10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 333-217451

TGS INTERNATIONAL LTD.

(Exact name of registrant as specified in its charter)

Nevada	N/A
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
Suite 1023, 10/F., Ocean Centre 5 Canton Rd., Tsim Sha Tsui Kowloon, Hong Kong	N/A
(Address of principal executive offices)	(Zip Code)

+852.2116.3863

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	TGSI	OTC Markets – Pink Sheets

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

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
		Emerging Growth company	¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ¨ YES     x NO

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

14,616,018 shares of common stock issued and outstanding as of August 8, 2019.

TGS INTERNATIONAL LTD.

FORM 10-Q

TABLE OF CONTENTS

Contents

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheet as of June 30, 2019 and December 31, 2018	4
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	5
	Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2019	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
SIGNATURES		19

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

The accompanying unaudited consolidated interim financial statements are presented in United States Dollars (US$) and have been prepared in accordance with accounting principles generally accepted in United States for interim financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and such adjustments of a normal recurring nature.

Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that can be expected for the year ending December 31, 2019.

3

TGS International Ltd.

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

(In United States dollars)  

		Note	June 30, 2019			December 31, 2018
			(unaudited)
Assets
Current assets
Cash and cash equivalents			$	299,174		$	98,121
Other receivables				138,534			68,963
Prepayments and deposits				142,269			141,522
Total current assets				579,977			308,606
Non-current assets
Property, plant and equipment				1,847,861			1,557,622
Intangible assets				1,097,362			1,097,362
Deposits for property, plant and equipment				103,233			-
Right-of-use assets		3		277,150			-
Total assets			$	3,905,583		$	2,963,590
Liabilities and Stockholders’ Equity
Current liabilities
Accrued charges			$	144,800		$	301,413
Other payables		4		883,578			237,167
Lease liabilities		3		189,243			-
Amount due to a director		5(d)		-			73,560
Loans from related persons		5(a)		383,977			766,246
Total current liabilities				1,601,598			1,378,386
Non-current liabilities
Amounts due to shareholders		5(c)		653,306			398,208
Lease liabilities		3		95,166			-
Provision for asset retirement obligations				31,217			31,383
Provision for exploration asset compensation				101,587			102,127
Total liabilities				2,482,874			1,910,104
Stockholders’ equity
Capital Stock
	-Authorized 200,000,000 common stock, voting, par value $0.0001 each; -Authorized 100,000,000 preferred stock, non-voting, par value $0.0001 each;
	-14,616,018 common stock issued and outstanding (December 31, 2018 – 14,165,000)			1,462			1,417
Additional paid in capital				10,173,876			8,937,243
Accumulated loss				(8,475,910	)		(7,617,451	)
Accumulated other comprehensive loss				(276,719	)		(267,723	)
Total stockholders’ equity				1,422,709			1,053,486
Total liabilities and stockholders’ equity			$	3,905,583		$	2,963,590

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

4

TGS International Ltd.

Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018

(unaudited)

 (In United States dollars)

	Note		Three months ended June 30,						Six months ended June 30,
			2019			2018			2019			2018
Net sales			$	-		$	-		$	-		$	-
Cost of sales				(129,677	)		(121,570	)		(144,906	)		(137,491	)
Gross loss				(129,677	)		(121,570	)		(144,906	)		(137,491	)
Administrative expenses				(406,118	)		(268,779	)		(663,775	)		(531,506	)
Loss from operations				(535,795	)		(390,349	)		(808,681	)		(668,997	)
Other income				338			11			666			28,764
Interest expense				(28,452	)		(25,661	)		(50,444	)		(30,698	)
Loss before provision for income taxes				(563,909	)		(415,999	)		(858,459	)		(670,931	)
Provision for income tax				-			-			-			-
Net loss				(563,909	)		(415,999	)		(858,459	)		(670,931	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments				(17,265	)		(29,295	)		(8,996	)		(54,847	)
Comprehensive loss			$	(581,174	)	$	(445,294	)	$	(867,455	)	$	(725,778	)
Net loss per share:
Basic and diluted net loss per share		6	$	(0.04	)	$	(525.92	)	$	(0.06	)	$	(848.21	)
Weighted average number of common shares outstanding:
Basic and diluted				14,514,438			791			14,393,198			791

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

5

TGS International Ltd.

Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2019

(unaudited)

(In United States dollars)

						Additional					Accumulated other
		Common Stock				Paid-in		Accumulated			comprehensive
	Note	Shares		Amount		Capital		losses			loss			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 shares	7		451,018		45		1,236,633		-			-			1,236,678
Net loss			-		-		-		(858,459	)		-			(858,459	)
Foreign currency translation adjustments			-		-		-		-			(8,996	)		(8,996	)
Balance as of June 30, 2019			14,616,018	$	1,462	$	10,173,876	$	(8,475,910	)	$	(276,719	)	$	1,422,709

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

6

TGS International Ltd.

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

(unaudited)

(In United States dollars)

			For the Six months ended June 30,
	Note		2019			2018
Cash flows from operating activities
Net loss			$	(858,459	)	$	(670,931	)
Adjustments to reconcile net loss to net cash used in operating activities:-
Depreciation of property, plant and equipment				20,972			23,701
Loss on disposal of property, plant and equipment				-			209
Amortization of right-of-use asset				94,122			-
Net foreign exchange losses				-			(1,294	)
Stock compensation expenses		7		122,100			-
Changes in assets and liabilities:-
Other receivables				(70,211	)		(20,680	)
Prepayments and deposits				(689	)		(8,821	)
Accrued charges				(78,373	)		(94,903	)
Other payables				523,967			137,242
Lease liabilities				(86,887	)		-
Net cash used in operating activities				(333,458	)		(635,477	)
Cash flows from investing activities
Acquisition of property, plant and equipment				(321,360	)		(80,019	)
Deposits for property, plant and equipment				(104,712	)		-
Net cash used in investing activities				(426,072	)		(80,019	)
Cash flows from financing activities
Advances from shareholders				254,390			383,698
Proceeds from issuance of common shares				825,000			-
Proceeds from new loan-related person				-			510,284
Repayment of loans from related persons		5(a)		(127,543	)		-
Net cash provided by financing activities				951,847			893,982
Net increase in cash and cash equivalents				192,317			178,486
Effect of exchange rate changes on cash and cash equivalents				8,736			367
Cash and cash equivalents, beginning of year				98,121			38,943
Cash and cash equivalents, end of year			$	299,174		$	217,796
Supplemental disclosures:-
Interest paid			$	41,451		$	-
Income tax paid			$	-		$	-
Non-cash investing and financial transactions:-
Capitalization of advances from shareholders		7	$	289,578		$	-
Stock compensation expenses		7	$	122,100		$	-

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

7

TGS International Ltd.

