NextDecade Corp. - Quarter Report: 2018 June (Form 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 June 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)

 

 

3 Waterway Square Place, Suite 400, The Woodlands, Texas 77380

(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

 

 

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 August 6, 2018, the issuer had 108,851,167 shares of common stock outstanding.

 

 

 

 

NEXTDECADE CORPORATION

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

TABLE OF CONTENTS

 

 

Organizational Structure

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

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 share data)

 

 

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

NextDecade Corporation

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

 

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

NextDecade Corporation

Consolidated Statement of Stockholders’ Equity

(in thousands)

(unaudited)

 

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

NextDecade Corporation.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

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

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 six months ended June 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 (the “Exchange Act”)) 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.

 

Note 2 — Prepaid Expenses and Other Current Assets

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

 

 

Note 3 — Investment Securities

The Company 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):

 

 

 

 

Note 4 — Property, Plant and Equipment

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

 

Depreciation expense for the three and six months ended June 30, 2018 was $48 thousand and $77 thousand, respectively. Depreciation expense for the three and six months ended June 30, 2017 was $26 thousand and $52 thousand, respectively.

Note 5 — Accrued Liabilities and Other Current Liabilities

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

 

 

Note 6 — 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 six months ended June 30, 2018 and 2017:

 

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):

 

 

 

 

 

 

Note 7 — Share-based Compensation

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

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

 

 

The table below provides a summary of our restricted stock outstanding as of June 30, 2018 and changes during the six months ended June 30, 2018 (in thousands, except per share information):

 

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 June 30, 2018.

 

 

 

Note 8 — Income Taxes

Due to our cumulative loss position, we have established a full valuation allowance against our deferred tax assets at June 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 six months ended June 30, 2018 and 2017.

Note 9 — Commitments and Contingencies

Operating Leases

In June 2018, we executed a 24-month lease agreement for our corporate headquarters office space with an expected lease commencement date in the fourth quarter of 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.

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 June 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, or (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.

Note 10 — Recent Accounting Pronouncements

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

 

Additionally, the following table provides a brief description of recent accounting standards that were adopted by the Company during the reporting period:

 

 

 

 

Note 11 – Subsequent Events

Series A Convertible Preferred Stock Purchase Agreements

As previously disclosed, the Company commenced a private offering of convertible preferred equity and warrants (the “Series A Preferred Equity Offering”).  In connection with the Series A Preferred Equity Offering, on April 11, 2018, the Company entered into backstop commitment agreements, as amended on August 3, 2018 (as amended, the “Backstop Agreements”) with each of (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”), and (iii) Halcyon Capital Management LP, severally on behalf of certain funds or accounts managed by it or its affiliates (“Halcyon” and together with York and Valinor, the “Backstop Purchasers”).

On August 3, 2018, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (collectively, the “Backstop Purchase Agreements”) with each of the Backstop Purchasers, whereby the Company agreed to sell, and York, Valinor and Halcyon each agreed to purchase (the “Backstop Purchaser Offering”), in connection with and pursuant to the Backstop Agreements, approximately $9.9 million, $3.4 million and $1.7 million, respectively, in shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) (which include associated warrants).    Each Backstop Purchaser is a Company stockholder and, pursuant to that certain Agreement and Plan of Merger, dated as of April 17, 2017, by and among the Company, each Backstop 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 Halcyon, respectively, were appointed to the Company’s board of directors (the “Board”). 

In connection with the closing of the Backstop Purchaser Offering, the Company and the Backstop Purchasers entered into a registration rights agreement that provides the Backstop Purchasers with demand and piggy-back registration rights covering shares of Company common stock and Series A Preferred Stock issued or to be issued under the Backstop Purchase Agreements and the Backstop Agreements.  Furthermore, pursuant to warrant agreements issued by the Company to the Backstop Purchasers, the Company issued warrants to the Backstop Parties.  The warrants 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 warrants have a fixed three-year term that commenced on the closing of the issuance of the Series A Preferred Stock and the warrants may only be exercised 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 $13.13 per share. The Backstop Purchaser Offering closed on August 9, 2018. 

