Quarterly Report (10-q)

Date : 11/09/2018 @ 9:27PM
Source : Edgar (US Regulatory)
Stock : Nextdecade Corp. (NEXT)
Quote : 5.41  0.21 (4.04%) @ 9:30PM
NextDecade Corporation share price Chart

Quarterly Report (10-q)

 

 

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(MARK ONE)

 

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

 

For the quarterly period ended September 30, 2018

 

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

 

For the transition period from                    to                    

 

Commission File No.  001‑36842

 

NEXTDECADE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

    

46‑5723951

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

1000 Louisiana Street, 39 th Floor, Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

 

(713) 574‑1880

(Registrant’s telephone number, including area code)

 

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. 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 such files). Yes    No 

 

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

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

    

Smaller reporting company

 

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.    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes    No 

 

As of November 5, 2018, the issuer had 109,286,895 shares of common stock outstanding.

 

 

 

 


 

NEXTDECADE CORPORATION

FORM 10‑Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

 

 

 

Page

Organizational Structure  

 

 

 

Part I. Financial Information  

1

Item 1. Consolidated Financial Statements  

1

Consolidated Balance Sheets  

1

Consolidated Statements of Operations and Comprehensive Loss  

2

Consolidated Statement of Stockholders’ Equity, Series A and Series B Convertible Preferred Stock  

3

Consolidated Statements of Cash Flows  

4

Notes to Consolidated Financial Statements  

5

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

14

Item 3. Quantitative and Qualitative Disclosures About Market Risk  

18

Item 4. Controls and Procedures  

19

Part II. Other Information  

20

Item 1. Legal Proceedings  

20

Item 1A. Risk Factors  

20

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

20

Item 3. Defaults Upon Senior Securities  

20

Item 4. Mine Safety Disclosures  

20

Item 5. Other Information  

20

Item 6. Exhibits  

21

Signatures  

23

 

 


 

Organizational Structure

The following diagram depicts our abbreviated organizational structure as of September 30, 2018 with references to the names of certain entities discussed in this Quarterly Report on Form 10-Q.

PICTURE 1

Unless the context requires otherwise, references to “NextDecade,” the “Company,” “we,” “us” and “our” refer to NextDecade Corporation (NASDAQ: NEXT) and its consolidated subsidiaries.

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

NextDecade Corporation

Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2018

 

2017

 

    

(unaudited)

    

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

33,880

 

$

35,703

Investments

 

 

60,135

 

 

5,063

Prepaid expenses and other current assets

 

 

1,804

 

 

2,099

Total current assets

 

 

95,819

 

 

42,865

Property, plant and equipment, net

 

 

88,870

 

 

73,226

Total assets

 

$

184,689

 

$

116,091

 

 

 

 

 

 

 

Liabilities, Series A and Series B Convertible Preferred Stock and Stockholders’ Equity

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

991

 

$

726

Share-based compensation liability

 

 

6,394

 

 

1,815

Accrued liabilities and other current liabilities

 

 

14,556

 

 

5,856

Total current liabilities

 

 

21,941

 

 

8,397

Non-current common stock warrant liabilities

 

 

7,522

 

 

 —

Non-current compensation liabilities

 

 

 —

 

 

2,015

Non-current share-based compensation liability

 

 

 —

 

 

2,587

Total liabilities

 

 

29,463

 

 

12,999

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

  

 

 

  

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $1,000 per share liquidation preference
Authorized: 51,000 shares
Issued and outstanding: 51,000 shares and zero shares at September 30, 2018 and December 31, 2017, respectively

 

 

38,820

 

 

 —

Series B Convertible Preferred Stock, $1,000 per share liquidation preference
Authorized: 51,000 shares
Issued and outstanding: 29,636 shares and zero shares at September 30, 2018 and December 31, 2017, respectively

 

 

26,159

 

 

 —

 

 

 

 

 

 

 

Stockholders’ equity

 

 

  

 

 

  

Common stock, $0.0001 par value
Authorized: 480.0 million shares at September 30, 2018 and December 31, 2017
Issued and outstanding: 106.8 million shares and 106.3 million shares at September 30, 2018 and December 31, 2017, respectively

 

 

11

 

 

11

Treasury stock: 3,202 shares and zero shares at September 30, 2018 and December 31, 2017, respectively, at cost

