| Basis of Presentation and Summary of Significant Accounting Policies | Note 2. Basis of Presentation and
Summary of Significant Accounting Policies Basis of Presentation and Use of
Estimates The accompanying unaudited, condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities
and Exchange Commission (“SEC”) for interim reporting purposes. The results reported in these unaudited condensed consolidated
financial statements are not necessarily indicative of results that may be expected for the entire year. These unaudited condensed
consolidated financial statements should be read in conjunction with the information contained in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2016. The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by US GAAP. Prior year financial information has
been retroactively adjusted for an acquisition under common control. As the acquisition of ESW LLC was deemed to be a transaction
between entities under common control, the assets and liabilities were transferred at the historical cost of ESW LLC, with prior
periods retroactively adjusted to include the historical financial results of the acquired company for the period they were controlled
by ESW LLC in the Company’s financial statements. The accompanying financial statements and related notes have been retroactively
adjusted to include the historical results and financial position of the acquired company prior to the acquisition date during
the periods the assets were under common control. All financial information presented for the periods after the ESW LLC acquisition
represent the consolidated results of operations, financial position and cash flows of the Company with retroactive adjustments
of the results of operations, financial position and cash flows of the acquired company during the periods the assets were under
common control. The preparation of these unaudited,
condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts
of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the
Company’s financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Estimates inherent in the preparation of these condensed consolidated financial statements relate to the collectability of account
receivables, the valuation of inventories, estimated earnings on uncompleted contracts, useful lives and potential impairment of
long-lived assets. Based on information known before these unaudited, condensed consolidated financial statements were available
to be issued, there are no estimates included in these statements for which it is reasonably possible that the estimate will change
in the near term up to one year from the date of these financial statements and the effect of the change will be material . These
financial statements reflect all adjustments that in the opinion of management are necessary for a fair statement of the financial
position, results of operations and cash flows for the period presented, and are of a normal, recurring nature. Principles of Consolidation These unaudited condensed consolidated
financial statements consolidate TGI, its subsidiaries TG, ES and ESW LLC, Tecno LLC, Tecno RE, GM&P and Componenti USA LLC,
which are entities in which we have a controlling financial interest because we hold a majority voting interest. To determine if
we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity
(“VIE”) model to the entity, otherwise the entity is evaluated under the voting interest model. All significant intercompany
accounts and transactions are eliminated in consolidation, including unrealized intercompany profits and losses. Non-controlling interest When the company owns a majority (but
less than 100%) of a subsidiary’s stock, the company include in its condensed consolidated Financial Statements the non-controlling
interest in the subsidiary. The non-controlling interest in the Condensed Consolidated Statements of Operations and Other Comprehensive
Income is equal to the non-controlling proportionate share of the subsidiary’s net income and, as included in Shareholders’
Equity on the Consolidated Balance Sheet, is equal to the non-controlling proportionate share of the subsidiary’s net assets. Foreign Currency Translation The condensed consolidated financial
statements are presented in U.S. Dollars, the reporting currency. Our foreign subsidiaries’ local currency is the Colombian
Peso, which is also their functional currency as determined by the analysis of markets, costs and expenses, assets, liabilities,
financing and cash flow indicators. As such, our subsidiaries’ assets and liabilities are translated at the exchange rate
in effect at the balance sheet date, with equity being translated at the historical rates. Revenues and expenses of our foreign
subsidiaries are translated at the average exchange rates for the period. The resulting cumulative foreign currency translation
adjustments from this process are included as a component of accumulated other comprehensive income (loss). Therefore, the U.S.