Additionally, on August 3, 2018, the Company and HGC NEXT INV LLC (“HGC”) entered into a Series A Convertible Preferred Stock Purchase Agreement (the “HGC Purchase Agreement”).  Pursuant to the HGC Purchase Agreement, the Company agreed to sell, and HGC agreed to purchase (the “HGC Offering”), an aggregate of $35 million of shares of Series A Preferred Stock, together with associated warrants.   In connection with, and on the closing of, the HGC Offering, the Company and HGC will enter into a purchaser right agreement (the “Purchaser Rights Agreement”). Pursuant to the Purchaser Rights Agreement, the Company has granted HGC the right to appoint one person to serve on the Board and a right of first refusal to purchase up to an aggregate of $350 million of any equity or equity-linked securities (including, without limitation, preferred equity, combinations of equity and/or any other instruments or forms of equity capital) in connection with the financing of the development, construction, commissioning and/or operation of the Company’s Rio Grande LNG Project, in each case subject to certain exceptions. HGC may transfer such right of first refusal to an affiliate of HGC or Morgan Stanley Infrastructure, Inc. (or an affiliate thereof) without the Company’s consent or to one or more other third parties with the Company’s consent, subject to certain conditions.  The appointment of a person by HGC to the Board will result in an increase of the size of the Board from eleven members to twelve members. The HGC Offering is expected to close on or before August 30, 2018. 

 

 

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

Forward-Looking Statements

This Quarterly Report on Form 10‑Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10‑Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “contemplate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely,” “continue,” “design” and other words and terms of similar expressions, are intended to identify forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs.

 

Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from those expressed in our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties, including those described in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K. You should consider our forward-looking statements in light of a number of factors that may cause actual results to vary from our forward-looking statements including, but not limited to:

 

You should not rely upon forward-looking statements as predictions of future events. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements.

Please read “Risk Factors” contained in the our most recent Annual Report on Form 10-K as well as other filings we have made and will make with the Securities and Exchange Commission (the “SEC”) for a more complete discussion of the risks and uncertainties mentioned above and for a discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in our most recent Annual Report on Form 10-K as well as other filings we have made and will make with the SEC and our public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties. Note that forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not undertake any obligation to publicly correct or update any forward-looking statement.

Overview

NextDecade Corporation is a LNG development company focused on LNG export projects and associated pipelines in the State of Texas. We have focused and continue to focus our development activities on the Project.  We believe we maintain key competitive advantages involving engineering, commercial, and gas supply considerations. We submitted a pre-filing request for the Project to the Federal Energy Regulatory Commission (“FERC”) in March 2015 and filed a formal application with the FERC in May 2016. We also believe we have robust commercial offtake and gas supply strategies in place and we estimate that the Project will commence commercial operations as early as 2023.

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

Recent Developments

Series A Convertible Preferred Stock Purchase Agreements

As previously disclosed, we commenced the Series A Preferred Equity Offering.  In connection with the Series A Preferred Equity Offering, on April 11, 2018, we entered into backstop commitment agreements, as amended on August 3, 2018 (as amended, the “Backstop Agreements”) with each of (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”), and (iii) Halcyon Capital Management LP, severally on behalf of certain funds or accounts managed by it or its affiliates (“Halcyon” and together with York and Valinor, the “Backstop Purchasers”).

On August 3, 2018, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (collectively, the “Backstop Purchase Agreements”) with each of the Backstop Purchasers, whereby the Company agreed to sell, and York, Valinor and Halcyon each agreed to purchase (the “Backstop Purchaser Offering”), in connection with and pursuant to the Backstop Agreements, approximately $9.9 million, $3.4 million and $1.7 million, respectively, in shares of Series A Preferred Stock (which include associated warrants).    Each Backstop Purchaser is a Company stockholder and, pursuant to that certain Agreement and Plan of Merger, dated as of April 17, 2017, by and among the Company, each Backstop 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 Halcyon, respectively, were appointed to the Company’s board of directors (the “Board”). 