 

 

(19)

 

 

 —

Preferred stock, $0.0001 par value
Authorized: 0.9 million, after designation of the Series A and Series B Convertible Preferred Stock
Issued and outstanding: none at September 30, 2018 and December 31, 2017

 

 

 —

 

 

 —

Additional paid-in-capital

 

 

176,274

 

 

158,738

Accumulated deficit

 

 

(86,019)

 

 

(55,617)

Accumulated other comprehensive loss

 

 

 —

 

 

(40)

Total stockholders’ equity

 

 

90,247

 

 

103,092

Total liabilities, Series A and Series B Convertible Preferred Stock and stockholders’ equity

 

$

184,689

 

$

116,091

 

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

1


 

NextDecade Corporation

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Operations

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Operating Expenses

 

 

  

  

 

  

 

 

  

  

 

  

General and administrative expenses

 

 

6,214

  

 

14,014

 

 

25,533

  

 

18,392

Invitation to bid contract costs

 

 

4,418

 

 

 —

 

 

4,418

 

 

 —

Land option and lease expenses

 

 

297

  

 

250

 

 

797

  

 

733

Depreciation expense

 

 

50

  

 

26

 

 

127

  

 

78

Total operating expenses

 

 

10,979

  

 

14,290

 

 

30,875

  

 

19,203

Total operating loss

 

 

(10,979)

  

 

(14,290)

 

 

(30,875)

  

 

(19,203)

Other income (expense)

 

 

  

  

 

  

 

 

  

  

 

  

Gain on common stock warrant liabilities

 

 

83

  

 

 —

 

 

83

  

 

 —

Interest income, net

 

 

222

  

 

145

 

 

475

  

 

236

Other

 

 

(6)

  

 

(12)

 

 

(45)

  

 

(31)

Total other income

 

 

299

  

 

133

 

 

513

  

 

205

Net loss attributable to NextDecade Corporation

 

 

(10,680)

 

 

(14,157)

 

 

(30,362)

 

 

(18,998)

Deemed dividends on Series A Convertible Preferred Stock

 

 

271

 

 

 —

 

 

271

 

 

 —

Net loss attributable to common stockholders

 

$

(10,951)

  

$

(14,157)

 

$

(30,633)

  

$

(18,998)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.10)

  

$

(0.14)

 

$

(0.29)

  

$

(0.19)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

106,639

  

 

103,870

 

 

106,476

  

 

99,124

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss

 

 

  

  

 

  

 

 

  

  

 

  

Net loss attributable to NextDecade Corporation

 

$

(10,680)

  

$

(14,157)

 

$

(30,362)

  

$

(18,998)

Other comprehensive loss:

 

 

  

  

 

  

 

 

  

  

 

  

Change in fair value of investments

 

 

 —

  

 

 6

 

 

 —

  

 

 9

Comprehensive loss

 

$

(10,680)

  

$

(14,151)

 

$

(30,362)

  

$

(18,989)

 

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

2


 

NextDecade Corporation

Consolidated Statement of Stockholders’ Equity , Series A and Series B Convertible Preferred Stock

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

Series A

 

Series B

 

 

 

 

Value

 

 

 

 

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

Convertible

 

Convertible

 

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

  

Preferred Stock

  

Preferred Stock

Balance at December 31, 2017

 

106,275

 

$

11

 

 —

 

$

 —

 

$

158,738

 

$

(55,617)

 

$

(40)

 

$

103,092

 

$

 —

 

$

 —

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

13,169

 

 

 —

 

 

 —

 

 

13,169

 

 

 —

 

 

 —

Restricted stock vesting

 

136

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares repurchased related to share-based compensation

 

(3)

 

 

 —

 

 3

 

 

(19)

 

 

 —

 

 

 —

 

 

 —

 

 

(19)

 

 

 —

 

 

 —

Adoption of ASU 2016-01

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(40)

 

 

40

 

 

 —

 

 

 —

 

 

 —

Issuance of Series A preferred stock

 

414

 

 

 —

 

 —

 

 

 —

 

 

4,638

 

 

 —

 

 

 —

 

 

4,638

 

 

38,549

 

 

 —

Issuance of Series B preferred stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

26,159

Deemed dividends - accretion of beneficial conversion feature

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(271)

