Tecnoglass Inc. (formerly Andina Acquisition Corporation) — Form 10-Q summary
Reporting period: Unaudited quarter and nine months ended November 30, 2013; balance-sheet comparisons are to February 28, 2013. Amounts are in U.S. dollars. This filing reports the pre-merger blank-check company, not the operating Tecnoglass and ES businesses. The business combination closed on December 20, 2013, after the reporting date.
Financial results and liquidity
| Metric | Three months ended Nov. 30, 2013 | Three months ended Nov. 30, 2012 | Nine months ended Nov. 30, 2013 | Nine months ended Nov. 30, 2012 |
|---|---|---|---|---|
| Revenue | No operating revenue | No operating revenue | No operating revenue | No operating revenue |
| General and administrative expenses | $322,365 | $95,034 | $518,504 | $319,865 |
| Change in warrant fair value | $(3,132,000) | $1,038,000 | $(3,301,000) | $(10,738,000) |
| Interest income | $2,580 | $9,570 | $21,537 | $22,027 |
| Net income (loss) | $(3,451,785) | $952,536 | $(3,797,967) | $(11,035,838) |
| Basic and diluted earnings (loss) per share | $(2.19) | $0.60 | $(2.41) | $(7.01) |
Revenue-based margins are not applicable because the company had no operating revenue before the merger. The quarterly swing from income to loss primarily reflects the warrant remeasurement; the filing says the prior-year comparative figures were revised for a warrant-accounting error.
- Cash and liquidity at Nov. 30: $9,959 in operating cash and $42.744 million in trust assets, including $4,108 of accrued interest. Trust funds were restricted for the business combination. Working capital was negative $476,501.
- Liabilities at Nov. 30: $490,568 current liabilities, including a $100,000 shareholder note, $150,000 shareholder advance and $240,568 accounts payable; $14.270 million warrant liability; $14.761 million total liabilities. The balance sheet also reported $37.397 million of ordinary shares subject to possible conversion as temporary equity and a $9.404 million shareholders’ deficit.
- Cash flow for nine months: $289,000 used in operating activities, no investing cash flow, and $250,000 provided by shareholder financing. Cash decreased by $39,000 to $9,959.
- Debt and liquidity context: The shareholder note was non-interest-bearing and due upon a business combination. Cash on hand was limited, with operations funded in part by shareholder financing and trust-account interest available for working capital.
Changes, transaction and outlook
- The nine-month net loss narrowed versus the prior-year comparable period, largely because the prior period included a larger warrant fair-value loss. The current quarter’s loss contrasts with prior-year quarterly income, chiefly because the warrant fair-value adjustment changed from a gain to a loss.
- At the Dec. 20, 2013 merger closing, 2,251,853 public shares were converted for approximately $22.9 million at about $10.18 per share. The remaining trust funds were used to pay approximately $3.1 million of transaction expenses, with the balance available for working capital. These are post-period events, not November 30 balances.
- The former Tecnoglass Holding shareholders received 20,567,141 ordinary shares, with 3,000,000 additional shares placed in escrow and subject to share-price or EBITDA targets for 2014–2016. EBITDA thresholds range from $30 million to $45 million, depending on year and target level.
- Two investors subsequently agreed to purchase 649,382 shares for $6.61 million; the transaction closed January 16, 2014. The filing provides no operating-company guidance or forecast for the acquired business.
- Management identified risks and uncertainty typical of a development-stage acquisition company. The warrant liability was valued using a Level 3 model with significant unobservable inputs; changes in its estimated fair value materially affected reported earnings. Management stated that short-maturity Treasury investments did not create material interest-rate risk and reported no off-balance-sheet arrangements at November 30.
- Disclosure controls and procedures were deemed ineffective as of November 30 because the company lacked personnel with the qualifications to prepare complete GAAP financial statements and footnotes, resulting in a warrant-accounting error. Management reported no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm that the acquired operating businesses’ results are assessed using post-merger filings; this 10-Q contains no operating revenue or results for Tecnoglass and ES.
- Review the correction and accounting treatment for warrants, including the assumptions behind the $14.270 million Level 3 liability and its effect on earnings.
- Check post-closing cash, transaction costs, shareholder conversions, and subsequent equity financing against later filings.
- Track whether the escrowed earnout shares are earned under the specified share-price or EBITDA conditions and how dilution may affect shareholders.
- Review remediation of the disclosed ineffective controls and the company’s subsequent financial-reporting disclosures.