Dollar value of these items in our financial statements fluctuates from period to period. Also, exchange gains and losses arising
from transactions denominated in a currency other than the functional currency are included in the condensed consolidated statement
of operations as foreign exchange gains and losses . Business combinations We allocate the total purchase price
of the acquired tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the
business combination date, with the excess purchase price recorded as goodwill. The purchase price allocation process required
us to use significant estimates and assumptions, including fair value estimates, as of the business combination date. Although
we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience
and information obtained from management of the acquired company, in part based on valuation models that incorporate projections
of expected future cash flows and operating plans and are inherently uncertain. Valuations are performed by management or third
party valuation specialists under management’s supervision. In determining the fair value of assets acquired and liabilities
assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: the income approach
(including the cost saving method and the discounted cash flows from relief from royalty), the market approach and/or the replacement
cost approach. Examples of significant estimates used to value certain intangible
assets acquired include but are not limited to:
● sales volume, pricing and future cash flows of the business overall
● future expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels, rates of increase in revenue and appropriate attrition rate
● the acquired company’s brand and competitive position, royalty rate, as well as assumptions about the period of time the acquired brand will continue to benefit to the combined company’s product portfolio
● cost of capital, risk-adjusted discount rates and income tax rates However, different assumptions regarding
projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of assets
and liabilities, mainly between property, plant and equipment, intangibles assets, goodwill and deferred income tax liabilities
and subsequent assessment could result in future impairment charges. The purchase price allocation process also entails us to refine
these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances
existing at acquisition date. Acquisitions under
common control are recorded retroactively starting from the first date of common control. Instead of using fair value, the Company
consolidates the financial statements of the entity acquired using the existing carrying values. Revenue Recognition Our principal sources of revenue are
derived from product sales of manufactured glass and aluminum products. Revenue is recognized when (i) persuasive evidence of an
arrangement exists in the form of a signed purchase order or contract, (ii) delivery has occurred per contracted terms, (iii) fees
and prices are fixed and determinable, and (iv) collectability of the sale is reasonably assured. All revenue is recognized net
of discounts, returns and allowances. Delivery to the customer is deemed to have occurred when the title is passed to the customer.
Generally, title passes to the customer upon shipment, but title transfer may occur when the customer receives the product based
on the terms of the agreement with the customer. Revenues from fixed price contracts,
which amount to 33% and 17% of the Company’s sales for the three months ended March 31, 2017 and 2016, respectively, and
are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated
costs for each contract. Revenues recognized in advance of amounts billable pursuant to contracts terms are recorded as unbilled
receivables on uncompleted contracts based on work performed and costs to date. Unbilled receivables on uncompleted contracts are
billable upon various events, including the attainment of performance milestones, delivery and installation of products, or completion
of the contract. Revisions to cost estimates as contracts progress have the effect of increasing or decreasing expected profits
each period. Changes in contract estimates occur for a variety of reasons, including changes in contract scope, estimated revenue
and estimated costs to complete. Provisions for estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in contract performance and estimated profitability may result in revisions to costs and income
and are recognized in the period in which the revisions are determined and have not had a material effect on the Company’s
financial statements. Property, Plant and Equipment Property, plant and equipment are recorded
at cost. Significant improvements and renewals that extend the useful life of the asset are capitalized. Interest incurred while
acquired property is under construction and installation are capitalized. Repairs and maintenance are charged to expense as incurred.
When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts
and any related gains or losses are included in income as a reduction to, or increase in operating expenses. Depreciation is computed
on a straight-line basis, based on the following estimated useful lives:
Buildings 20 years
Machinery and equipment 10 years
Furniture and fixtures 10 years
Office equipment and software 5 years
Vehicles 5 years Intangible Assets Intangible assets with definite lives
subject to amortization are amortized on a straight-line basis. We also review these intangibles for impairment when events or
significant changes in circumstance indicate that the carrying value may not be recoverable. Events or circumstances that indicate
that impairment testing may be required include the loss of a significant customer, loss of key personnel or a significant adverse
change in business climate or regulations. There were no triggering events or circumstances noted and as such no impairment was
needed for the intangible assets subject to amortization. See Note 8 - Goodwill and Intangible Assets for additional information. Earn out shares liability In accordance with ASC 815 - Derivatives
and hedging Warrant liability An aggregate 9,200,000 warrants were
issued as a result of the Public Offering, the Private Placement and the Merger. Of the aggregate total, 4,200,000 warrants were
issued in connection with the Public Offering (“IPO Warrants”), 4,800,000 warrants were issued in connection with the
Private Placement (“Insider Warrants”), and 200,000 warrants were issued upon conversion of a promissory note at the
closing of the Merger (“Working Capital Warrants”). The Company classifies the warrant instruments as a liability at
their fair value because the warrants do not meet the criteria for equity treatment under guidance contained in ASC 815-40-15-7D.