 

 

 —

 

 

 —

 

 

(271)

 

 

271

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(30,362)

 

 

 —

 

 

(30,362)

 

 

 —

 

 

 —

Balance at September 30, 2018

 

106,822

 

$

11

 

 3

 

$

(19)

 

$

176,274

 

$

(86,019)

 

$

 —

 

$

90,247

 

$

38,820

 

$

26,159

 

 

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

 

3


 

NextDecade Corporation.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

Operating activities:

 

 

 

  

 

 

Net loss

 

$

(30,362)

 

$

(18,998)

Adjustment to reconcile net loss to net cash used in operating activities

 

 

 

 

 

  

Depreciation

 

 

127

 

 

78

Share-based compensation expense

 

 

12,731

 

 

10,476

Gain on common stock warrant liabilities

 

 

(83)

 

 

 —

Loss on investment securities

 

 

28

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

  

Prepaid expenses and other currents assets

 

 

295

 

 

53

Accounts payable

 

 

(42)

 

 

190

Accrued expenses and other liabilities

 

 

4,660

 

 

209

Net cash used in operating activities

 

 

(12,646)

 

 

(7,992)

Investing activities:

 

 

  

 

 

  

Acquisition of property, plant and equipment

 

 

(11,460)

 

 

(10,690)

Issuance of note receivable

 

 

 —

 

 

(115)

Repayment of note receivable

 

 

 —

 

 

115

Cash received in reverse recapitalization

 

 

 —

 

 

26,774

Purchase of investments

 

 

(55,100)

 

 

(54)

Net cash (used in) provided by investing activities

 

 

(66,560)

 

 

16,030

Financing activities:

 

 

  

 

 

  

Proceeds from equity issuance

 

 

79,055

 

 

30,100

Equity issuance costs

 

 

(1,653)

 

 

(5,953)

Shares repurchased related to share-based compensation

 

 

(19)

 

 

 —

Net cash provided by financing activities

 

 

77,383

 

 

24,147

Net (decrease) increase in cash and cash equivalents

 

 

(1,823)

 

 

32,185

Cash and cash equivalents – beginning of period

 

 

35,703

 

 

12,524

Cash and cash equivalents – end of period

 

$

33,880

 

$

44,709

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

  

 

 

  

Accounts payable for acquisition of property, plant and equipment

 

$

656

 

$

1,266

Accrued liabilities for acquisition of property, plant and equipment

 

 

6,056

 

 

1,845

Non-cash financing activities:

 

 

 

 

 

 

Accounts payable for equity issuance costs

 

$

150

 

$

 —

Accrued liabilities for equity issuance costs

 

 

301

 

 

 —

Accretion of deemed dividends Series A Convertible Preferred Stock

 

 

271

 

 

 —

 

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

4


 

NextDecade Corporation

Notes to Consolidated Financial Statements

(unaudited)

Note 1 — Background and Basis of Presentation

NextDecade Corporation engages in development activities related to the liquefaction and sale of liquefied natural gas (“LNG”). We have focused and continue to focus our development activities on the Rio Grande LNG terminal facility at the Port of Brownsville in southern Texas (the “Terminal”) and an associated 137-mile Rio Bravo pipeline to supply gas to the Terminal (the “Pipeline” together with the Terminal, the “Project”).  We have also secured, through December 2019, a 994-acre site near Texas City, Texas for another potential LNG terminal (the “Galveston Bay Terminal”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Rule 10‑01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. In our opinion, all adjustments, consisting only of normal recurring items, which are considered necessary for a fair presentation of the unaudited consolidated financial statements, have been included.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the operating results for the full year.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).  An “emerging growth company” may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards adopted.

 

5


 

Note 2 — Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2018

 

2017

Rio Grande LNG site option

 

$

635

 

$

1,080

Short-term security deposits

 

 

367

 

 

364

Galveston Bay leases

 

 

125

 

 

100

Rio Bravo Pipeline options

 

 

68

 

 

111

Prepaid insurance

 

 

289

 

 

208

Prepaid marketing and sponsorships

 

 

91

 

 

55

Other

 

 

229

 

 

181

Total prepaid expenses and other current assets

 

$

1,804

 

$

2,099

 

 

Note 3 — Investment Securities

In September 2018, we invested approximately $55 million in Class L shares of the JPMorgan Managed Income Fund.  The JPMorgan Managed Income Fund has an average maturity of approximately one year, duration of approximately six months, and approximately 7% of such fund’s holdings are AAA-rated with 0% non-investment grade rated.