In connection with the closing of the Backstop Purchaser Offering, the Company and the Backstop Purchasers entered into a registration rights agreement that provides the Backstop Purchasers with demand and piggy-back registration rights covering shares of Company common stock and Series A Preferred Stock issued or to be issued under the Backstop Purchase Agreements and the Backstop Agreements.  Furthermore, pursuant to warrant agreements issued by the Company to the Backstop Purchasers, the Company issued warrants to the Backstop Parties.  The warrants 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 warrants have a fixed three-year term that commenced on the closing of the issuance of the Series A Preferred Stock and the warrants may only be exercised 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 $13.13 per share. The Backstop Purchaser Offering closed on August 9, 2018. 

Additionally, on August 3, 2018, the Company and HGC NEXT INV LLC (“HGC”) entered into a Series A Convertible Preferred Stock Purchase Agreement (the “HGC Purchase Agreement”).  Pursuant to the HGC Purchase Agreement, the Company agreed to sell, and HGC agreed to purchase (the “HGC Offering”), an aggregate of $35 million of shares of Series A Preferred Stock, together with associated warrants.   In connection with, and on the closing of, the HGC Offering, the Company and HGC will enter into a purchaser right agreement (the “Purchaser Rights Agreement”). Pursuant to the Purchaser Rights Agreement, the Company has granted HGC the right to appoint one person to serve on the Board and a right of first refusal to purchase up to an aggregate of $350 million of any equity or equity-linked securities (including, without limitation, preferred equity, combinations of equity and/or any other instruments or forms of equity capital) in connection with the financing of the development, construction, commissioning and/or operation of the Company’s Rio Grande LNG Project, in each case subject to certain exceptions. HGC may transfer such right of first refusal to an affiliate of HGC or Morgan Stanley Infrastructure, Inc. (or an affiliate thereof) without the Company’s consent or to one or more other third parties with the Company’s consent, subject to certain conditions.  The appointment of a person by HGC to the Board will result in an increase of the size of the Board from eleven members to twelve members. The HGC Offering is expected to close on or before August 30, 2018.

For additional details on the Series A Preferred Equity Offering and the transactions in connection therewith, please refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 7, 2018.

Engineering, Procurement, and Construction Contract

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, we aimed to execute a lump-sum turnkey engineering, procurement, and construction (“EPC”) contract in the second quarter of 2018.  As of the date of the filing of this Quarterly Report on Form 10-Q, we have not executed a lump-sum turnkey EPC contract.  We intend to provide an update on the status of the EPC contract in the third quarter of 2018.

Liquidity and Capital Resources

Capital Resources

We have funded and continue to fund the development of the Project and general working capital needs through our cash on hand and proceeds from the issuance of equity. As discussed above “Recent Developments – Series A Convertible Preferred Stock Purchase Agreements,” the Company executed purchase agreements for an aggregate sale of $50 million of shares of Series A Preferred Stock.    Our capital resources consisted of approximately $18.8 million of cash and cash equivalents and $5.1 million of investment securities as of June 30, 2018.

Sources and Uses of Cash

The following table summarizes the sources and uses of our cash for the periods presented (in thousands):

 

Operating Cash Flows

Operating cash outflows during the six months ended June 30, 2018 and 2017 were $9.1 million and $5.1 million, respectively.  The increase in operating cash outflows during the six months ended June 30, 2018 compared to the six

months ended June 30, 2017 was primarily related to increased cash used as a result of additional employees and increased professional fees.

Investing Cash Flows

Investing cash outflows during the six months ended June 30, 2018 and 2017 were $7.8 million and $5.7 million, respectively. The increase in investing cash outflows during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was primarily the result of increased cash used for the development of the Project. 

Financing Cash Flows

Financing cash inflows during the six months ended June 30, 2017 were $12.4 million as result of $15.0 million of equity issued offset by $2.6 million of equity issuance costs.

