Business context and reporting period
This is Andina Acquisition Corporation’s Form 10-Q for the quarter ended August 31, 2013—not an operating-company 10-Q filed by Tecnoglass Holdings Inc. Andina was a development-stage blank-check company with no operating revenue. On August 17, 2013, it agreed to combine with Tecnoglass S.A. and C.I. Energia Solar S.A. E.S. Windows (ES), manufacturers of architectural glass and windows. The proposed transaction remained subject to shareholder approval and other closing conditions.
Financial results and liquidity
| Metric | Period / value |
|---|---|
| Revenue | None; Andina had not commenced operations. |
| Net income (loss) | Three months ended August 31, 2013: loss of $536,638, versus income of $175,013 in the comparable 2012 quarter. Six months ended August 31, 2013: loss of $346,182, versus loss of $11,988,374 in 2012. |
| Operating and formation costs | $120,173 for the 2013 quarter and $196,139 for the six-month period. No operating margin is meaningful because Andina had no revenue. |
| Warrant fair-value changes | Loss of $426,000 in the 2013 quarter; six-month net loss of $169,000. These non-cash valuation changes materially affected reported earnings. |
| Interest income | $9,535 for the quarter and $18,957 for the six months ended August 31, 2013. |
| Cash flow | Six-month operating cash use was $131,394. Investing cash flow was zero; financing provided $100,000, a shareholder-related loan. |
| Assets and liquidity at August 31, 2013 | Total assets were $42,804,513, including $42,740,000 held in trust and $17,565 in operating cash. The company reported a $156,716 working-capital deficit. |
| Liabilities | Total liabilities were $11,359,229, including $221,229 of current liabilities and an $11,138,000 warrant liability. A $100,000 unsecured, non-interest-bearing shareholder-related note was payable upon a business combination. |
The trust held approximately $42.787 million including accrued interest. It was intended primarily for a business combination and was not equivalent to unrestricted operating liquidity. The filing reports no off-balance-sheet arrangements.
Material changes versus comparable periods
- The 2013 quarter shifted from prior-year net income to a net loss, principally reflecting a $426,000 warrant fair-value loss; 2012 included a $334,000 warrant fair-value gain.
- The six-month 2013 loss was substantially smaller than the prior-year loss, which included an $11.776 million warrant fair-value loss. The 2013 six-month warrant valuation change was a net $169,000 loss.
- The August 31, 2013 balance sheet showed $17,565 of operating cash, versus $48,959 at February 28, 2013; the trust balance remained $42.74 million before accrued interest.
- The 2012 comparative statements were revised to correct an error in accounting for outstanding warrants. The filing says disclosure controls were ineffective, in part because the company lacked personnel with the qualifications needed to prepare complete GAAP financial statements and footnotes.
Merger, outlook, risks, and contingencies
- The agreement contemplated issuing 17.525 million Andina ordinary shares to the reorganized target-company shareholders, plus up to 3 million earnout shares tied to specified share-price or EBITDA targets for fiscal 2014–2016. Target shareholders’ shares were generally subject to a one-year lockup.
- The transaction required Andina shareholder approval and that holders of no more than 87.5% of public shares exercise conversion rights, as well as other customary conditions. The filing did not provide Tecnoglass or ES historical financial results or transaction pro forma financial statements.
- Andina had to complete a business combination by December 22, 2013 or face liquidation under its governing documents. Public shareholders had conversion rights; liquidation or high conversion levels could prevent or alter the transaction.
- Management stated that available operating funds and eligible trust interest might be insufficient to meet working-capital needs. Additional financing was not assured, and no shareholder, officer, or director was obligated to provide it. The filing states these conditions raised substantial doubt about Andina’s ability to continue as a going concern.
- Nasdaq notified Andina that it had not demonstrated compliance with the 300-public-holder minimum by the September 10, 2013 deadline. Andina appealed the subsequent staff determination; continued listing was not assured.
- The warrant liability was a Level 3 fair-value estimate based on a binomial lattice model and unobservable inputs. Changes in assumptions could materially affect reported results.
- The filing noted that trust assets could be exposed to third-party claims despite efforts to obtain waivers; the chairman’s related undertaking to cover certain claims was not assured. Andina also disclosed contingent transaction-advisory fees payable upon closing.
Important facts for investors to verify
- Confirm the correct issuer and filing: this report is for Andina Acquisition Corporation, not Tecnoglass Holdings Inc., and covers the period ended August 31, 2013.
- Review the merger’s final terms, closing conditions, shareholder vote, public-share conversions, and any subsequent closing or termination disclosures.
- Assess the target companies’ audited financial statements, debt, cash flow, and pro forma capitalization; those operating-company metrics are not supplied in this filing.
- Verify Andina’s Nasdaq listing status, business-combination deadline, available unrestricted cash, and ability to fund obligations and transaction costs.
- Review the warrant valuation assumptions and the disclosed financial-reporting control deficiency and correction of prior-period warrant accounting.