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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
[ ] 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. 0-9092
CHENIERE ENERGY, INC.
(Exact name as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
95-4352386
(I. R. S. Identification No.)
1200 SMITH STREET, SUITE 1710
HOUSTON, TEXAS
(Address or principal place of business)
77002-4312
(Zip Code)
(713) 659-1361
(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 [X] NO [ ].
As of January 12, 1998, there were 14,457,866 shares of Cheniere Energy, Inc.
Common Stock, $.003 par value, issued and outstanding.
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CHENIERE ENERGY, INC.
INDEX TO FORM 10-Q
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet................................... 3
Consolidated Statement of Operations......................... 4
Consolidated Statement of Stockholders' Equity............... 5
Consolidated Statement of Cash Flows......................... 6
Notes to Consolidated Financial Statements................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities........................................ 11
Item 6. Exhibits and Reports on Form 8-K............................. 11
SIGNATURES.................................................................... 12
2
CHENIERE ENERGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
November 30, August 31,
1997 1997
ASSETS ------------ -----------
------ (Unaudited)
CURRENT ASSETS
Cash $ 26,989 $ 234,764
Accounts Receivable 95,033 -
Prepaid Expenses and Other Current Assets 20,284 57,141
------------ ------------
TOTAL CURRENT ASSETS 142,306 291,905
OIL AND GAS PROPERTIES, full cost method
Unevaluated 13,521,811 13,500,000
FIXED AND OTHER ASSETS 64,055 49,807
------------ ------------
TOTAL ASSETS $ 13,728,172 $ 13,841,712
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 513,665 $ 388,291
Note Payable - Related Party - 500,000
------------ ------------
TOTAL LIABILITIES 513,665 888,291
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock - $.0001 Par Value
Authorized 5,000,000 and 1,000,000 shares,
at November 30 and August 31, 1997 respectively;
None Issued and Outstanding
Common Stock - $.003 Par Value
Authorized 45,000,000 and 20,000,000 shares,
Issued and Outstanding 14,357,866 and 14,160,866
at November 30 and August 31, 1997, respectively 43,074 42,483
Additional Paid-in-Capital 15,225,131 14,709,253
Deficit Accumulated During the Development Stage (2,053,697) (1,798,315)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,214,507 12,953,421
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,728,172 $ 13,841,712
============ ============
The accompanying notes are an integral part of the financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months
Ended November 30, Cumulative
-------------------------- from the Date
1997 1996 of Inception
----------- ----------- ----------------
Revenue $ - $ - $ -
----------- ----------- ----------------
General and Administrative Expenses 303,975 145,928 2,121,250
Interest Expense 2,551 13,689 41,552
----------- ----------- ----------------
306,526 159,617 2,162,802
----------- ----------- ----------------
Loss from Operations Before Other Income
and Income Taxes (306,526) (159,617) (2,162,802)
Interest Income 51,144 1,501 109,105
----------- ----------- ----------------
Loss From Operations Before Income Taxes (255,382) (158,116) (2,053,697)
Provision for Income Taxes - - -
Net Loss $ (255,382) $ (158,116) $ (2,053,697)
=========== =========== ================
Net Loss Per Share $ (0.02) $ (0.02) $ (0.18)
=========== =========== ================
Weighted Average Number of Shares Outstanding 14,326,130 10,310,670 11,540,244
=========== =========== ================
The accompanying notes are an integral part of the financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Total
-------------------------- Paid-In Retained Stockholders'
Per Share Shares Amount Capital Deficit Equity
--------- ----------- ----------- ----------- ----------- --------------
Sale of Shares on April 9, 1996 $ 0.012 6,242,422 $ 18,727 $ 56,276 $ - $ 75,003
Sale of Shares on May 5, 1996 1.50 2,000,000 6,000 2,994,000 - 3,000,000
Issuance of Shares to an Employee
on July 1, 1996 1.00 30,000 90 29,910 - 30,000
Issuance of Shares in Reorganization to
Former Bexy Shareholders - 600,945 1,803 (1,803) - -
Sale of Shares on July 30, 1996 2.00 50,000 150 99,850 - 100,000
Sale of Shares on August 1, 1996 2.00 508,400 1,525 1,015,275 - 1,016,800
Sale of Shares on August 30, 1996 2.00 500,000 1,500 998,500 - 1,000,000
Expenses Related to Offering - - - (686,251) - (686,251)