Notes to Consolidated Financial Statements

June 30, 2019 and 2018

(Unaudited)

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 June 30, 2019 and the date of this report, the Company owns three mining rights in Mongolia (Mining license numbers: MV-016819, MV-017305 and MV-009918). During the six-month period ended June 30, 2019, the Company did not commence regular mining operations due to the delay in the application of working visas for the Chinese workers and the temporary suspension of the explosive factories. Therefore, formal production will commence in Mine B located in Bayan-Ovoo soum, Khenti province (Mining license number: MV-016819) in the third quarter of 2019.

Reverse merger

On September 14, 2018, the Company and Arcus entered into a Share Exchange Agreement, dated September 14, 2018 with 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. The merger closed on September 14, 2018 and resulted in the following:

Immediately prior to the Share Exchange, 6,500,000 shares of our outstanding common stock were cancelled and retired. A further 30,000 shares were canceled after the Share Exchange.

As a result of the transactions described above, the Company became the record and beneficial owner of 100% of the share capital of Arcus and therefore owns 100% of the share capital of its subsidiaries.

As a result of the Share Exchange, the cancellation of 6,530,000 shares and the issuance of 7,000,000 shares, the Company has 14,000,000 shares of common stock issued and outstanding on September 14, 2018.

The transaction is accounted for as a “reverse acquisition”, with Arcus being treated as the accounting acquirer for financial reporting purposes. The historical consolidated financial statements include the operations of the accounting acquirer and its subsidiaries for all periods presented.

Basis of Presentation

These accompanying unaudited Consolidated Financial Statements of TGS as of and for the period ended June 30, 2019 have been prepared in accordance with accounting principles generally accepted in United States of America (“U.S. GAAP”) for interim financial statements. Accordingly, the Consolidated Financial Statements do not include all the information and footnotes required by U.S. GAAP for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2018 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm. These Consolidated Financial Statements should be read in conjunction with the annual financial statements and notes thereto in the Company’s Form 10-K for the year ended December 31, 2018. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results expected for the full year or for any future periods.

Going Concern

These financial statements have been prepared on a going concern basis. The Company has incurred an operating loss of $858,459 for the six months ended June 30, 2019 and as of that date, the Company’s current liabilities exceeded its current assets by $1,021,621 which raises substantial doubt about the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since the Company is currently in the development and trial-production 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. Management believes the Company will have sufficient working capital to meet its financing requirements based on the financial support of shareholders and upon their experience and their assessment of the Company’s projected performance, production ability and product market. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

8

TGS International Ltd.

Notes to Consolidated Financial Statements

June 30, 2019 and 2018

(Unaudited)

Recent changes in accounting standards

Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which amends existing accounting standards for leases. The ASU requires lessees to recognize most leases on their balance sheet as a lease liability with a corresponding right-of-use asset. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. The criteria for evaluating are similar to those applied in current lease accounting.

The Company elected to transition to Accounting Standards Codification (“ASC”) 842 using the option to apply the standard on its effective date, January 1, 2019. The comparative periods presented reflect the former lease accounting guidance and the required comparative disclosures are included in Note 3, Leasing Arrangements. There was not a material cumulative-effect adjustment to the beginning accumulated losses as a result of adopting ASC 842. We have recognized additional right-of-use assets of $369,874 and $277,150 as of January 1, 2019 and June 30, 2019 and lease liabilities of $369,874 and $284,409 as of January 1, 2019 and June 30, 2019, respectively. We elected not to reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. For additional disclosure and detail, see Note 3, Leasing Arrangements.

Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In November 2018, FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the scope and transition requirements of ASU 2016-13. Topic 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. Topic 326 will become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to the financial statements by removing, modifying, and adding certain fair value disclosure requirements to facilitate clear communication of the information required by generally accepted accounting principles. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted upon issuance of this ASU. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This Update states a private company (reporting entity) may elect not to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. This Update also states indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. For the Company, this Update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. All entities are required to apply the amendments in this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted. The adoption of ASU 2018-17 is not expected to have a material impact on the Company’s consolidated financial statements in 2019.

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.

9

TGS International Ltd.

Notes to Consolidated Financial Statements

June 30, 2019 and 2018

(Unaudited)

NOTE 3 – 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, net, current lease liability, and non-current lease liability, respectively, on the unaudited 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 as of June 30, 2019 was 11%.

Balance Sheet as of June 30, 2019

(In United States dollars)
Assets
Right-of-use assets	277,150
Liabilities
Current portion of operating lease liabilities	189,243
Long-term portion of operating lease liabilities	95,166
Total lease liabilities	284,409

Maturity Analysis of Lease Liabilities:

(In United States dollars)
December 31, 2019	104,270
December 31, 2020	199,959
December 31, 2021	-
December 31, 2022	-
December 31, 2023	-
Thereafter	-
Total lease payments, undiscounted	304,229
Less short-term lease payments	(670	)
Less amount of lease payment representing interest	(19,150	)
Total present value of lease payments	284,409
Less: Current portion of operating leases liabilities	(189,243	)
Non-current operating leases liabilities	95,166

Lease commitment as of December 31, 2018 were as follows:

(In United States dollars)
December 31, 2019	243,100
December 31, 2020	229,500
December 31, 2021	30,000
December 31, 2022	30,000
December 31, 2023	30,000
Thereafter	30,000
	592,600

Other information related to leases is as follows:

June 30, 2019
Total lease liabilities	$	284,409
Cash paid for amounts included in the measurement of lease liabilities within operating cash flows	$	103,600
Weighted average remaining lease term (years)		1.97
Weighted average discount rate		11	%

10

TGS International Ltd.

Notes to Consolidated Financial Statements

June 30, 2019 and 2018

(Unaudited)

NOTE 4 — OTHER PAYABLES

(In United States dollars)

	June 30, 2019		December 31, 2018
	(unaudited)
Tax and social insurance payable	$	9,416	$	9,384
Contract liabilities		230,325		215,359
Temporary receipts		488,094		-
Other payables		155,743		12,424
	$	883,578	$	237,167

NOTE 5 – SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

(a) Loans from related persons

As of June 30, 2019 and December 31, 2018, loans from related persons included a HK$3 million (equivalent to $383,977) and HK$4 million (equivalent to $510,830) respectively loan borrowed from the wife of one of the shareholders of TGS 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. The Company repaid HK$1 million (equivalent to $127,543) loan on April 24, 2019.

As of December 31, 2018, loans from related persons included a HK$1 million (equivalent to $127,708) loan borrowed from the son of the CFO of TGS on October 6, 2016. The loan is unsecured, has no collateral or guarantee and carries interest at 8% per annum. The loan was fully repaid by issuing new common shares of TGS on May 15, 2019 (see Note 7).

As of December 31, 2018, loans from related persons included HK$1 million (equivalent to$127,708) loan borrowed from the sisters of one of the shareholders of TGS and the ultimate shareholder on October 31, 2016. The loans are unsecured, have no collateral or guarantee and carry interest at 8% per annum. The loan was fully repaid by issuing new common shares of TGS on May 15, 2019 (see Note 7).

(b) Interest expense paid to related persons

During the six-month periods ended June 30, 2019 and 2018, interest expense of HK$267,326 (equivalent to $34,096) and HK$202,237 (equivalent to $25,800), respectively, was paid to related persons.

