the conversion option to additional paid in capital, resulting in a discount to the convertible instrument. This discount should be accreted from the date on which the BCF is first recognized through the earliest conversion date for instruments that do not have a stated redemption date.
The discount is amortized to interest expense over the expected term of the convertible bonds using the effective interest method.
Warrants
ASC 815-40, “Contracts in Entity’s Own Equity”, requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of ASC 815-40, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the Company’s results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required from period to period.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
Lease
The Company determines if an arrangement is a lease at inception of the contract. Leases are recorded in "Right-of-use ("ROU") assets" and "lease liabilities" in the Company's consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date for determining the present value of lease payments. Lease term includes the effects of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term.
The Company reviews ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.
Recent changes in accounting standards
Pending Adoption as at year end
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to ASC 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. ASC 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. ASC 326 will originally become 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 (ASC 740): Simplifying the Accounting for Income Taxes”. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in ASC 740 and clarifies 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 (ASC 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (ASC 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.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment include the following:-
December 31,
December 31,
Buildings
$ 152,902
$ 159,364
Leasehold improvements
-
120,524
Furniture, fixture and equipment
67,770
66,582
Motor vehicles
314,776
338,320
Factory equipment
216,801
230,290
Mineral properties
1,322,125
1,375,608
Less: accumulated depreciation
(431,378 )
(522,609 )
1,642,996
1,768,079
Construction in progress
664,574
638,289
Total property, plant and equipment
$ 2,307,570
$ 2,406,368
Construction in progress is mainly related to a power station under construction and stall cables to be used during the construction of the shaft at the mine sites. During the years ended December 31, 2020 and 2019, depreciation expenses charged to the consolidated statements of operations amounted to $48,884 ($15,406 to administrative expenses and $33,478 to depreciation of factory equipment) and $51,898 ($23,000 to administrative expenses and $28,898 to depreciation of factory equipment), respectively.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of acquired mining rights.
As of December 31, 2020 and 2019, the Company owned three mining rights in Mongolia.
Cost
At December 31, 2020 and 2019
$ 1,097,362
Accumulated amortization and impairment loss
At December 31, 2020 and 2019
-
Net book value
At December 31, 2020
$ 1,097,362
At December 31, 2019
$ 1,097,362
As of December 31, 2020, future minimum amortization expenses in respect of intangible assets are as follows:
Year ending December 31,
$ -
70,304
75,991
80,854
81,848
Thereafter
788,365
$ 1,097,362
NOTE 5 - LEASING ARRANGEMENT
The Company leases certain office and warehouse spaces under operating leases in Hong Kong and Mongolia. Operating lease assets and obligations are reflected within right-of-use asset, and current lease liability respectively, on the consolidated balance sheet.
The discount rate implicit within the leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the operating lease liabilities in 2020 and 2019 was 11%.
December 31,
December 31,
Assets
Right-of-use assets
$ -
$ 189,456
Liabilities
Current portion of operating lease liabilities
$ -
$ 189,456
Total lease liabilities
$ -
$ 189,456
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 5 - LEASING ARRANGEMENT (CONTINUED)
Maturity Analysis of Lease Liabilities:
December 31,
December 31,
December 31, 2020
$ -
$ 217,033
December 31, 2021
13,284
4,106
Total lease payments, undiscounted
13,284
221,139
Less short-term lease payments
(13,284 )
(20,564 )
Less amount of lease payment representing interest
-
(11,119 )
Total present value of lease payments
-
189,456
Less: Current portion of operating leases liabilities
-
(189,456 )
Non-current operating leases liabilities
$ -
$ -
Lease costs for all operating leases classified under ASC 842 for the years ended December 31, 2020 and 2019 were $202,357 and $206,643 respectively.