Issuance of Warrants - - - 12,750 - 12,750
Net Loss - - - - (121,847) (121,847)
----------- ----------- ----------- ----------- --------------
Balance - August 31, 1996 9,931,767 29,795 4,518,507 (121,847) 4,426,455
Sale of Shares on September 12, 1996 2.00 50,000 150 99,850 - 100,000
Sale of Shares on September 16, 1996 2.00 80,250 241 160,259 - 160,500
Conversion of Debt 2.00 105,000 315 209,685 - 210,000
Sale of Shares on October 30, 1996 2.25 457,777 1,373 1,028,627 - 1,030,000
Issuance of Warrants - - - 6,450 - 6,450
Sale of Shares on December 6, 1996 2.25 475,499 1,426 1,068,448 - 1,069,874
Sale of Shares on December 9, 1996 2.50 400,000 1,200 998,800 - 1,000,000
Sale of Shares on December 11, 1996 2.25 22,222 67 49,933 - 50,000
Sale of Shares on December 19, 1996 2.50 200,000 600 499,400 - 500,000
Sale of Shares on December 20, 1996 2.50 220,000 660 549,340 - 550,000
Sale of Shares on February 28, 1997 4.25 * 352,947 1,059 1,498,967 - 1,500,026
Sale of Shares on March 4, 1997 4.25 * 352,947 1,059 1,498,966 - 1,500,025
Sale of Shares on May 22, 1997 3.00 535,000 1,605 1,603,395 - 1,605,000
Issuance of Shares to Adjust Prices of
Shares Sold on February 28 and
March 4, 1997 - * 294,124 883 (883) - -
Sale of Shares on June 26, 1997 3.00 33,333 100 99,900 - 100,000
Sale of Shares on July 24, 1997 3.00 250,000 750 749,250 - 750,000
Issuance of Shares in Connection with
Financial Advisory Services 3.125 200,000 600 624,400 - 625,000
Sale of Shares on July 30, 1997 3.00 100,000 300 299,700 - 300,000
Sale of Shares on August 19, 1997 3.00 100,000 300 299,700 - 300,000
Expenses Related to Offering - - - (1,153,441) - (1,153,441)
Net Loss - - - - (1,676,468) (1,676,468)
----------- ----------- ----------- ----------- --------------
Balance - August 31, 1997 14,160,866 42,483 14,709,253 (1,798,315) 12,953,421
Sale of Shares on September 15, 1997 3.00 67,000 201 200,799 - 201,000
Sale of Shares on September 16, 1997 3.00 130,000 390 389,610 - 390,000
Expenses Related to Offerings - - (74,531) - (74,531)
Net Loss - - - (255,382) (255,382)
----------- ----------- ----------- ----------- --------------
Balance - November 30, 1997 14,357,866 $ 43,074 $15,225,131 $(2,053,697) $ 13,214,508
=========== =========== =========== =========== ==============
* Additional shares were issued to the purchasers of shares sold on February 28, 1997 and March 4, 1997 pursuant to the terms of
those sales.
The accompanying notes are an integral part of the financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months
Ended November 30, Cumulative
-------------------------- from the Date
1997 1996 of Inception
----------- ----------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (255,382) $ (158,116) $ (2,053,697)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation 2,203 2,023 14,074
Compensation Paid in Common Stock - - 654,400
(Increase) in Accounts Receivable (95,033) - (95,033)
(Increase) Decrease in Prepaid Expenses and Other Current Assets 36,857 (1,822) (20,284)
Increase in Accounts Payable and Accrued Liabilities 125,374 81,290 513,665
----------- ----------- ----------------
NET CASH USED BY OPERATING ACTIVITIES (185,981) (76,625) (986,875)
----------- ----------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment (1,451) (6,180) (63,129)
Increase in Other Assets (15,000) - (15,000)
Proceeds from Sale of Oil and Gas Seismic Data 46,000 - 46,000
Investment in 3-D Exploration Program (67,811) (2,000,000) (13,567,811)
----------- ----------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (38,262) (2,006,180) (13,599,940)
----------- ----------- ----------------
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Proceeds from Note Issuance - - 925,000
Repayment of Note (500,000) - (715,000)
Sale of Common Stock 591,000 1,290,500 16,298,828
Issuance of Warrants - 6,450 19,200
Offering Costs (74,531) (367,760) (1,914,223)
Advances for Issuance of Common Stock - 384,985 -
----------- ----------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,469 1,314,175 14,613,805
----------- ----------- ----------------
NET (DECREASE) INCREASE IN CASH (207,775) (768,630) 26,989
----------- ----------- ----------------
CASH - BEGINNING OF PERIOD 234,764 1,093,180 -
----------- ----------- ----------------
CASH - END OF PERIOD 26,989 324,550 26,989
----------- ----------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 6,718 $ 8,570 $ 22,353
=========== =========== ================
Cash Paid for Income Taxes $ - $ - $ -
=========== =========== ================
The accompanying notes are an integral part of the financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Cheniere Energy, Inc.