(c) Amounts due to shareholders

The Company is currently in the development and trial-production stage, the shareholders advanced $254,390 working capital to meet the financing requirement during the first 6 months of 2019. Amounts due to shareholders are unsecured, interest-free and not demand for repayment within 12 months.

(d) Amount due to a director

Amount due to a director included HK$576,000 (equivalent to $73,560) salaries accrued to the director, Tak Shing Eddie Wong as of December 31, 2018. The amount was unsecured, had no collateral or guarantee and was interest-free. The amount was fully settled on February 14, 2019.

11

TGS International Ltd.

Notes to Consolidated Financial Statements

June 30, 2019 and 2018

(Unaudited)

NOTE 6 — NET LOSS PER SHARE

The following table presents the computation of basic and diluted net loss per share for the three and six months ended June 30, 2019 and 2018:

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net loss per share – basic and diluted
Net loss	$	(563,909	)	$	(415,999	)	$	(858,459	)	$	(670,931	)
Weighted-average number of common shares outstanding – basic and diluted		14,514,438			791			14,393,198			791
Net loss per share
Basic and diluted (Note)	$	(0.04	)	$	(525.92	)	$	(0.06	)	$	(848.21	)

Note: During the three and six months ended June 30, 2019, the Company had warrants 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.

NOTE 7 — CAPITAL STOCK

In the six-months period ended June 30, 2019, the Company issued 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 subscribers. The Company also issued to the placement agent 33,000 common shares at a price of $3.7 per common share for the services rendered (equivalent to $122,100). On May 15, 2019, the Company issued 88,018 common shares at a price of $3.29 to settle the loans from related persons of HK$2 million and interest expenses (equivalent to $289,578).

NOTE 8 — WARRANT EQUITY

On November 21, 2018 (“Issuance Date”), the Company issued a subscription package (the “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.

The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock. 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. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants.

In the six-months period ended June 30, 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 private placement, which was completed on November 21, 2018, forfeited their rights to exercise the 25,000 warrant at $1.00 due to their own accord.

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 $
November 2018		50,000		$	0.07		$	3,490
January 2019		17,000			2.11			35,833
February 2019		10,000			2.11			21,078
March 2019		9,000			2.11			18,970
April 2019		30,000			2.11			63,234
Less: warrants forfeited		(50,000	)		(0.07	)		(3,490	)
As at June 30, 2019		66,000					$	139,115

12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes to the consolidated financial statements included elsewhere in this Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report, the terms “we”, “us”, “our” or the “company” mean TGS International Ltd., a Nevada corporation, and our subsidiaries, unless otherwise indicated.

General Overview

TGS International Ltd. was established on December 1, 2016 in Nevada, USA. On September 14, 2018, TGS International 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 only trial production at Mine B started in 2018 and has been ongoing since that time.

On November 21, 2018 and April 24, 2019, the Company completed its first and second private placement respectively. The two investors in the first private placement, which was completed on November 21, 2018, forfeited their rights to exercise the 25,000 warrant at $1.00 due to their own accord.

The independent third party Mongolian company HMMB LLC, who is our contractor and responsible for exploring Mine B, applied working visas for the Chinese workers. However, the Mongolian Government has tightened the working visa application procedure. As a result, the application did not complete until June 2019, which resulted in a delay in the exploratory work. The visa application should have been completed and all workers should have started working at the site in April 2019. All Chinese workers and Mongolian workers have been working at Mine B since June 2019.

Due to unexpected internal accidents, the only two explosive factories in Mongolia have been suspended until mid-August 2019. This resulted in a delay in explosives to Mine B. We expect the explosives could be delivered to Mine B in September 2019 at the earliest. As a contingency plan, we have made new arrangements in order to minimize the impact of the delay.

The delay in the application of working visas for the Chinese workers, along with the temporary suspension of the explosive factories have brought about significant postponement of our exploratory work. Nonetheless, the management has devoted all their effort to minimize any impact on the Company.

The strategic cooperation with Yantai Fulin Mining Machinery Co., Ltd regarding the construction of a refinery at Mine B started in mid-April 2019 and is underway. We expect the construction is to be completed by the end of 2019 and put into trial production and use immediately after the completion in early 2020.

An outsourcing agreement regarding the trial exploration of Mine A was entered into between the Company and an independent third party, Xin Guoji Company Limited, a PRC company specializing in exploratory work, in April 2019. Open-pit trial exploratory work at Mine A began in early June 2019. With the strategic cooperation with Xin Guoji Company Limited, we expect to further increase our revenue in 2020.

In order to further strengthen the Company’s internal control and corporate governance, two directors were appointed on April 26, 2019 and one of them is an independent director.

13

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2019 and 2018

Sales

In the three and six months ended June 30, 2019 and June 30, 2018, we did not have sales revenue as our Company did not commence regular mining operations due to the delay in the application of working visas for the Chinese workers and the temporary suspension of the explosive factories for the first six months ended June 30, 2019; while only trial production was performed for the first six months in 2018. Formal mining is expected to commence in the third quarter of 2019.

Cost of sales

Cost of sales included raw material costs, mining overhead, including depreciation expenses and transportation, and handling costs related to the movement of finished goods from mines to customer designated locations. Additionally, cost of sales included product packaging cost, the cost of tooling and damages.

Our total cost of sales increased slightly from $137,491 for the first six months in 2018 to $144,906, for the first six months of 2019. The percentage of such increase was approximately 5% as a result of more mining supplies and oil and lubricants were purchased so as to speed up the mining process and the expansion of fluorspar production line.

For the three months ended June 30, the total cost of sales increased slightly from $121,570 in 2018 to $129,677 in 2019. The result of such increase is similar to the first six months as discussed above.

Gross loss

Since the delay in the application of working visas for the Chinese workers and the temporary suspension of the explosive factories was taken place in the first six months in 2019, no revenue was generated to cover our cost of sales, which resulted in a gross loss. For the first six months in 2018, only trial production was performed, no revenue was generated to cover our cost of sales which resulted gross loss as well.

Administrative expenses

Administrative expenses include salaries and benefits, consulting, audit, tax, legal, insurance, rent and utilities, and other general operating expenses.

Administrative expenses increased from $531,506 for the first six months in 2018 to $663,775 for the first six months in 2019. The percentage of such increase was approximately 25% as a result of commission expenses related to private placement in 2019.

For the three months ended June 30, the total administrative expenses are increased from $268,779 in 2018 to $406,118 in 2019. The result of increase is similar to the first six months as discussed above.

Other income

Other income decreased significantly from $28,764 for the first six months in 2018 to $666 for the first six months in 2019. The percentage of such reduction was approximately 98% as a result of a waiver of consultancy fee in the first six months in 2018.

For the three months ended June 30, other income increased from $11 in 2018 to $338 in 2019. The increase as a result of bank interest income increased in the three months in 2019.

Interest expenses

Interest expenses mainly include related parties loans interest and lease interest.