Supplemental cash flow and other information related to leases is as follows:
December 31,
December 31,
Total lease liabilities
$ -
$ 189,456
Cash payment for amounts included in the measurement of lease liabilities within operating cash flows
$ 202,357
$ 206,643
Weighted average remaining lease term (years)
-
0.97
Weighted average discount rate
11 %
11 %
NOTE 6 - INCOME TAXES
The Company is subject to tax on an entity basis on income arising in or derived from the United States of America, Republic of Seychelles, Mongolia, PRC and Hong Kong.
United States Tax
The federal income tax rate in the United States is 21%. The Company is subject to income taxes in the United States of America for each of the years ended December 31, 2020 and 2019.
Seychelles Tax
The statutory tax rate in the Republic of Seychelles is 25% on the first 1 million Seychelles Rupee of taxable income and 33% on the remainder. The Company is subject to income taxes in the Republic of Seychelles for each of the years ended December 31, 2020 and 2019.
Hong Kong Tax
BMHK, AHK and CAHK are subject to Hong Kong profits tax at the rate of 16.5% on the assessable profits. No provision for Hong Kong profits tax has been made as these companies incurred a loss for each of the years ended December 31, 2020 and 2019.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 6 - INCOME TAXES (CONTINUED)
Mongolia Corporate Income Tax
KSS and SHG are registered and operate in Mongolia and are subject to Mongolia Corporate Income Tax at the rate of 10% on taxable income below MNT6 billion (2019: MNT3 billion), or MNT600 million (2019: MNT300 billion) plus 25% on taxable income exceeding MNT6 billion for the year ended December 31, 2020 (2019: MNT3 billon). Provision for Mongolia corporate income tax has been made for the year ended December 31, 2020 as SHG generated profits in the current year (2019: Nil). No provision for Mongolia corporate income tax has been made for KSS as it incurred a loss for each of the years ended December 31, 2020 and 2019.
PRC Enterprise Income Tax
BMIM is subject to PRC Enterprise Income Tax at the statutory rate of 25%. No provision for PRC Enterprise Income Tax has been made as this company incurred a loss for each of the years ended December 31, 2020 and 2019.
The Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 are attributable to the following:
As of
December 31,
December 31,
Tax loss carry forwards
$ 406,048
$ 301,091
Less: Valuation allowance
(406,048 )
(301,091 )
$
-
$
-
Changes in valuation allowance are as follows:
As of
December 31,
December 31,
Beginning balance
$ 301,091
$ 287,735
Increase in valuation allowance
100,769
13,011
Exchange difference
4,188
Ending balance
$ 406,048
$ 301,091
As of December 31, 2020 and 2019, the Hong Kong subsidiaries have tax losses arising in Hong Kong of approximately $2,165,359 (2019: $1,602,522) that are available indefinitely for offsetting against their future taxable profits. The PRC subsidiary has tax losses arising in PRC of approximately $195,057 (2019: $146,700) that are available for offsetting against its future taxable profits, which expire between 2022-2025 and between 2022-2024, respectively. The Company had total accumulated tax losses amounting to approximately $2,360,416 and $1,749,222 (the tax effect thereon being approximately $406,048 and $301,091), respectively, subject to the final agreement by the relevant tax authorities, which may be carried forward and applied to reduce future taxable income which is earned in or derived from the jurisdictions in which the tax losses were incurred. Realization of deferred tax assets associated with tax loss carry forwards is dependent upon generating sufficient taxable income prior to their expiration. A full valuation allowance is established against such tax losses at each balance sheet date since management believes it is more likely than not that such tax losses will not be utilized.