The aggregate liability is subject to re-measurement at each balance sheet date and adjusted at each reporting period until exercised
or expired, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations. When the warrants are exercised for
ordinary shares, the Company re-measures the fair value of the exercised warrants as of the date of exercise using available fair
value methods and records the change in fair value in the condensed consolidated statement of operations, and records the fair
value of the exercised warrants as additional paid in capital in the shareholders equity section of the Company’s condensed
consolidated balance sheet. The Company’s warrants expired per their own terms on December 20, 2016. Income Taxes The Company’s operations in Colombia
are subject to the taxing jurisdiction of the Republic of Colombia. ESW LLC, GM&P, Componenti USA LLC, Tecnoglass LLC and Tecno
RE LLC are subject to the taxing jurisdiction of the United States . TGI and Tecnoglass Holding are subject to the taxing jurisdiction
of the Cayman Islands. Annual tax periods prior to December 2014 are no longer subject to examination by taxing authorities in
Colombia. The Company believes that its income
tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material
changes to its financial position. There are no significant uncertain tax positions requiring recognition in the Company’s
condensed consolidated financial statements. The Company records interest and penalties, if any, as a component of income tax expense. The Company accounts for income taxes
under the asset and liability model (ASC 740 “Income Taxes”) and recognizes deferred tax assets and liabilities for
the expected impact of differences between the financial statements and tax bases of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carry forwards. A valuation allowance is established when management
determines that it is more likely than not that all or a portion of deferred tax assets will not be realized. ASC 740 also clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. Earnings per Share Basic earnings per share is computed
by dividing net income by the weighted-average number of ordinary shares outstanding during the period. Income per share assuming
dilution (diluted earnings per share) would give effect to dilutive options, warrants, earnout shares, and other potential ordinary
shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. The calculation of diluted earnings
per share for the three months ended March 31, 2017 reflect 718,102 dilutive securities related to the annualized dividend declared
of $0.50 per share authorized on August 4, 2016 by the Board of Directors. For the three months ended March 31, 2016, the Company
considered the dilutive effect of warrants to purchase ordinary shares, unit purchase options exercisable into ordinary shares,
and shares issuable under the earnout agreement in the calculation of diluted income per share, which resulted in 3,139,118 shares
of dilutive securities. The following table sets forth the computation
of the basic and diluted earnings per share for the three months ended March 31, 2017 and 2016:
Three months ended March 31,
2017 2016
Net Income $ 1,019 $ 14,356
Denominator
Denominator for basic earnings per ordinary share - weighted average shares outstanding 33,480,430 28,220,885
Effect of dilutive warrants, options, earnout shares, and stock dividends declared 718,103 3,139,118
Denominator for diluted earnings per ordinary share - weighted average shares outstanding 34,198,533 31,360,003
Basic earnings per ordinary share $ 0.03 $ 0.51
Diluted earnings per ordinary share $ 0.03 $ 0.46 Product Warranties The Company offers product warranties
in connection with the sale and installation of its products that are competitive in the markets in which the products are sold.
Standard warranties depend upon the product and service, and are generally from five to ten years for architectural glass, curtain
wall, laminated and tempered glass, window and door products. Warranties are not priced or sold separately and do not provide the
customer with services or coverages in addition to the assurance that the product complies with original agreed-upon specifications.