Interest expenses significantly increased from $30,698 for the first six months in 2018 to $50,444 for the first six months in 2019. The increase was approximately 64% as a result of related parties loans of HK$4 million granted in May 2018 and the amount of lease payment representing interest.

For the three months ended June 30, the interest expenses increased from $25,661 in 2018 to $28,452 in 2019. The percentage of such increase was approximately 11% as a result of the amount of lease payment representing interest.

14

Net loss

As a result of the factors described above, we had a net loss of $858,459 for the six months ended June 30, 2019 as compared to $670,931 for the six months ended June 30, 2018, and a net loss of $563,909 for the three months ended June 30, 2019 as compared to $415,999 for the three months ended June 30, 2018.

The net loss is under our management expectation since our mine is still under trial production. Excluding the commission expenses related to private placement in the first six months in 2019, the net loss in the first six months in 2019 was comparable to the first six months in 2018. The results of net loss was similar for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 as discussed above.

Liquidity and Capital Resources

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. As of June 30, 2019 and December 31, 2018, the Company’s cash was $299,174 and $98,121, respectively. There were no cash equivalents.

Our liquidity needs 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 shareholders and the proceeds from issuance of common shares.

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 of private placements of our securities in the future. We expect that the proceeds from the sale of our securities 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

Net cash used in operating activities

Our net cash used in operating activities decreased to $333,458 for the first six months of 2019 from $635,477 for the first six months of 2018. This was mainly due to the net effect of the increase in net loss for the first six months in 2019 comparable to the first six months in 2018, increase in other receivables and increase in other payables during the period.

Net cash used in investing activities

Our net cash used in investing activities increased to $426,072 for the first six months of 2019 from $80,019 for the first six months of 2018. This was mainly due to acquisition of property, plant and equipment at mine site.

Net cash provided by financing activities

Our net cash provided by financing activities increased to $951,847 for the first six months of 2019 from $893,982 for the first six months of 2018. This was mainly the result of issuance of common shares in the first six months of 2019.

15

Future Financings

We anticipate continuing rely on related party loans 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.

We presently do not have any arrangements or commitments for additional financing for the expansion of our operations, and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with our plan of operations.

Going Concern

The Company incurred an operating loss of $858,459 for the six-month period ended June 30, 2019, and as of that date, the Company’s current liabilities exceeded its current assets by $1,021,621. Notwithstanding the operating loss incurred for the period ended June 30, 2019, the accompanying interim consolidated financial statements have been prepared on a going concern basis. Since the Company is currently in the development and trial-production 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. Management believes the Company will have sufficient working capital to meet its financing requirements based of the financial support of stockholders and upon their experience and their assessment of the Company’s projected performance, production ability and product market.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019.

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

16

Evaluation of Internal Control over Financial Reporting

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

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

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2019 that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting. Management concluded that as of June 30, 2019, our company’s internal control over financial reporting was effective.

17

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description
(31)	Rule 13a-14 (d)/15d-14d) Certifications
31.1*	Section 302 Certification by the Principal Executive Officer
31.2*	Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer
(32)	Section 1350 Certifications
32.1*	Section 906 Certification by the Principal Executive Officer
32.2*	Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer
101*	Interactive Data File
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

_________

*Filed herewith.

18

SIGNATURES

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

TGS International Ltd.
Date: August 8, 2019	By:	/s/ Tak Shing Eddie Wong
		Tak Shing Eddie Wong
		President, Chief Executive Officer and Chairman of the Board of Directors,
		(Principal Executive Officer)
Date: August 8, 2019	By:	/s/ Sai Kit Leung
		Sai Kit Leung
		Chief Financial Officer and Secretary
		(Principal Financial and Accounting Officer)

19

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tak Shing Eddie Wong, certify that:

1.	I have reviewed this quarterly report on Form 10-Q TGS International Ltd.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2019

/s/ Tak Shing Eddie Wong

Tak Shing Eddie Wong

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sai Kit Leung, certify that:

1.	I have reviewed this quarterly report on Form 10-Q TGS International Ltd.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2019

/s/ Sai Kit Leung

Sai Kit Leung

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Tak Shing Eddie Wong, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q of TGS International Ltd. for the period ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TGS International Ltd.

Dated: August 8, 2019
	/s/ Tak Shing Eddie Wong
	Tak Shing Eddie Wong
	Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TGS International Ltd. and will be retained by TGS International Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Sai Kit Leung, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q of TGS International Ltd. for the period ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TGS International Ltd.

Dated: August 8, 2019
	/s/ Sai Kit Leung
	Sai Kit Leung
	Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TGS International Ltd. and will be retained by TGS International Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 08, 2019
Document And Entity Information
Entity Registrant Name	TGS International Ltd.
Entity Central Index Key	0001701859
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Jun. 30, 2019
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019
Entity Common Stock Shares Outstanding		14,616,018

XML

Consolidated Balance Sheets - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 299,174	$ 98,121
Other receivables	138,534	68,963
Prepayments and deposits	142,269	141,522
Total current asset	579,977	308,606
Non-current assets
Property, plant and equipment	1,847,861	1,557,622
Intangible assets	1,097,362	1,097,362
Deposits for property, plant and equipment	103,233
Right-of-use assets	277,150
Total Assets	3,905,583	2,963,590
Current liabilities
Accrued charges	144,800	301,413
Other payables	883,578	237,167
Lease liabilities	189,243
Amount due to a director		73,560
Loans from related persons	383,977	766,246
Total current liabilities	1,601,598	1,378,386
Non-current liabilities
Amounts due to shareholders	653,306	398,208
Lease liabilities	95,166
Provision for asset retirement obligations	31,217	31,383
Provision for exploration asset compensation	101,587	102,127
Total Liabilities	2,482,874	1,910,104
Stockholders' equity
Authorized 100,000,000 preferred stock, non-voting, par value $0.0001 each
Capital Stock - Authorized 200,000,000 common stock, voting, par value $0.0001 each:14,616,018 common stock issued and outstanding (December 31,2018 14,165,000)	1,462	1,417
Additional paid in capital	10,173,876	8,937,243
Accumulated loss	(8,475,910)	(7,617,451)
Accumulated other comprehensive loss	(276,719)	(267,723)
Total stockholders' equity	1,422,709	1,053,486
Total liabilities and stockholders' equity	$ 3,905,583	$ 2,963,590

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Stockholders' equity
Common stock, shares authorized	200,000,000	200,000,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, issued	14,616,018	14,165,000
Common stock, outstanding	14,616,018	14,165,000
Preferred stock, authorized	100,000,000	100,000,000
Preferred stock, par value	$ 0.0001	$ 0.0001