The Company also maintains cash reserves in the Ultra-Short-Term Bond Fund and the Short-Term Bond Index Fund, which are managed by The Vanguard Group, Inc. The target investment allocation between the Ultra-Short-Term Bond Fund and the Short-Term Bond Index Fund are 75% and 25%, respectively. The Ultra-Short-Term Bond Fund has an average maturity of approximately one year, and approximately 45% of such fund’s holdings are AAA-rated, with 1% non-investment grade rated. The Short-Term Bond Index Fund has an average maturity of approximately three years, and 70% of such fund’s holdings are AAA-rated, with 0% non-investment grade rated.

Investment securities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2018

 

2017

 

    

Fair value

    

Cost

    

Fair value

    

Cost

JPMorgan Managed Income Fund

 

$

55,022

 

$

55,022

 

$

 —

 

$

 —

Ultra-Short-Term Bond Fund

 

 

3,862

 

 

3,885

 

 

3,811

 

 

3,825

Short-Term Bond Index Fund

 

 

1,251

 

 

1,296

 

 

1,252

 

 

1,278

Total investments

 

$

60,135

 

$

60,203

 

$

5,063

 

$

5,103

 

 

 

6


 

Note 4 — Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31,

 

 

2018

 

2017

Fixed Assets

 

 

  

 

 

  

Computers

 

$

119

 

$

69

Furniture, fixtures, and equipment

 

 

305

 

 

246

Leasehold improvements

 

 

398

 

 

264

Total fixed assets

 

 

822

 

 

579

Less: accumulated depreciation

 

 

(498)

 

 

(371)

Total fixed assets, net

 

 

324

 

 

208

Project Assets (not placed in service)

 

 

  

 

 

  

Rio Grande

 

 

77,224

 

 

62,866

Rio Bravo

 

 

11,322

 

 

10,152

Total project assets

 

 

88,546

 

 

73,018

Total property, plant and equipment, net

 

$

88,870

 

$

73,226

 

Depreciation expense for the three and nine months ended September 30, 2018 was $50 thousand and $127 thousand, respectively. Depreciation expense for the three and nine months ended September 30, 2017 was $26 thousand and $ 78 thousand, respectively.

Note 5 — Accrued Liabilities and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2018

 

2017

Employee compensation expense

 

$

3,062

 

$

1,851

Project asset costs

 

 

6,056

 

 

3,317

Invitation to bid contract costs

 

 

4,418

 

 

 —

Accrued legal services

 

 

180

 

 

141

Accrued equity issuance costs

 

 

301

 

 

 —

Other accrued liabilities

 

 

539

 

 

547

Total accrued liabilities and other current liabilities

 

$

14,556

 

$

5,856

 

 

Note 6 – Preferred Stock and Common Stock Warrants

Preferred Stock

In August 2018, we sold and issued a total of 51,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), together with associated warrants (the “Series A Warrants”), to (i) York Capital Management Global Advisors, LLC, severally on behalf of certain funds or accounts managed by it or its affiliates (“York”), (ii) Valinor Management, L.P., severally on behalf of certain funds or accounts for which it is investment manager (“Valinor”), (iii) Bardin Hill Investment Partners LP (formerly known as Halcyon Capital Management LP), severally on behalf of certain funds or accounts managed by it or its affiliates (“Bardin Hill,” and together with York and Valinor, the “Fund Purchasers”) and (iv) HGC NEXT INV LLC (“HGC”) for an aggregate purchase price of $50 million.  In connection with the issuance of Series A Convertible Preferred Stock and pursuant to backstop commitment agreements with the Fund Purchasers dated April 11, 2018, as subsequently amended on August 3, 2018, we also issued a total of 413,658 shares of Company common stock to the Fund Purchasers.  Each Fund Purchaser is a Company stockholder and, pursuant to that certain Agreement and Plan of Merger, dated as of April 17, 2017, by and between the Company, each Fund Purchaser and/or one or more of its affiliates, and the other parties named therein, three individuals, two individuals, and one individual from York, Valinor, and Bardin Hill, respectively, were appointed to the Company’s board of directors.