A reconciliation of the income tax expense to the amount computed by applying the statutory tax rate of 21% to the loss before income taxes in the consolidated statements of operations and comprehensive loss is as follows:-
December 31,
December 31,
Loss before income taxes
$ (1,195,251 )
$ (2,115,716 )
Tax loss at the statutory tax rate of 21%
(251,003 )
(444,300 )
Effect of different tax rates in other jurisdictions
(30,398 )
(12,910 )
Non-deductible items
210,460
488,717
Non-taxable items
(5,964 )
(44,518 )
Change in valuation allowance
100,769
13,011
Tax effect of temporary differences not recognized
(652 )
-
Income tax expense
$ 23,212
$ -
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 7 - OTHER PAYABLES
As of
December 31,
December 31,
Tax and social insurance payable
$ 86,601
$ 53,087
Contract liabilities
296,657
289,786
Temporary receipts
739,948
720,278
Other payables
445,669
241,204
$ 1,568,875
$ 1,304,355
Contract liabilities are consideration received from the customers or billed in advance of providing goods or services promised in the future. The Company defers recognizing this consideration as revenue until it has satisfied the related performance obligation to the customer.
Temporary receipts represented the fund received from Yantai Fulin Mining Machinery Co., Ltd, a strategic partner of the Company, to build a refinery factory in Mongolia.
NOTE 8 - CONVERTIBLE BONDS
As of December 31, 2020 and 2019, the Company had the following convertible bond outstanding:
As of
December 31, 2020
December 31, 2019
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
$ 192,308
$ 930
Less: Bond discount
(1,354 )
-
(4,313 )
-
$ 190,954
$ 10,564
$ 187,995
$ 930
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 the year 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 12). In addition, the Company recognized a beneficial conversion feature discount to the bond of $7,390 that was amortized during the year. Additionally, the Company recognized non-cash interest of $695 on these bonds.
For the year ended December 31, 2019, four convertible bond agreements were entered into between the Company, Arcus and third party investors. Three of the bonds matured in 2019 and were settled by issuing 141,782 common shares at a price stated in the respective agreements, representing loans of HK$4 million and interest expenses of HK$8,333, for a total of HK$4,008,333 (equivalent to $513,888) (see note 12). In addition, the Company recognized a beneficial conversion feature discount to the bond of $10,705 that was amortized during the preceding year. Additionally, the Company recognized non-cash interest of $1,068 on these bonds.
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 originally matured on 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 is being 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 is being 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 (2019: $1,029) of the discount and recognized non-cash interest of $9,634 (2019: $930) to interest expenses. The unamortized debt discount on the convertible bond as of December 31, 2020 was $1,354 (2019: $4,313).
NOTE 9 - OTHER LOANS
As of December 31, 2020 and December 31, 2019, a loan of $147,326 and $132,423 respectively was borrowed from an unrelated party. The loan is unsecured, has no collateral or guarantee and carries interest at 11.61% per annum and repayable on December 31, 2029.
As of December 31, 2020, a loan of HK$217,133 (equivalent to $27,837) was borrowed from an unrelated party. The loan is unsecured, has no collateral or guarantee and carries interest at 10% per annum and repayable on June 23, 2021.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 10 - PROVISION FOR ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligations relate to future remediation and decommissioning activities at the three fluorite mines.
At December 31, 2018
31,383
Additions
3,179
Exchange adjustments
(1,119 )
At December 31, 2019
33,443
Additions
3,300
Exchange adjustments
(1,393 )
At December 31, 2020
$ 35,350
NOTE 11 - PROVISION FOR EXPLORATION ASSET COMPENSATION
At December 31, 2018
102,127
Exchange adjustments
(3,385 )
At December 31, 2019
98,742
Additions
24,877
Exchange adjustments
(4,283 )
At December 31, 2020
$ 119,336
NOTE 12 - CAPITAL STOCK
For the year ended December 31,2019, the Company issued a second subscription package (the “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 investors. The Company also issued to the placement agent 33,000 common shares at a price of $3.70 per common share for the services rendered (equivalent to $122,100).
For the year ended December 31, 2019, there were four convertible bond agreements entered into between the Company, Arcus and third party investors. Three of the bonds matured in 2019 and were settled by issuing 141,782 common shares at a price stated in the respective agreements, representing loans of HK$4 million and interest expenses of HK$8,333, for a total of HK$4,008,333 (equivalent to $513,888).