XML

Consolidated Statements of Operations and Comprehensive Loss (unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Consolidated Statements of Operations and Comprehensive Loss (unaudited)
Net sales
Cost of sales	(129,677)	(121,570)	(144,906)	(137,491)
Gross loss	(129,677)	(121,570)	(144,906)	(137,491)
Administrative expenses	(406,118)	(268,779)	(663,775)	(531,506)
Loss from operations	(535,795)	(390,349)	(808,681)	(668,997)
Other income	338	11	666	28,764
Interest expense	(28,452)	(25,661)	(50,444)	(30,698)
Loss before provision for income taxes	(563,909)	(415,999)	(858,459)	(670,931)
Provision for Income taxes
Net loss	(563,909)	(415,999)	(858,459)	(670,931)
Other comprehensive (loss)/income, net of tax:
Foreign currency translation adjustments	(17,265)	(29,295)	(8,996)	(54,847)
Comprehensive loss	$ (581,174)	$ (445,294)	$ (867,455)	$ (725,778)
Net loss per share:
Basic and Diluted net loss per share	$ (0.04)	$ (525.92)	$ (0.06)	$ (848.21)
Weighted average number of common shares outstanding
basic and diluted	14,514,438	791	14,393,198	791

XML

Consolidated Statements of Stockholders' Equity - 6 months ended Jun. 30, 2019 - USD ($)	Total	Common Stock	Additional Paid-in Capital	Accumulated losses	Accumulated other comprehensive loss
Beginning balance, shares at Dec. 31, 2018		14,165,000
Beginning Balance, amount at Dec. 31, 2018	$ 1,053,486	$ 1,417	$ 8,937,243	$ (7,617,451)	$ (267,723)
Proceeds from issuance of common shares, shares		451,018
Net loss	(858,459)			(858,459)
Foreign currency translation adjustments	(8,996)				(8,996)
Proceeds from issuance of common shares, amount	1,236,678	$ 45	1,236,633
Ending balance, shares at Jun. 30, 2019		14,616,018
Ending Balance, amount at Jun. 30, 2019	$ 1,422,709	$ 1,462	$ 10,173,876	$ (8,475,910)	$ (276,719)

XML

Consolidated Statements of Cash Flows (unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities
Net loss	$ (858,459)	$ (670,931)
Adjustments to reconcile net loss to net cash used in operating activities:-
Depreciation of property, plant and equipment	20,972	23,701
Loss on disposal of property, plant and equipment		209
Amortization of right-of-use asset	94,122
Net foreign exchange losses		(1,294)
Stock compensation expenses	122,100
Changes in assets and liabilities:-
Other receivables	(70,211)	(20,680)
Prepayments and deposits	(689)	(8,821)
Accrued charges	(78,373)	(94,903)
Other payables	523,967	137,242
Lease liabilities	(86,887)
Net cash used in operating activities	(333,458)	(635,477)
Cash flows from investing activities
Acquisition of property, plant and equipment	(321,360)	(80,019)
Deposits for property, plant and equipment	(104,712)
Net cash used in investing activities	(426,072)	(80,019)
Cash flows from financing activities
Advances from shareholders	254,390	383,698
Proceeds from issuance of common shares	825,000
Proceeds from new loan-related person		510,284
Repayment of loans from related persons	(127,543)
Net cash provided by financing activities	951,847	893,982
Net increase in cash and cash equivalents	192,317	178,486
Effect of exchange rate changes on cash and cash equivalents	8,736	367
Cash and cash equivalents, beginning of year	98,121	38,943
Cash and cash equivalents, end of year	299,174	217,796
Supplemental disclosures:-
Interest paid	41,451
Income tax paid
Non-cash investing and financial transactions:-
Capitalization of advances from shareholders	289,578
Stock compensation expenses	$ 122,100

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NATURE OF OPERATIONS AND GOING CONCERN

6 Months Ended

Jun. 30, 2019

NATURE OF OPERATIONS AND GOING CONCERN

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 June 30, 2019 and the date of this report, the Company owns three mining rights in Mongolia (Mining license numbers: MV-016819, MV-017305 and MV-009918). During the six-month period ended June 30, 2019, the Company did not commence regular mining operations due to the delay in the application of working visas for the Chinese workers and the temporary suspension of the explosive factories. Therefore, formal production will commence in Mine B located in Bayan-Ovoo soum, Khenti province (Mining license number: MV-016819) in the third quarter of 2019.

Reverse merger

On September 14, 2018, the Company and Arcus entered into a Share Exchange Agreement, dated September 14, 2018 with 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. The merger closed on September 14, 2018 and resulted in the following:

Immediately prior to the Share Exchange, 6,500,000 shares of our outstanding common stock were cancelled and retired. A further 30,000 shares were canceled after the Share Exchange.

As a result of the transactions described above, the Company became the record and beneficial owner of 100% of the share capital of Arcus and therefore owns 100% of the share capital of its subsidiaries.

As a result of the Share Exchange, the cancellation of 6,530,000 shares and the issuance of 7,000,000 shares, the Company has 14,000,000 shares of common stock issued and outstanding on September 14, 2018.

The transaction is accounted for as a reverse acquisition, with Arcus being treated as the accounting acquirer for financial reporting purposes. The historical consolidated financial statements include the operations of the accounting acquirer and its subsidiaries for all periods presented.

Basis of Presentation

These accompanying unaudited Consolidated Financial Statements of TGS as of and for the period ended June 30, 2019 have been prepared in accordance with accounting principles generally accepted in United States of America (U.S. GAAP) for interim financial statements. Accordingly, the Consolidated Financial Statements do not include all the information and footnotes required by U.S. GAAP for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2018 has been derived from the Companys annual financial statements that were audited by an independent registered public accounting firm. These Consolidated Financial Statements should be read in conjunction with the annual financial statements and notes thereto in the Companys Form 10-K for the year ended December 31, 2018. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results expected for the full year or for any future periods.

Going Concern

These financial statements have been prepared on a going concern basis. The Company has incurred an operating loss of $858,459 for the six months ended June 30, 2019 and as of that date, the Companys current liabilities exceeded its current assets by $1,021,621 which raises substantial doubt about the Companys ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since the Company is currently in the development and trial-production stage, it is still in the capital investing period. The Companys business forecast indicates that the Company will have positive cash inflow after the commencement of formal production. Management believes the Company will have sufficient working capital to meet its financing requirements based on the financial support of shareholders and upon their experience and their assessment of the Companys projected performance, production ability and product market. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 Recently Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which amends existing accounting standards for leases. The ASU requires lessees to recognize most leases on their balance sheet as a lease liability with a corresponding right-of-use asset. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. The criteria for evaluating are similar to those applied in current lease accounting.

The Company elected to transition to Accounting Standards Codification (ASC) 842 using the option to apply the standard on its effective date, January 1, 2019. The comparative periods presented reflect the former lease accounting guidance and the required comparative disclosures are included in Note 3, Leasing Arrangements. There was not a material cumulative-effect adjustment to the beginning accumulated losses as a result of adopting ASC 842. We have recognized additional right-of-use assets of $369,874 and $277,150 as of January 1, 2019 and June 30, 2019 and lease liabilities of $369,874 and $284,409 as of January 1, 2019 and June 30, 2019, respectively. We elected not to reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. For additional disclosure and detail, see Note 3, Leasing Arrangements.

Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In November 2018, FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the scope and transition requirements of ASU 2016-13. Topic 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. Topic 326 will become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. The Company is currently evaluating the impact this guidance will have on the Companys consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to the financial statements by removing, modifying, and adding certain fair value disclosure requirements to facilitate clear communication of the information required by generally accepted accounting principles. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted upon issuance of this ASU. The Company is currently evaluating the impact this guidance will have on the Companys consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This Update states a private company (reporting entity) may elect not to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. This Update also states indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. For the Company, this Update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. All entities are required to apply the amendments in this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted. The adoption of ASU 2018-17 is not expected to have a material impact on the Companys consolidated financial statements in 2019.

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.

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LEASING ARRANGEMENT

6 Months Ended

Jun. 30, 2019

LEASING ARRANGEMENT

NOTE 2 - 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, net, current lease liability, and non-current lease liability, respectively, on the unaudited 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 as of June 30, 2019 was 11%.

Balance Sheet as of June 30, 2019

(In United States dollars)
Assets
Right-of-use assets	277,150
Liabilities
Current portion of operating lease liabilities	189,243
Long-term portion of operating lease liabilities	95,166
Total lease liabilities	284,409

Maturity Analysis of Lease Liabilities:

(In United States dollars)
December 31, 2019	104,270
December 31, 2020	199,959
December 31, 2021	-
December 31, 2022	-
December 31, 2023	-
Thereafter	-
Total lease payments, undiscounted	304,229
Less short-term lease payments	(670	)
Less amount of lease payment representing interest	(19,150	)
Total present value of lease payments	284,409
Less: Current portion of operating leases liabilities	(189,243	)
Non-current operating leases liabilities	95,166

Lease commitment as of December 31, 2018 were as follows:

(In United States dollars)
December 31, 2019	243,100
December 31, 2020	229,500
December 31, 2021	30,000
December 31, 2022	30,000
December 31, 2023	30,000
Thereafter	30,000
	592,600

Other information related to leases is as follows:

June 30, 2019
Total lease liabilities	$	284,409
Cash paid for amounts included in the measurement of lease liabilities within operating cash flows	$	103,600
Weighted average remaining lease term (years)		1.97
Weighted average discount rate		11	%

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OTHER PAYABLES

6 Months Ended

Jun. 30, 2019

OTHER PAYABLES

NOTE 3 - OTHER PAYABLES

	June 30, 2019		December 31, 2018
	(unaudited)
Tax and social insurance payable	$	9,416	$	9,384
Contract liabilities		230,325		215,359
Temporary receipts		488,094		-
Other payables		155,743		12,424
	$	883,578	$	237,167

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SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

6 Months Ended

Jun. 30, 2019

SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

NOTE 4 - SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

(a) Loans from related persons

As of June 30, 2019 and December 31, 2018, loans from related persons included a HK$3 million (equivalent to $383,977) and HK$4 million (equivalent to $510,830) respectively loan borrowed from the wife of one of the shareholders of TGS 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. The Company repaid HK$1 million (equivalent to $127,543) loan on April 24, 2019.

As of December 31, 2018, loans from related persons included a HK$1 million (equivalent to $127,708) loan borrowed from the son of the CFO of TGS on October 6, 2016. The loan is unsecured, has no collateral or guarantee and carries interest at 8% per annum. The loan was fully repaid by issuing new common shares of TGS on May 15, 2019 (see Note 7).

As of December 31, 2018, loans from related persons included HK$1 million (equivalent to$127,708) loan borrowed from the sisters of one of the shareholders of TGS and the ultimate shareholder on October 31, 2016. The loans are unsecured, have no collateral or guarantee and carry interest at 8% per annum. The loan was fully repaid by issuing new common shares of TGS on May 15, 2019 (see Note 7).

(b) Interest expense paid to related persons

During the six-month periods ended June 30, 2019 and 2018, interest expense of HK$267,326 (equivalent to $34,096) and HK$202,237 (equivalent to $25,800), respectively, was paid to related persons.

(c) Amounts due to shareholders

The Company is currently in the development and trial-production stage, the shareholders advanced $254,390 working capital to meet the financing requirement during the first 6 months of 2019. Amounts due to shareholders are unsecured, interest-free and not demand for repayment within 12 months.

(d) Amount due to a director

Amount due to a director included HK$576,000 (equivalent to $73,560) salaries accrued to the director, Tak Shing Eddie Wong as of December 31, 2018. The amount was unsecured, had no collateral or guarantee and was interest-free. The amount was fully settled on February 14, 2019.

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NET LOSS PER SHARE

6 Months Ended

Jun. 30, 2019

NET LOSS PER SHARE

NOTE 5 - NET LOSS PER SHARE

The following table presents the computation of basic and diluted net loss per share for the three and six months ended June 30, 2019 and 2018:

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net loss per share basic and diluted
Net loss	$	(563,909	)	$	(415,999	)	$	(858,459	)	$	(670,931	)
Weighted-average number of common shares outstanding basic and diluted		14,514,438			791			14,393,198			791
Net loss per share
Basic and diluted (Note)	$	(0.04	)	$	(525.92	)	$	(0.06	)	$	(848.21	)

Note: During the three and six months ended June 30, 2019, the Company had warrants 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.

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CAPITAL STOCK

6 Months Ended

Jun. 30, 2019

CAPITAL STOCK

NOTE 6 - CAPITAL STOCK

In the six-months period ended June 30, 2019, the Company issued 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 subscribers. The Company also issued to the placement agent 33,000 common shares at a price of $3.7 per common share for the services rendered (equivalent to $122,100). On May 15, 2019, the Company issued 88,018 common shares at a price of $3.29 to settle the loans from related persons of HK$2 million and interest expenses (equivalent to $289,578).

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WARRANT EQUITY

6 Months Ended

Jun. 30, 2019

WARRANT EQUITY

NOTE 7 - WARRANT EQUITY

On November 21, 2018 (Issuance Date), the Company issued a subscription package (the 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.

The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock. All of the Companys outstanding warrants are considered to be indexed to the Companys 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. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants.

In the six-months period ended June 30, 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 private placement, which was completed on November 21, 2018, forfeited their rights to exercise the 25,000 warrant at $1.00 due to their own accord.

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 $
November 2018		50,000		$	0.07		$	3,490
January 2019		17,000			2.11			35,833
February 2019		10,000			2.11			21,078
March 2019		9,000			2.11			18,970
April 2019		30,000			2.11			63,234
Less: warrants forfeited		(50,000	)		(0.07	)		(3,490	)
As at June 30, 2019		66,000					$	139,115

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NATURE OF OPERATIONS AND GOING CONCERN (Policies)

6 Months Ended

Jun. 30, 2019

NATURE OF OPERATIONS AND GOING CONCERN (Policies)

Reverse merger

On September 14, 2018, the Company and Arcus entered into a Share Exchange Agreement, dated September 14, 2018 with 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. The merger closed on September 14, 2018 and resulted in the following:

Immediately prior to the Share Exchange, 6,500,000 shares of our outstanding common stock were cancelled and retired. A further 30,000 shares were canceled after the Share Exchange.