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In September 2018, we sold and issued a total of 29,636 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”), together with associated warrants (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”), to certain funds managed by BlackRock (collectively, the “Series B Preferred Stock Purchasers”) for an aggregate purchase price of $29.055 million. 

Each share of Preferred Stock has a stated value of $1,000.  The Series A Preferred Stock ranks pari passu with the Series B Preferred Stock, and the Preferred Stock ranks senior to the Company common stock and each other class or series of capital stock of the Company, subject to certain exceptions, in respect of payment of dividends and distribution of assets upon liquidation.  Upon a defined liquidation, holders of the Series A Preferred Stock are entitled to receive the greater of (i) (a) $1,000 per share of Preferred Stock plus (b) any accrued but unpaid dividends on such share of Preferred Stock as of immediately prior to such liquidation and (ii) the amount that would be payable to the holders of the Preferred Stock had such holders converted their shares of Preferred Stock into shares of Company common stock immediately prior to such liquidation event and prior to payment of any amounts on Company common stock.

The Company has the option to convert all, but not less than all, of the Preferred Stock into shares of Company common stock at a strike price of $7.50 per share of Company common stock (the “Conversion Price”) on any date on which the volume weighted average trading price of shares of Company common stock for each trading day during any 60 of the prior 90 trading days is equal to or greater than 175% of the Conversion Price, in each case subject to certain terms and conditions.  Furthermore, the Company must convert all of the Preferred Stock into shares of Company common stock at the Conversion Price on the earlier of (i) ten (10) business days following a FID Event (as defined in the certificates of designations of the Preferred Stock) and (ii) the date that is the tenth (10th) anniversary of the closings of the issuances of the Preferred Stock, as applicable.

The shares of Preferred Stock bear dividends at a rate of 12% per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value.  Such dividends are payable quarterly and may be paid in cash or in-kind. As of September 30, 2018, we have accrued cumulative preferred dividends of $0.7 million.

The holders of Preferred Stock vote on an “as-converted” basis with the holders of the Company common stock on all matters brought before the holders of Company common stock. In addition, the holders of Preferred Stock have separate class voting rights with respect to certain matters affecting their rights. 

The Preferred Stock do not qualify as a liability instruments under Accounting Standards Codification (“ASC”) 480 – Distinguishing Liabilities from Equity, because they are not mandatorily redeemable. However, as SEC Regulation S-X, Rule 5-02-27 does not permit a probability assessment for a change of control provision, the Preferred Stock must be presented as mezzanine equity between liabilities and stockholders’ equity on our consolidated balance sheets because a change of control event, although not considered probable, could force the Company to redeem the Preferred Stock for cash or assets of the Company. At each balance sheet date, we must re-evaluate whether the Preferred Stock continue to qualify for equity classification.

Warrants

The Series A Warrants issued to HGC represent the right to acquire in the aggregate 50 basis points (0.50%) of the fully diluted shares of all outstanding shares of Company common stock on the exercise date with a strike price of $0.01 per share. The Series A Warrants issued to each of the Fund Purchasers represent the right to acquire approximately 21 basis points (0.21%) in the aggregate of the fully diluted shares of all outstanding shares of Company common stock on the exercise date with a strike price of $0.01 per share.  The Series B Warrants issued to the Series B Preferred Stock Purchasers represent the right to acquire in the aggregate a  number of shares of Company common stock equal to (a)(i) the aggregate purchase price for the Series B Preferred Stock divided by (ii) $35 million, multiplied by (b)(i) 0.5% multiplied by (ii) the number of fully diluted shares of all outstanding shares of Company common stock on the exercise date with a strike price of $0.01 per share.

The Warrants have a fixed three-year term commencing on the closings of the issuances of the associated Preferred Stock.  The Warrants may only be exercised by the holders thereof at the expiration of such three-year term; however, the Company can force exercise of the Warrants prior to expiration of such term if the volume weighted average trading price of shares of Company common stock for each trading day during any 60 of the prior 90 trading days is equal to or greater than 175% of the Conversion Price and, in the case of the Series B Warrants, also if the Company simultaneously elects to force a mandatory exercise of all other warrants then-outstanding and unexercised and held by

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any holder of parity stock (as defined in the Certificate of Designations of Series B Convertible Preferred Stock).  Pursuant to ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock , the fair value of the Warrants was recorded as a non-current liability on our consolidated balance sheet on the issuance dates.  The Company revalued the Warrants as of September 30, 2018 and recognized a gain of approximately $83 thousand.