On May 15, 2019, the Company issued 88,018 common shares at a price of $3.29 per share to settle the loans from related persons of HK$2 million and accrued interest expenses of HK$258,709, for a total of HK$2,258,709 (equivalent to $289,578).
On September 29, 2019, the Company issued 33,096 common shares at a price of $3.66 per share to settle the amount due to a director of HK$944,832 (equivalent to $121,133).
For the year ended December 31, 2020, there were a total of four new convertible bond agreements entered into between the Company, a subsidiary of the Company, Arcus Mining Holdings Limited (“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).
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564).
On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710).
On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to a director of HK$430,855 (equivalent to $55,238).
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 13 - REVENUE
December 31,
December 31,
Disaggregation of revenue:-
Revenue from contract with customers within the scope of ASC 606, types of goods and services
Sales of minerals - point in time
$ 753,694
$ 282,857
NOTE 14 - SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
(a)
Loan from a related person
As of December 31, 2020 and December 31, 2019, loan from a related person included HK$3 million (equivalent to $386,916 and $385,158 respectively) borrowed from the wife of one of the Company’s stockholders on May 21, 2018. The loan is unsecured, has no collateral or guarantee and carries 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. The loan originally was due to be repaid on May 20, 2019, however, on April 24, 2019, the repayment date was extended to May 20, 2020. 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.
(b)
Interest expense paid to related persons
For the years ended December 31, 2020 and 2019, interest expense of HK$420,000 (equivalent to $54,148) and HK$462,326 (equivalent to $59,015), respectively, was paid to related persons.
(c)
Amounts due to stockholders
As of December 31, 2020, amounts due to stockholders, Kwong Bun Mak, Xianqin Pan and Kwing Chun Chu, were $376,246; while as of December 31, 2019, amounts due to stockholders, Chi Kin Loo, Kwong Bun Mak, Xianqin Pan and Tak Leung Ho, were $872,968. The Company is currently in the exploration stage, and the stockholders advanced $349,387 working capital to meet the financing requirement in 2020.
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564) (see note 12). On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710) (see note 12). 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
As of December 31, 2020 and 2019, amount due to a director, Tak Shing Eddie Wong, of HK$604,500 (equivalent to $77,964) and HK$576,000 (equivalent to $73,950) respectively. The amount is unsecured, has no collateral or guarantee and is interest-free. The amount was fully settled on March 3, 2021.
As of December 31, 2019, amount due to a director, Sai Kit Leung, was HK$350,855 (equivalent to $45,045). During the year, he advanced HK$80,000 (equivalent to $10,314) to the Company. On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to the director of HK$430,855 (equivalent to $55,238) (see note 12).
On December 10, 2020, Mr. Chi Kin Loo was appointed as a director of the Company. As of December 31, 2020, there was an amount due to the director of HK$7,378,106 (equivalent to $951,569). During the year, he advanced HK$3,024,000 (equivalent to $389,868) to the Company. This amount 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.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 15 - NET LOSS PER SHARE
Loss per common share is presented under two formats: basic loss per common share and diluted loss per common share. Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of common stock equivalents (e.g. stock options, warrants and convertible bonds). Dilutive common stock equivalents consist of the incremental common stock issuable upon exercise of stock options and warrants. The following table sets forth the computation of basic and diluted net loss per share:
Years Ended
December 31,
December 31,
Numerator:
Net loss
$ (1,218,463 )
$ (2,115,716 )
Denominator:
Weighted-average common stock, basic
14,900,748
14,532,189
Dilutive effect of warrants
-
-
Dilutive effect of convertible bonds
-
-
Incremental dilutive shares
-
-
Weighted-average common stock, diluted
14,900,748
14,532,189
Net loss per share, basic and diluted
$ (0.08 )
$ (0.15 )
Note: During the year ended December 31, 2020 and 2019, the Company had warrants and convertible bond outstanding which could potentially be anti-dilutive 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.