Claims are settled by replacement of the warrantied products. The Company evaluated historical information regarding claims for
replacements under warranties and concluded that the costs that the Company has incurred in relation to these warranties have not
been material. Recently acquired GM&P provides
certain product warranties based on warranty contracts with its customers at the time of sale. Warranty expense is charged to operating
expenses. Non-Operating Income, net The Company recognizes non-operating
income from foreign currency transaction gains and losses, interest income on receivables, proceeds from sales of scrap materials
and other activities not related to the Company’s operations. Foreign currency transaction gains and losses occur when monetary
assets, liabilities, payments and receipts that are denominated in currencies other than the Company’s functional currency
are recorded in the Colombian peso accounts of the Company in Colombia. Shipping and Handling Costs The Company classifies amounts billed
to customers related to shipping and handling as product revenues. The Company records and presents shipping and handling costs
in selling expenses. Shipping and handling costs for the three months ended March 31, 2017 and 2016 were $3,132 and $2,930, respectively. Dividends Payable The company accounts for its dividend
declared as a liability under ASC 480 - Distinguishing Liabilities from Equity since the shareholder have the option to elect cash
or stock, and reclassifies from dividend payable to additional paid-in capital when shareholders elects a stock dividend instead
of cash. The dividend payable is not subject to re-measurement at each balance sheet date since the dividend is a fixed monetary
amount known at inception and thus no change in fair value adjustment is necessary. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU
2016-02 “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU 2016-02 to increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information
about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make
lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease
term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly
changed from current GAAP. ASU 2016-02 retains a distinction between finance leases (i.e. capital leases under current GAAP) and
operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially
similar to the classification criteria for distinguishing between capital leases and operating leases under current GAAP. The amendments
of this ASU are effective for reporting periods beginning after December 15, 2018, with early adoption permitted. An entity will
be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements. In March 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation -
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The
standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax
impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the
potential effect of this ASU on its consolidated financial statements. We evaluated the impact of ASU 2016-09 and its related disclosures,
and these standards had no material impact on our consolidated financial statements In May 2016, the FASB also issued ASU
2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”),
which provides clarification on certain topics within ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”), including assessing collectability, presentation of sales taxes, the measurement date for non-cash consideration
and completed contracts at transition, as well as providing a practical expedient for contract modifications at transition. The
effective date and transition requirements for the amendments in ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as the effective
date and transition requirements of ASU 2014-09, which is effective for fiscal years, and for interim periods within those years,
beginning after December 15, 2017. The Company already started with the planning phase of the adoption of this ASU and is currently
evaluating the potential effect of this ASU on its consolidated financial statements. In August 2016, the FASB issued ASU
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).
ASU 2016-15 reduces diversity in practice by providing guidance on the classification of certain cash receipts and payments in
the statement of cash flows. ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class
of cash flows and cannot be separated, classification will depend on the predominant source or use. ASU 2016-15 is effective on
a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with
early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements. On October 24, 2016, the FASB issued
Accounting Standards Update 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.
The ASU is part of the Board’s simplification initiative aimed at reducing complexity in accounting standards. Under current
GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to
a third party or otherwise recovered through use. This is an exception to the principle in ASC 740, Income Taxes, that generally
requires comprehensive recognition of current and deferred income taxes. The new guidance eliminates the exception for all intra-entity
sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset
in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated
in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of
the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale
of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a
third party. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements. In November 2016, the FASB issued ASU
No. 2016-18, “Restricted Cash” (“ASU 2016-18”). ASU 2016-18 provides amendments to ASC No. 230, “Statement
of Cash Flows,” which require that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents and amounts generally described as restricted cash and restricted cash equivalents. The amendments in this update are
effective retrospectively during interim and annual periods beginning after December 15, 2017, with early adoption permitted. The
Company is currently evaluating the potential effect of this ASU on its consolidated financial statements. In December 2016, the FASB issued Accounting
Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, (“ASU
2016-20”). The purpose of ASU 2016-20 is to amend certain narrow aspects of the guidance issued in ASU 2014-09 including
guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other
amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification
of certain examples. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements. In January 2017, the FASB issued ASU
No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides amendments
to ASC No. 805, “Business Combinations,” which clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2017,
with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial
statements. In January 2017, the FASB issued ASU
No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 provides amendments
to ASC No. 350, “Intangibles - Goodwill and Other” (“ASC 350”), which eliminate Step 2 from the goodwill
impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with
its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value. The amendments in this update are effective prospectively during interim and annual periods beginning after December
15, 2019, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated
financial statements. |