Net cash proceeds were allocated on a fair value basis to the Series A Warrants and Series B Warrants and on a relative fair value basis to the Company common stock, Series A Preferred Stock and Series B Preferred Stock. As described below, $2.5 million of the $41.1 million allocated to the Series A Preferred was allocated to additional paid-in capital to give effect to the intrinsic value of a beneficial conversion feature (“BCF”).  The allocation of net cash proceeds is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of Proceeds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid-in Capital

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

 

 

Beneficial

 

 

 

 

 

Series A

 

Series B

 

Convertible

 

Convertible

 

Common

 

Conversion

 

    

 

 

    

Warrants

    

Warrants

    

Preferred

    

Preferred

    

Stock

    

Feature

Gross proceeds

 

$

79,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity issuance costs

 

 

(2,104)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds - Initial Fair Value Allocation

 

$

76,951

 

$

4,859

 

$

2,746

 

$

41,079

 

$

26,159

 

$

2,108

 

$

 —

Allocation to BCF

 

 

 

 

 

 —

 

 

 —

 

 

(2,530)

 

 

 —

 

 

 —

 

 

2,530

Per balance sheet upon issuance

 

 

 

 

$

4,859

 

$

2,746

 

$

38,549

 

$

26,159

 

$

2,108

 

$

2,530

 

Beneficial Conversion Feature

ASC 470-20-20 – Debt – Debt with conversion and Other Options (“ASC 470-20”) defines a BCF as a nondetachable conversion feature that is in the money at the issuance date.  The Company was required by ASC 470-20 to allocate a portion of the proceeds from the Series A Preferred Stock equal to the intrinsic value of the BCF to additional paid-in capital.  The intrinsic value of the BCF is calculated at the issuance date as the difference between the “accounting conversion price” and the market price of shares of Company common stock multiplied by the number of shares of Company common stock into which the Series A Preferred Stock is convertible.  The accounting conversion prices of $5.58 per share and $6.24 per share for the Fund Purchasers and HGC, respectively, is different than the contractual conversion price of $7.50 per share.  The “accounting conversion price” is derived by dividing the proceeds allocated to the Series A Preferred Stock by the number of shares of Company common stock into which the Series A Preferred Stock is convertible.  We are recording the accretion of the $2.5 million Series A Preferred Stock discount attributable to the BCF as a deemed dividend using the effective yield method over the period prior to the expected conversion date.

 

Note 7 — Net Loss Per Share

The following table (in thousands, except for loss per share) reconciles basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Weighted average common shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

 

106,639

 

 

103,870

 

 

106,476

 

 

99,124

Dilutive unvested stock, convertible preferred stock and common stock warrants

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Diluted

 

 

106,639

 

 

103,870

 

 

106,476

 

 

99,124

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.10)

 

$

(0.14)

 

$

(0.29)

 

$

(0.19)

 

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Potentially dilutive securities not included in the diluted net loss per share computations because their effect would have been anti-dilutive were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Unvested stock (1)

 

 

513

 

 

 —

 

 

483

 

 

 —

Convertible preferred stock

 

 

3,322

 

 

 —

 

 

1,119

 

 

 —

Common stock warrants

 

 

12,507

 

 

12,059

 

 

12,225

 

 

12,059

Total dilutive common shares

 

 

16,342

 

 

12,059

 

 

13,827

 

 

12,059


(1)

Does not include 16.3 million shares for the three and nine months ended September 30, 2018, respectively, of unvested stock because the performance conditions had not yet been satisfied.

 

Note 8 — Share-based Compensation

We have granted shares of Company common stock and restricted stock to employees, consultants and a non-employee director under our 2017 Omnibus Incentive Plan (the “2017 Plan”) and in connection with the special meeting of stockholders on July 24, 2017.