NOTE 16 - WARRANT EQUITY
On November 21, 2018 (“Issuance Date”), the Company issued First Subscription Package of up to $52,500, consisting of 150,000 common shares and 50,000 warrants exercisable at $1.00 (the “Warrants”) to purchase common stock within three years from the Issuance Date, to accredited subscribers.
For the year ended December 31, 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 two investors in the First Subscription Package, which was completed on November 21, 2018, forfeited their rights to exercise the 25,000 warrant at $1.00 of their own accord.
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.
As of December 31, 2019, the Company reviewed the valuation technique and inputs used to determine the fair value of the outstanding warrants. The Company engaged an outside valuation company to calculate the fair value of warrants based on the Binominal Option Pricing Model (“Binomial”).
Set out below are the major parameters adopted in the valuation:
Grant date
January to April
Stock price of the issuer at respective grant dates
$ 3.50
Risk-free rate
14.01% to 14.27
%
Volatility
54.63% to 56.74
%
Dividend yield
0.00 %
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 $
50,000
$ 0.07
$ 3,490
66,000
1.91
125,900
Less: warrants forfeited
(50,000 )
(0.07 )
(3,490 )
As at December 31, 2019 and 2020
66,000
$ 125,900
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
NOTE 17 - SUBSEQUENT EVENTS
The Company was supposed to resume exploratory and construction work at Mine B in the early second quarter of 2020. However, the global COVID-19 outbreak has resulted in delays in the resumption of work since the Chinese workers cannot enter into Mongolia until April 30, 2021 at the earliest.
The Company is dependent on its workforce, mainly Chinese workers, to perform the mining 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 fiscal year 2020 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 since April 30, 2021.
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 of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for the 2021 fiscal year.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in SEC Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on such evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of December 31, 2020.
(b) Management’s Report on 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 (our principal executive officer and our 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 U.S. 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 U.S. 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.
Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on this assessment, management concluded that as of December 31, 2020, our internal control over financial reporting was effective.
(c) Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the year ended December 31, 2020 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Name
Age
Positions
Tak Shing Eddie Wong
Chairman of the Board of Directors, Chief Executive Officer and President
Sai Kit Leung
Chief Financial Officer and Secretary
Chi Kin Loo
Director
Mr. Wong, 57, has held numerous senior management positions with various Asian companies in different industries. He is currently the chief executive officer of Peak Strategy Management Co., Ltd., a Hong Kong company providing business general consultancy services. Since March 2014, Mr. Wong has been the chief consultant of Conpak Management Group, a Hong Kong company providing corporate consultancy services, and is responsible for advising on its various projects and overall development. Mr. Wong is also the chief strategy officer of Sinostar Securities Limited, a Hong Kong company offering securities trading services, and is responsible for overseeing its overall business development. Mr. Wong previously served as the chief executive officer of He Zheng Yuan Agriculture Group Limited, a PRC company focusing on agricultural trades and provision of food and beverage, from June 2016 to February 2018 and Mondo Vantaggio Pte. Ltd., a Singaporean company operating luxury multi-brand stores, from October 2014 to June 2016. Between April 2016 and December 2016, he was the chief financial officer of Happy Animation (Shenzhen) Co., Ltd., a PRC company focusing on amination and education related development. Mr. Wong holds a certificate in Hotel Business Program offered by Cartas Bianchi College of Careers. He is also a member of China Academy of Management Science and a qualified Senior Financial Planner certified by the PRC.
Mr. Leung, 64, has been the chief financial officer of Arcus Mining Holdings Limited since November 2015. Prior to joining Arcus Mining Holdings Limited, Mr. Leung had over 35 years of experience in the banking industry. In August 1975, Mr. Leung joined Nanyang Commercial Bank as a clerk. From March 1991 to August 2015, he served as the head of treasury of Nanyang Commercial Bank, and was responsible for treasury duties including cash and liquidity management, banking facilities arrangement, advising management on the treasury position of the business, short-term and long-term liquidity, preparing cash flow forecasts and performing financial modelling. Mr. Leung holds a Master Degree of Science in Financial Engineering from the City University of Hong Kong.