Capital Development Activities

We are primarily engaged in developing the Project, which will require significant additional capital to support further project development, engineering, regulatory approvals and compliance, and commercial activities in advance of a final investment decision (“FID”) made to finance and construct the Project. Even if successfully completed, the Project will not begin to operate and generate significant cash flows until at least several years from now, which management currently estimates being as early as 2023. Construction of the Project would not begin until the FERC issues an order granting the necessary authorizations under the Natural Gas Act and once all required federal, state and local permits have been obtained. We estimate that we will receive all regulatory approvals and begin construction to support the commencement of commercial operations as early as 2023. As a result, our business success will depend, to a significant extent, upon our ability to obtain the funding necessary to construct the Project, to bring it into operation on a commercially viable basis and to finance our staffing, operating and expansion costs during that process.

We have engaged SG Americas Securities, LLC (a business unit of Société Générale) and Macquarie Capital (USA) Inc. to advise and assist us in raising capital for post-FID construction activities. Additionally, we have negotiated a non-binding term sheet with GE Oil & Gas, Inc. for $150 million of pre-FID “bridge loan financing” which, subject to the achievement of certain development milestones, may be utilized to fund certain pre-FID development activities.

We currently expect that the long-term capital requirements for the Project will be financed predominately through project financing and proceeds from future debt and equity offerings by us. There can be no assurance that we will succeed in securing additional debt and/or equity financing in the future to complete the Project or, if successful, that the capital we raise will not be expensive or dilutive to stockholders.  Additionally, if these types of financing are not available, we will be required to seek alternative sources of financing, which may not be available on terms acceptable to us, if at all.

Results of Operations

The following table summarizes costs, expenses and other income for the periods indicated (in thousands):

 

Our consolidated net loss was $3.5 million, or $0.03 per share (basic and diluted), for the three months ended June 30, 2018, compared to a net loss of $2.5 million, or $0.03 per share (basic and diluted), for the three months ended

June 30, 2017.  The $1.0  million increase in net loss was primarily a result of increased general and administrative expenses discussed separately below.

Our consolidated net loss was $19.7 million, or $0.18 per share (basic and diluted), for the six months ended June 30, 2018, compared to a net loss of $4.8 million, or $0.05 per share (basic and diluted), for the six months ended June 30, 2017.  The $14.8 million increase in net loss was primarily a result of increased general and administrative expenses discussed separately below.

General and administrative expenses during the three months ended June 30, 2018 increased $1.1 million compared to the same period in 2017 primarily due to increases in the number of employees, the amount of professional fees and travel expenses of approximately $2.1 million offset by a reduction in share-based compensation expense of $1.0 million as a result of forfeitures of restricted stock awards during the period and changes in the probability and expected timing of achievement of performance conditions.

General and administrative expenses during the six months ended June 30, 2018 increased $14.9 million compared to the same period in 2017 primarily due to (i) share based compensation expense of $11.3 million, which was not incurred in 2017, and (ii) increases in the number of employees and amount of professional fees of $3.0 million.

Interest income, net during the three and six months ended June 30, 2018 increased $0.1 million and $0.2 million, respectively, compared to the same periods in 2017 due to increased yield and higher average balances maintained in our cash and cash equivalent and investment securities accounts.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2018.

Summary of Critical Accounting Estimates

The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Recent Accounting Standards

For descriptions of recently issued accounting standards, see Note 10 – Recent Accounting Pronouncements of our Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk in the form of equity price risk related to investments in marketable securities and capital market risk related to future debt and equity offerings.

Equity Price Risk

At June 30, 2018, the fair value of our investment securities was $5.1 million.  We determined the fair value of our investment based on the closing market price where these securities were listed on June 30, 2018.  In order to test the sensitivity of the fair value of the investment securities to changes in equity prices, management modeled a 10% change in the closing market price.  This 10% change in closing market price would have resulted in a $0.5 million change in the fair value of investment securities as of June 30, 2018 and December 31, 2017.

Capital Market Risk

We currently have no revenues and depend on funds raised through other sources.  Two sources of funding are through future debt or equity offerings.  Our ability to raise funds in these manners depends upon capital market forces affecting the share price of our common stock.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s  rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.    Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of “our disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal quarter ended June 30, 2018. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of June 30, 2018, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

None.

Item 1A. Risk Factors

There were no changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

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

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

Not applicable.

Item 5.   Other Information

None.

Item 6. Exhibits

 

*     Filed herewith.

**   Furnished herewith.