As a result of the transactions described above, the Company became the record and beneficial owner of 100% of the share capital of Arcus and therefore owns 100% of the share capital of its subsidiaries.

As a result of the Share Exchange, the cancellation of 6,530,000 shares and the issuance of 7,000,000 shares, the Company has 14,000,000 shares of common stock issued and outstanding on September 14, 2018.

The transaction is accounted for as a reverse acquisition, with Arcus being treated as the accounting acquirer for financial reporting purposes. The historical consolidated financial statements include the operations of the accounting acquirer and its subsidiaries for all periods presented.

Basis of Presentation

These accompanying unaudited Consolidated Financial Statements of TGS as of and for the period ended June 30, 2019 have been prepared in accordance with accounting principles generally accepted in United States of America (U.S. GAAP) for interim financial statements. Accordingly, the Consolidated Financial Statements do not include all the information and footnotes required by U.S. GAAP for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2018 has been derived from the Companys annual financial statements that were audited by an independent registered public accounting firm. These Consolidated Financial Statements should be read in conjunction with the annual financial statements and notes thereto in the Companys Form 10-K for the year ended December 31, 2018. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results expected for the full year or for any future periods.

Going Concern

These financial statements have been prepared on a going concern basis. The Company has incurred an operating loss of $858,459 for the six months ended June 30, 2019 and as of that date, the Companys current liabilities exceeded its current assets by $918,388 which raises substantial doubt about the Companys ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since the Company is currently in the development and trial-production stage, it is still in the capital investing period. The Companys business forecast indicates that the Company will have positive cash inflow after the commencement of formal production. Management believes the Company will have sufficient working capital to meet its financing requirements based of the financial support of shareholders and upon their experience and their assessment of the Companys projected performance, production ability and product market. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Recent changes in accounting standards

Recently Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which amends existing accounting standards for leases. The ASU requires lessees to recognize most leases on their balance sheet as a lease liability with a corresponding right-of-use asset. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. The criteria for evaluating are similar to those applied in current lease accounting.

The Company elected to transition to Accounting Standards Codification (ASC) 842 using the option to apply the standard on its effective date, January 1, 2019. The comparative periods presented reflect the former lease accounting guidance and the required comparative disclosures are included in Note 3, Leasing Arrangements. There was not a material cumulative-effect adjustment to the beginning accumulated lossesas a result of adopting ASC 842. We have recognized additional right-of-use assets of $369,874 and $277,149 as of January 1, 2019 and June 30, 2019 and lease liabilitiesof $369,874 and $284,409 as of January 1, 2019 and June 30, 2019, respectively. We elected not to reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. For additional disclosure and detail, see Note 3, Leasing Arrangements.

Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In November 2018, FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the scope and transition requirements of ASU 2016-13. Topic 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. Topic 326 will become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. The Company is currently evaluating the impact this guidance will have on the Companys consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to the financial statements by removing, modifying, and adding certain fair value disclosure requirements to facilitate clear communication of the information required by generally accepted accounting principles. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted upon issuance of this ASU. The Company is currently evaluating the impact this guidance will have on the Companys consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This Update states a private company (reporting entity) may elect not to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. This Update also states indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. For the Company, this Update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. All entities are required to apply the amendments in this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted. The adoption of ASU 2018-17 is not expected to have a material impact on the Companys consolidated financial statements in 2019.

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.

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LEASING ARRANGEMENT (Tables)

6 Months Ended

Jun. 30, 2019

LEASING ARRANGEMENT (Tables)

Schedule of Leasing Arrangement

Balance Sheet as of June 30, 2019

(In United States dollars)
Assets
Right-of-use assets	277,150
Liabilities
Current portion of operating lease liabilities	189,243
Long-term portion of operating lease liabilities	95,166
Total lease liabilities	284,409

Maturity Analysis of Lease Liabilities:

(In United States dollars)
December 31, 2019	104,270
December 31, 2020	199,959
December 31, 2021	-
December 31, 2022	-
December 31, 2023	-
Thereafter	-
Total lease payments, undiscounted	304,229
Less short-term lease payments	(670	)
Less amount of lease payment representing interest	(19,150	)
Total present value of lease payments	284,409
Less: Current portion of operating leases liabilities	(189,243	)
Non-current operating leases liabilities	95,166

Lease commitment as of December 31, 2018 were as follows:

(In United States dollars)
December 31, 2019	243,100
December 31, 2020	229,500
December 31, 2021	30,000
December 31, 2022	30,000
December 31, 2023	30,000
Thereafter	30,000
	592,600

Other information related to leases is as follows:

June 30, 2019
Total lease liabilities	$	284,409
Cash paid for amounts included in the measurement of lease liabilities within operating cash flows	$	103,600
Weighted average remaining lease term (years)		1.97
Weighted average discount rate		11	%

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OTHER PAYABLES (Tables)

6 Months Ended

Jun. 30, 2019

OTHER PAYABLES

Schedule Of OTHER PAYABLES

	June 30, 2019		December 31, 2018
	(unaudited)
Tax and social insurance payable	$	9,416	$	9,384
Contract liabilities		230,325		215,359
Temporary receipts		488,094		-
Other payables		155,743		12,424
	$	883,578	$	237,167

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NET LOSS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2019

NET LOSS PER SHARE (Tables)

Computation of basic and diluted net loss per share

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net loss per share basic and diluted
Net loss	$	(563,909	)	$	(415,999	)	$	(858,459	)	$	(670,931	)
Weighted-average number of common shares outstanding basic and diluted		14,514,438			791			14,393,198			791
Net loss per share
Basic and diluted (Note)	$	(0.04	)	$	(525.92	)	$	(0.06	)	$	(848.21	)

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WARRANT EQUITY (Tables)

6 Months Ended

Jun. 30, 2019

WARRANT EQUITY (Tables)

Schedule of warrants outstanding and fair value

Grant date	Warrants Outstanding			Fair Value per Share			Fair Value $
November 2018		50,000		$	0.07		$	3,490
January 2019		17,000			2.11			35,833
February 2019		10,000			2.11			21,078
March 2019		9,000			2.11			18,970
April 2019		30,000			2.11			63,234
Less: warrants forfeited		(50,000	)		(0.07	)		(3,490	)
As at June 30, 2019		66,000					$	139,115

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NATURE OF OPERATIONS AND GOING CONCERN (Detail Narrative) - USD ($)		3 Months Ended		6 Months Ended
	Sep. 14, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jan. 01, 2019	Dec. 31, 2018
State country name				Nevada
Date of incorporation				Dec. 01, 2016
Operating loss		$ (563,909)	$ (415,999)	$ (858,459)	$ (670,931)
Common stock shares issued		14,616,018		14,616,018			14,165,000
Common stock shares outstanding		14,616,018		14,616,018			14,165,000
Current liabilities exceeded current asset				$ 1,021,621
Right-of-use assets		$ 277,150		277,150		$ 369,874
Lease liabilities		$ 284,409		$ 284,409		$ 369,874
Share Exchange Agreement [Member]
Common stock shares issued	14,000,000
Common stock shares outstanding	14,000,000
Common stock shares issued for exchange shares	7,000,000
Common stock shares cancelled	6,500,000
Common stock shares to be cancelled	30,000
Common stock cancellation for exchange shares	6,530,000
Ownership percentage	100.00%