Chi Kin Loo, 52, is the major shareholder prior to his appointment as a director of the Board on December 10, 2020. Prior to joining the Company, Mr. Loo has been working in the financial industry for over 15 years, specialized in wealth management and insurance. Since 2011, Mr. Loo has been a regional manager of FTLife Insurance Company Limited, a wholly-owned subsidiary of NWS Holdings Limited. In 2014, Mr. Loo was awarded the Distinguished Manager Award by the Life Underwriters Association of Hong Kong Ltd. From 2011 to 2014, Mr. Loo served as a director of Universal Mining Group Holdings Ltd. Mr. Loo has been granted license Type 1, 7 and 8 by the Hong Kong Securities and Investment Institute. Mr. Loo graduated from Buddhist Sum Heung Lam Memorial College in 1985.
Family Relationships
No family relationships exist among our directors, executive officers, or persons nominated or chosen by us to become directors or executive officers.
All directors hold office until the next annual stockholders’ meeting or until their death, resignation, retirement, removal, disqualification, or until their successors have been elected and are qualified. Our officers serve at the will of the Board of Directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers have been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Other Directorships
Our directors do not hold any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
Board of Directors and Director Nominees
The Board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, at any time not less than ninety (90) days prior to the next annual Board meeting at which a slate of director nominees is adopted, the Board will accept written submissions from proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the security holder submitting the proposed nominee believes that the nomination would be in the best interests of our security holders. If the proposed nominee is not the same person as the security holder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee’s qualifications to serve on the Board, as well as a list of references.
The Board identifies director nominees through a combination of referrals from different people, including management, existing Board members and security holders. Once a candidate has been identified, the Board reviews the individual’s experience and background and may discuss the proposed nominee with the source of the recommendation. If the Board believes it to be appropriate, Board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of the slate of director nominees submitted to security holders for election to the Board.
Some of the factors which the Board considers when evaluating proposed nominees include their knowledge of and experience in business matters, finance, capital markets and mergers and acquisitions. The Board may request additional information from each candidate prior to reaching a determination, and it is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.
Board and Committee Meetings
Our Board of Directors held no in person meetings during the year ended December 31, 2020. All proceedings of the Board of Directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the Nevada General Corporate Law and our Bylaws, as valid and effective as if they had been passed at a meeting of the directors duly called and held.
For the year ended December 31, 2020, there was no standing nominating committee or committee performing similar functions for our company. Mr. Wong participates in the consideration of director nominees.
Conflicts of Interest
Our directors are not obligated to commit their full time and attention to our business and, accordingly, they may encounter a conflict of interest in allocating their time between our operations and those of other businesses. In the course of their other business activities, they may become aware of investment and business opportunities which may be appropriate for presentation to us as well as other entities to which they owe a fiduciary duty. As a result, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. They may also in the future become affiliated with entities, engaged in business activities similar to those we intend to conduct.
In general, officers and directors of a corporation are required to present business opportunities to a corporation if:
·
the corporation could financially undertake the opportunity;
·
the opportunity is within the corporation’s line of business; and
·
it would be unfair to the corporation and its stockholders not to bring the opportunity to the attention of the corporation.
We plan to adopt a code of ethics that obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits those persons from engaging in such transactions without our consent.
Code of Ethics
We have not adopted a code of ethics that applies to our officers, directors and employees. When we do adopt a code of ethics, we will disclose it in a Current Report on Form 8-K.
Audit Committee
We do not currently have an audit committee or a committee performing similar functions. The Board of Directors as a whole participates in the review of financial statements and disclosure.