Total share-based compensation consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30, 

 

September 30, 

 

    

2018

    

2017

    

2018

    

2017

Share-based compensation:

 

 

  

 

 

  

 

 

  

 

 

  

Equity awards

 

$

2,451

 

$

8,830

 

$

13,169

 

$

8,830

Liability awards

 

 

(1,153)

 

 

2,305

 

 

977

 

 

2,305

Total share-based compensation

 

 

1,298

 

 

11,135

 

 

14,146

 

 

11,135

Capitalized share-based compensation

 

 

183

 

 

(659)

 

 

(1,415)

 

 

(659)

Total share-based compensation expense

 

$

1,481

 

$

10,476

 

$

12,731

 

$

10,476

 

Certain employee contracts provided for cash bonuses upon a positive final investment decision (“FID”) in the Project (the “FID Bonus”).  In January 2018, the nominating, corporate governance and compensation committee of the board of directors approved, and certain employees party to such contracts accepted, an amendment to such contracts whereby the FID Bonuses would be settled in shares of Company common stock equal to 110% of the FID Bonus.  The associated liability for FID Bonuses to be settled in shares of Company common stock of $0.8 million is included in share-based compensation liability in our Consolidated Balance Sheets at September 30, 2018.

 

 

 

Note 9 — Income Taxes

Due to our cumulative loss position, we have established a full valuation allowance against our deferred tax assets at September 30, 2018 and December 31, 2017. Due to NextDecade LLC’s previous pass-through status and our full valuation allowance, we have not recorded a provision for federal or state income taxes during the three and nine months ended September 30, 2018 and 2017.

Note 10 — Commitments and Contingencies

Operating Leases

In June 2018, we executed a 24-month lease agreement for our corporate headquarters office space with a lease commencement date of September 24, 2018. Annual lease payments under this agreement, net of rent abatements and rent credits, are zero, $0.7 million and $0.9 million in 2018, 2019 and 2020, respectively.

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Legal Proceedings

From time to time the Company may be subject to various claims and legal actions that arise in the ordinary course of business. As of September 30, 2018, management is not aware of any claims or legal actions that, separately or in the aggregate, are likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows, although the Company cannot guarantee that a material adverse event may not occur.

Other

In April 2018, we entered into an agreement with an intrastate pipeline company with assets near our Terminal which incentivizes the pipeline company to procure, permit and install a valve on an intrastate pipeline near our Terminal.  We agreed that, upon the later of (i) March 31, 2019 and (ii) thirty days after the valve has been installed, we will reimburse the pipeline company a cash amount equal to 50% of the costs incurred in connection with the valve, up to a maximum payment by us not to exceed $2 million.

During the third quarter of 2018, we conducted a competitive engineering, procurement and construction (“EPC”) bid process.  In connection with the EPC bid process, we entered into agreements with potential EPC contractors that provide for payments to be made by us to the EPC contractors as bid milestones are achieved (“Invitation to bid contract costs”).  As of September 30, 2018, we have incurred approximately $4.4 million of Invitation to bid contract costs.  Future potential payments for Invitation to bid contract costs are up to $2.1 million in 2018 and up to $14.9 million in 2019.

Note 11 — Recent Accounting Pronouncements

The following table provides a brief description of recent accounting standards that have not been adopted by the Company as of September 30, 2018:

 

 

 

 

 

 

 

Standard

 

Description

 

Expected Date of Adoption

 

Effect on our Consolidated Financial Statements or Other Significant Matters

ASU 2016‑02, Leases (Topic 842)

 

This standard requires a lessee to recognize leases on its balance sheet by recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This standard may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients.

 

January 1, 2019

 

We continue to evaluate the effect of this standard on our Consolidated Financial Statements. Preliminarily, we anticipate a material impact from the requirement to recognize all leases in our Consolidated Balance Sheets and no impact to cash flows. Because this assessment is preliminary and the accounting for leases is subject to significant judgment, this conclusion could change as we finalize our assessment. We have not yet determined the impact of the adoption of this standard upon our results of operations, whether we will elect to early adopt this standard or which, if any, practical expedients we will elect upon transition.

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ASU 2018-07, Compensation-Stock Compensation (Topic 718)

 

This standard simplifies aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. This standard may be early adopted, and must be adopted using a modified retrospective approach.

 

January 1, 2019

 

We are currently evaluating the effect of this standard on our Consolidated Financial Statements.