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LEASING ARRANGEMENT (Details)	Jun. 30, 2019 USD ($)
Assets
Right-of-use assets	$ 277,150
Liabilities
Current portion of operating lease liabilities	189,243
Long-term portion of operating lease liabilities	95,166
Total lease liabilities	$ 284,409

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LEASING ARRANGEMENT (Details 1)	Jun. 30, 2019 USD ($)
LEASING ARRANGEMENT (Details)
December 31, 2019	$ 104,270
December 31, 2020	199,959
December 31, 2021
December 31, 2022
December 31, 2023
Thereafter
Total lease payments, undiscounted	304,229
Less short-term lease payments	(670)
Less amount of lease payment representing interest	(19,150)
Total present value of lease payments	284,409
Less: Current portion of operating leases liabilities	(189,243)
Non-current operating leases liabilities	$ 95,166

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LEASING ARRANGEMENT (Details 2)	Dec. 31, 2018 USD ($)
LEASING ARRANGEMENT (Details 2)
December 31, 2019	$ 243,100
December 31, 2020	229,500
December 31, 2021	30,000
December 31, 2022	30,000
December 31, 2023	30,000
Thereafter	30,000
Aggregate minimum payments	$ 592,600

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LEASING ARRANGEMENT (Details 3)	Jun. 30, 2019 USD ($)
LEASING ARRANGEMENT (Details 3)
Total present value of lease payments	$ 284,409
Cash paid for amounts included in the measurement of lease liabilities within operating cash flows	$ 103,600
Weighted average remaining lease term (years)	1 year 11 months 19 days
Weighted average discount rate	11.00%

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LEASING ARRANGEMENT (Details Narrative)	Jun. 30, 2019
LEASING ARRANGEMENT (Details 2)
Weighted average discount rate	11.00%

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OTHER PAYABLES (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
OTHER PAYABLES
Tax and social insurance payable	$ 9,416	$ 9,384
Contract liabilities	230,325	215,359
Temporary receipts	488,094
Other payables	155,743	12,424
Other payables	$ 883,578	$ 237,167

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SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Apr. 24, 2019	Dec. 31, 2018
Loans from related parties	$ 383,977		$ 383,977			$ 766,246
Interest expense			(34,096)	$ (25,800)
Advances from shareholders			254,390	383,698
Interest expense	(28,452)	$ (25,661)	(50,444)	(30,698)
Loans Payable [Member]
Loans from related parties	383,977		$ 383,977		$ 127,543	510,830
Interest rate, description			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.
Maturity date			May 20, 2019
Extended maturity date			May 20, 2020
Loans Payable [Member] | Son of CFO [Member]
Loans from related parties						127,708
Maturity date			May 15, 2019
Interest rate	8.00%		8.00%
Loans Payable [Member] | Sister of Shareholder [Member]
Loans from related parties						$ 127,708
Maturity date			May 15, 2019
Interest rate	8.00%		8.00%
Loans Payable [Member] | Related persons [Member]
Interest expense			$ 34,096	$ 25,800
Loans Payable [Member] | Director [Member]
Loans from related parties	$ 73,560		$ 73,560

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NET LOSS PER SHARE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
NET LOSS PER SHARE (Details)
Net loss	$ (563,909)	$ (415,999)	$ (858,459)	$ (670,931)
Weighted-average number of common shares outstanding - basic and diluted	14,514,438	791	14,393,198	791
Basic and diluted (Note)	$ (0.04)	$ (525.92)	$ (0.06)	$ (848.21)

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CAPITAL STOCK (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended
	May 15, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Amount of subscription package issued		$ 825,000		$ 825,000
Class of warrants or rights reserved for future issuance		33,000		33,000
Common stock shares reserved for future issuance		66,000		66,000
Exercise price		$ 1.00		$ 1.00
Term of warrants				3 years
Interest expenses		$ (28,452)	$ (25,661)	$ (50,444)	$ (30,698)
Loans from related parties		383,977		383,977		$ 766,246
Placement Agent [Member]
Common shares issued	$ 88,018	$ 33,000		$ 33,000
Share price	$ 3.29	$ 3.7		$ 3.7
Interest expenses	$ 289,578
Cost of services rendered				122,100
Loans from related parties	$ 2,000,000

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Warrant Equity (Details)	Jun. 30, 2019 USD ($) $ / shares shares
Warrants forfeited, warrants outstanding	$ (50,000)
Warrants forfeited, fair value per share | $ / shares	$ (0.07)
Warrants forfeited, fair value	$ (3,490)
April 2019 [Member]
Grant date warrants outstanding | shares	30,000
Grant date fair value per Share | $ / shares	$ 2.11
Grant date fair value	$ 63,234
November 2018 [Member]
Grant date warrants outstanding | shares	50,000
Grant date fair value per Share | $ / shares	$ 0.07
Grant date fair value	$ 3,490
January 2019 [Member]
Grant date warrants outstanding | shares	17,000
Grant date fair value per Share | $ / shares	$ 2.11
Grant date fair value	$ 35,833
February 2019 [Member]
Grant date warrants outstanding | shares	10,000
Grant date fair value per Share | $ / shares	$ 2.11
Grant date fair value	$ 21,078
March 2019 [Member]
Grant date warrants outstanding | shares	9,000
Grant date fair value per Share | $ / shares	$ 2.11
Grant date fair value	$ 18,970
June 30, 2019 [Member]
Grant date warrants outstanding | shares	66,000
Grant date fair value per Share | $ / shares
Grant date fair value	$ 139,115

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Warrant Equity (Details Narrative) - USD ($)		1 Months Ended	6 Months Ended
	May 15, 2019	Nov. 21, 2018	Jun. 30, 2019
Description for forfeiture of right to exercise by investor		The two investors in the first private placement, which was completed on November 21, 2018, forfeited their rights to exercise the 25,000 warrant at $1.00 due to their own accord.
Amount of subscription package issued			$ 825,000
Class of warrants or rights reserved for future issuance			33,000
Common stock shares reserved for future issuance			66,000
Exercise price			$ 1.00
Term of warrants			3 years
Subscription package [Member]
Amount of subscription package issued		$ 52,500
Class of warrants or rights reserved for future issuance		150,000
Common stock shares reserved for future issuance		50,000
Exercise price		$ 1.00
Term of warrants		3 years
Second Subscription package [Member]
Amount of subscription package issued			$ 825,000
Class of warrants or rights reserved for future issuance			330,000
Common stock shares reserved for future issuance			66,000
Exercise price			$ 3.00
Term of warrants			3 years