Section 16(a) of the Securities Exchange Act of 1934
Based solely on review of the copies of such forms furnished to the Company, or written representations that no reports were required, the Company believes that for the year ended December 31, 2020, our directors and executive officers complied with Section 16(a) filing requirements applicable to them.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Executive Officer Compensation
Set forth below is information regarding the compensation paid during the years ended December 31, 2019 and 2020 to our principal executive officer and principal financial officer, who are collectively referred to as “named executive officers” elsewhere in this Annual Report.
Name and Principal Compensation
Year
Salary ($)
Tak Shing Eddie Wong
122,994
Chairman of the Board of Directors, Chief Executive Officer and President
121,777
Sai Kit Leung
Nil
Chief Financial Officer and Secretary
Nil
Employment Agreements
There are no employment contracts, compensatory plans or arrangements, including payments to be received from our Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with our Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of our Company.
Options Grants During the Last Fiscal Year / Stock Option Plans
We do not currently have a stock option plan in favor of any director, officer, consultant or employee of our company. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or director during the last fiscal year; accordingly, no stock options have been granted or exercised by any of the officers or directors during our last fiscal year.
Aggregated Options Exercises in Last Fiscal Year
No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or any director during our last fiscal year; accordingly, no stock options have been granted or exercised by any of the officers or directors since during our last fiscal year.
Long-Term Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or directors or employees or consultants since we were founded.
Outstanding Equity Awards at Fiscal Year End
No equity awards were outstanding as of the year ended December 31, 2020.
Director Compensation
Our directors are reimbursed for expenses incurred by them in connection with attending Board of Directors’ meetings. During the years ended December 31, 2019 and 2020, salary amounting $121,777 and $122,994 was paid to director, Tak Shing Eddie Wong, respectively. During the years ended December 31, 2019 and 2020, salary amounting $22,517 and $24,827 was paid to director, Ka Yi Poon, respectively. No compensation was paid to the other directors.
On September 22, 2020, two directors, Mr. Shaowei DENG and Miss Ka Yi POON, resigned from the Company for personal reasons.
Name and Principal Compensation
Year
Salary ($)
Chi Kin Loo
Nil
Nil
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
Indebtedness of Directors, Senior Officers, Executive Officers and Other Management
None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years, is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
On March 19, 2021, we had 14,962,298 shares of common stock and 66,000 warrants issued and outstanding. The following table sets forth certain information with respect to the beneficial ownership of our securities as of March 19, 2021, for (i) each of our directors and executive officers; (ii) all of our directors and executive officers as a group; and (iii) each person who we know beneficially owns more than 5% of our common stock.
Beneficial ownership data in the table has been calculated based on Commission rules that require us to identify all securities that are exercisable or convertible into shares of our common stock within 60 days of March 19, 2021 and treat the underlying stock as outstanding for the purpose of computing the percentage of ownership of the holder.
Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares. Unless otherwise noted, the principal address of each of the stockholders, directors and officers listed below is at Room 20, 8/F., Woon Lee Commercial Building, 7-9 Austin Ave., Tsim Sha Tsui, Kowloon, Hong Kong.
Name of Beneficial Owner
Number of Shares of Common Stock Beneficially Owned
Percent
of Class
5% Holders
Kwong Bun Mak
1,603,375
10.72 %
Brilliant New Ventures Limited (2)
1,603,375
10.72 %
Xianqin Pan
1,676,208
11.20 %
Empire Glory International Limited (3)
1,676,208
11.20 %
Tak Leung Ho
1,610,507
10.76 %
Virtue Success Global Limited (4)
1,610,507
10.76 %
Linfa Sun
1,156,344
7.73 %
Go Achiever International Limited (5)
1,156,344
7.73 %
Directors and Officers:
Tak Shing Eddie Wong
281,007
1.88 %
Sai Kit Leung
190,010
1.27 %
Chi Kin Loo
5,860,161
39.17 %
Talent World Group Limited (1)
5,860,161
39.17 %
New Precision Global Limited (1)
5,860,161
39.17 %
Directors and officers as a group (3 Individuals) (6)
6,331,178
42.32 %
_________
(1)
Talent World Group Limited and New Precision Global Limited are controlled by Chi Kin Loo.
