Filing summary
Entity and period: The supplied filing identifies the issuer as Aquasition Corp., a Marshall Islands blank-check company—not JX Luxventure Group Inc. It is an annual Form 20-F for the fiscal year ended December 31, 2013, filed May 15, 2014; it does not provide standalone 2013 Q4 financial results. The company reported under U.S. GAAP and had not begun revenue-generating operations.
Financial performance and condition
| Metric | FY 2013 / Dec. 31, 2013 | Comparison |
|---|---|---|
| Revenue | None | No operating revenue in either period |
| General and administrative expense | $338,521 | $48,388 from inception on Jan. 26 through Dec. 31, 2012 |
| Net loss | $375,991 | $3,108,717 for the 2012 inception period |
| Net loss per share, basic and diluted | $0.16 | $2.01 for the 2012 inception period |
| Interest income | $7,972 | $3,785 for the 2012 inception period |
| Cash used in operating activities | $243,212 | $26,666 for the 2012 inception period |
| Cash and cash equivalents outside trust | $27,918 | $328,235 at Dec. 31, 2012 |
| Investments held in trust | $57,168,785 | Unchanged from Dec. 31, 2012 |
| Total assets | $57,219,407 | $57,497,020 at Dec. 31, 2012 |
| Total liabilities | $3,634,107 | $3,535,729 at Dec. 31, 2012 |
| Stockholders’ equity | $2,136,800 | $2,512,791 at Dec. 31, 2012 |
The 2013 loss primarily reflected operating expenses and a $45,442 loss from the change in warrant fair value. The much larger 2012 loss included a $3,064,114 warrant fair-value loss; warrant remeasurement is non-cash and can cause reported earnings to fluctuate. 2012 is a shorter inception-to-year-end period, so it is not a full-year comparison.
Current assets were $50,622 against current liabilities of $201,667, implying a working-capital deficit of approximately $151,045. Related-party advances payable were $69,904; the company reported no balance on its related-party promissory notes at year-end. Warrant liability was $3,432,440. Separately, 4,995,000 redeemable shares were classified outside permanent equity at a redemption value of $51,448,500. The trust funds were restricted for an acquisition or liquidation, not ordinary operating needs.
Changes, outlook, risks and unusual items
- Liquidity and going concern: The auditor’s report and management disclosures state that cash and working capital were insufficient for planned activities and raise substantial doubt about the company’s ability to continue as a going concern. Management expected to use remaining funds outside the trust, permitted trust interest, contingent vendor arrangements and potentially new financing; founders and directors were not obligated to provide funding.
- Acquisition plan: On March 24, 2014, Aquasition agreed to acquire Hongri International Holdings Ltd., a subsidiary of KBS International Holdings, Inc. The proposed consideration was Aquasition shares, with approximately 26.8 million shares cited as an estimate elsewhere in the filing. The agreement’s formula uses target 2013 adjusted EBITDA multiplied by six, less long-term debt plus cash, divided by $10.30, subject to a minimum ownership condition for KBS. The transaction was not completed as of the filing date and was subject to a tender offer and other closing conditions.
- Deadline and transaction funding: The filing states an extended acquisition deadline of August 1, 2014, with liquidation contemplated if no qualifying transaction closed. The proposed transaction required no more than 90% of public shares to be tendered and at least $10 million to remain available to the combined company immediately after closing, excluding target cash and assets.
- Fees and related parties: The company accrued $90,000 of 2013 rent/administrative expense under its $7,500-per-month arrangement with an affiliate of its founders; $105,000 was included in related-party payables at year-end. Transaction-contingent advisory and finder fees disclosed for the proposed acquisition included a $1.25 million cash fee to SunTrust, fees to Early Bird Capital, and a finder’s fee based on target equity value.
- Controls: Management concluded disclosure controls and internal control over financial reporting were not effective at December 31, 2013, citing insufficient qualified financial-reporting personnel and internal resources. The company engaged external reporting specialists and added review procedures. The auditor did not issue an opinion on internal-control effectiveness.
- Other notable risks: Nasdaq had notified the company that it did not meet the minimum 300-public-holder requirement; its plan to regain compliance had been submitted but not yet accepted as of the filing. Other risks include claims against trust assets, high shareholder redemptions, warrant dilution or expiry, conflicts of interest, and potential PFIC tax consequences for U.S. investors. The company believed it was a PFIC for 2013 but had not completed a definitive analysis.
Most important facts to verify
- Confirm the filing is intended for this request: the document names Aquasition Corp., not JX Luxventure Group Inc.
- Verify the proposed KBS/Hongri acquisition’s final consideration, audited target EBITDA and debt/cash inputs, closing status, and post-closing ownership and liquidity.
- Check the trust balance available after redemptions, deferred underwriting fees, transaction costs, and any claims; distinguish restricted trust assets from operating cash.
- Review subsequent filings for Nasdaq holder compliance, tender-offer results, and whether the acquisition deadline was met or extended.
- Assess remediation of the disclosed financial-reporting control weaknesses and obtain tax advice concerning PFIC status if relevant.