NextDecade Corporation (formerly Harmony Merger Corp.) — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. These unaudited statements report Harmony as a pre-business-combination blank-check company; they do not reflect NextDecade, LLC’s operating results.
Business context and key financial metrics
- Before the July 24, 2017 business combination, the company had no operating revenue and its activities were limited primarily to seeking and completing a business combination. It acquired 100% of NextDecade, LLC after quarter-end, changed its name to NextDecade Corporation, and began trading as NEXT.
- Revenue and margins: No operating revenue; operating and profit margins are not meaningful.
- Net loss: Q2 2017 loss was $108,221, versus $65,119 in Q2 2016. First-half 2017 loss was $290,432, versus $221,325 in first-half 2016. Basic and diluted loss per share was $0.02 and $0.06 for those 2017 periods, respectively, compared with $0.01 and $0.05 in 2016.
- Operating costs and interest: Q2 2017 general and administrative costs were $306,012, compared with $121,410 a year earlier; first-half costs were $623,317, versus $323,712. Interest income was $197,791 in Q2 and $332,885 in the first half of 2017, up from $56,291 and $102,387, respectively, in 2016.
- Cash flow: First-half operating cash use was $291,978, compared with $296,820 in 2016. Investing activities provided $3,901,479, while financing activities used $3,582,827. Ending unrestricted cash was $50,539, up from $23,865 at year-end 2016.
- Assets and liquidity: June 30 total assets were $114,031,800, including $113,939,015 of restricted cash, cash equivalents and securities in the trust account. Current liabilities were $484,072; total liabilities were $6,349,576.
- Debt and obligations: The balance sheet included a $110,047 note payable, $1,430,457 payable to stockholders, and a $4,325,000 deferred underwriters fee. Stockholder notes were unsecured and non-interest-bearing; some were convertible into units upon a business combination.
Changes, outlook, risks and unusual items
- Losses increased year over year, primarily reflecting higher professional and public-company costs; higher trust interest income partly offset expenses. The filing provides no operating-revenue comparison because the company had no operating revenue.
- In March 2017, stockholders approved extending the business-combination deadline to July 27, 2017. Holders converted 495,335 shares for $5,063,331. The business combination closed July 24.
- At the July closing, holders converted 7,853,996 public shares for approximately $81.4 million. Approximately $5.9 million of remaining trust funds went to transaction expenses, and approximately $26.8 million was released for working capital. These are post-quarter events, not June 30 liquidity.
- After closing, management reported approximately $42 million of cash and cash equivalents as of July 31, plus $5 million of available-for-sale securities; on August 8, the company exercised a right to call an additional $10 million investment. These figures are subsequent to the reported balance-sheet date.
- The company is developing an LNG terminal and associated 137-mile pipeline. Management expected regulatory approvals and construction to begin in 2018 and commercial operations in 2022; these are expectations, not assured outcomes. The project requires substantial additional capital. A $150 million pre-FID bridge-loan term sheet was non-binding and subject to development milestones; longer-term funding was expected to include project financing and future debt and equity offerings.
- Key risks include obtaining financing, securing regulatory approvals and permits, and completing the project on a commercially viable basis. The filing refers investors to risk factors in the merger proxy statement. It reported no legal proceedings and no off-balance-sheet arrangements as of June 30.
- At closing, 2,954,712 merger-consideration shares were placed in escrow for potential indemnification claims, subject to a $5 million deductible and the escrowed-share limit. Former NextDecade holders also agreed to a 180-day lock-up.
Important facts for investors to verify
- Review post-merger filings for actual cash available after redemptions, transaction costs, and subsequent financing, and reconcile those amounts with the post-closing liquidity figures in this filing.
- Confirm the status and terms of the proposed $150 million bridge financing, the called $10 million investment, and the company’s full funding plan through final investment decision and construction.
- Track FERC and other permitting milestones, construction timing, projected 2022 operations, and any changes to project costs or schedule.
- Review post-combination financial statements separately; the June 30 results reflect the former shell company, not NextDecade’s LNG development operations.
- Assess the effects of public-share redemptions, escrow claims, deferred underwriting fees, convertible insider notes, and dilution from outstanding warrants and other securities.