(2)
Brilliant New Ventures Limited is controlled by Kwong Bun Mak.
(3)
Empire Glory International Limited is controlled by Xianqin Pan.
(4)
Virtue Success Global Limited is controlled by Tak Leung Ho.
(5)
Go Achiever International Limited is controlled by Linfa Sun.
(6)
Represents common stock held by Tak Shing Eddie Wong, Sai Kit Leung and Chi Kin Loo.
Changes in Control
There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
As of December 31, 2020 and 2019, loan from a related person included a HK$3 million (equivalent to $386,916 and $385,158 respectively) borrowed from the wife of one of the Company’s stockholders on May 21, 2018. The loan is unsecured, has no collateral or guarantee and carries 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. The loan originally was due to be repaid on May 20, 2019, however, on April 24, 2019, the repayment date was extended to May 20, 2020. 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 December 31, 2020, amounts due to stockholders, Kwong Bun Mak, Xianqin Pan and Kwing Chun Chu, were $376,246; while as of December 31, 2019, amounts due to stockholders, Chi Kin Loo, Kwong Bun Mak, Xianqin Pan and Tak Leung Ho, were $872,968. The Company is currently in the exploration stage, and the stockholders advanced $349,387 working capital to meet the financing requirement in 2020.
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564). On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710). 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.
As of December 31, 2020 and 2019, amount due to a director, Tak Shing Eddie Wong, of HK$604,500 (equivalent to $77,964) and HK$576,000 (equivalent to $73,950) respectively. The amount is unsecured, has no collateral or guarantee and is interest-free. The amounts were fully settled on March 3, 2021.
As of December 31, 2019, amount due to a director, Sai Kit Leung, of HK$350,855 (equivalent to $45,045). During the year, he advanced HK$80,000 (equivalent to $10,314) to the Company. On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to the director of HK$430,855 (equivalent to $55,238).
On December 10, 2020, Mr. Chi Kin Loo was appointed as a director of the Company. As of December 31, 2020, there was an amount due to the director of HK$7,378,106 (equivalent to $951,569). During the year, he advanced HK$3,024,000 (equivalent to $389,868) to the Company. This amount 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.
Director Independence
We currently have three directors. We do not have a standing audit, compensation or nominating committee, but our entire Board of Directors’ acts in such capacities. We believe that our Board of Directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The Board of Directors of our company does not believe that it is necessary to have a standing audit, compensation or nominating committee because we believe that the functions of such committees can be adequately performed by the Board of Directors.
Indemnification
Our Bylaws provide that we will indemnify our directors and officers to the fullest extent not prohibited by Nevada law.
The general effect of the foregoing is to indemnify a control person, officer or director from liability, thereby making us responsible for any expenses or damages incurred by such control person, officer or director in any action brought against them based on their conduct in such capacity, provided they did not engage in fraud or criminal activity.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or control persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
During the fiscal year ended December 31, 2019, the total fees billed by Moore Stephens CPA Limited for audit-related services was $124,457, for tax services was $0 and for all other services was $0.
During the fiscal year ended December 31, 2020, the total fees billed by Moore Stephens CPA Limited for audit-related services was $89,500, for tax services was $0 and for all other services was $0.
Part IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
Exhibit No.
Title of Document
2.1
Share Exchange Agreement, Dated September 14, 2018 (1)
3.1
Articles of Incorporation (2)
3.2
Bylaws (2)
10.1
Mining Licenses and English Translation (1)
21.1
List of Subsidiaries (1)
31.1*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101*
XBRL Instance Document
___________
*
Filed herewith
(1)
Incorporated herein by reference to the current report on Form 8-K filed on September 14, 2018.
(2)
Incorporated by reference to our registration statement on Form S-1 filed on April 25, 2017.