("Cheniere" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation, have been included.
For further information, refer to the financial statements and footnotes
included in the Company's Annual Report on Form 10-K, as amended, for the year
ended August 31, 1997. Interim results are not necessarily indicative of
results to be expected for the full fiscal year ended August 31, 1998.
The Company is currently a development stage enterprise and reports as such
under the provisions of SFAS No. 7. The Company's future business will be in
the field of oil and gas exploration and exploitation.
NOTE 2 - NOTE PAYABLE - RELATED PARTY
On July 31, 1997, Cheniere borrowed $500,000 from a related party,
evidenced by a promissory note bearing interest at 10% per annum and due on
August 29, 1997. On August 28, 1997, the maturity date was extended to
September 29, 1997. On September 19, 1997, the note was repaid in full with
interest. All collateral securing the note has been released.
NOTE 3 - COMMON STOCK ISSUANCE
During September 1997, pursuant to Regulation S promulgated under the
Securities Act of 1933, the Company sold an aggregate of 197,000 shares of
Common Stock to two offshore investors for gross proceeds of $591,000 and net
proceeds of $531,900.
NOTE 4 - STOCK OPTIONS
On September 29, 1997, the Company's Board of Directors elected a new
outside director. This director was granted options to purchase 25,000 shares
of the Company's Common Stock at an exercise price of $3.00 per share, the
quoted market price on the date of grant. These options vest 12,500 on
September 29, 1998, and 12,500 on September 29, 1999, and will expire on
September 29, 2002. Also on September 29, 1997, the Company granted to each of
two outside directors options to acquire 10,000 shares of the Company's Common
Stock at an exercise price of $3.00 per share, the quoted market price on the
date of grant. These options will vest one year from the date of grant and will
expire five years from the date of grant. All of the options described in this
Note 4 were issued pursuant to an exemption from the securities registration
provisions of the Securities Act of 1933 contained in Section 4(2).
7
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - SUBSEQUENT EVENTS
In December 1997, Cheniere completed the private placement of a $4 million
bridge financing. The senior term notes issued by Cheniere mature March 15,
1998 and are extendible at the option of the Company to September 15, 1998.
Proceeds from the bridge financing will be used to fund the Company's ongoing
activities related to its 3-D seismic exploration project in Cameron Parish,
Louisiana. Payment by Cheniere of $2.9 million on December 31, 1997 completed
the Company's payment obligation to earn a 50% interest in the project.
In connection with the bridge financing, Cheniere issued 100,000 shares of
common stock and 4-year warrants to purchase 1,333,333 shares of Common Stock at
$2-3/8 per share. Annual interest on the senior term notes will accrue at
LIBOR plus 4%. If all of the senior term notes are extended, additional
warrants to purchase 266,667 shares of Cheniere Common Stock will be issued for
each month the notes remain outstanding beyond March 15, 1998. The Company
expects to file a Registration Statement to register the Common Stock issued and
underlying the warrants no later than April 15, 1998. The bridge financing
included two tranches, one domestic, one European. In conjunction with the
European tranche, BSR Investments, Ltd., a major shareholder of the company,
purchased $2 million of the notes and pledged a portion of its Cheniere Common
Stock to fund its participation.
Also in December 1997, Cheniere announced it is seeking to place privately
a $10 million equity offering in the form of 100,000 Units, each Unit being
comprised of one share of Series A Convertible Preferred Stock and Warrants to
purchase 20 shares of the Company's Common Stock. The Company seeks to complete
the equity offering during the first half of 1998. Proceeds from the equity
offering will be used to retire the bridge notes and to fund Cheniere's oil and
gas exploration activities.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL - Cheniere Energy, Inc. is currently a development stage company
and reports as such under the provisions of SFAS No. 7. Accordingly, the
Company's unaudited consolidated financial statements and notes thereto relate
to the three-month periods ended November 30, 1997 and 1996 and the period from
inception (February 21, 1996) to November 30, 1997. These statements, the notes
thereto and the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the period ended August 31, 1997 contain detailed
information that should be referred to in conjunction with the following
discussion.
PRIVATE PLACEMENT OF COMMON SHARES - In September 1997, pursuant to
Regulation S promulgated under the Securities Act of 1933, the Company sold an
aggregate of 197,000 shares of Common Stock to two offshore investors and
received proceeds of $531,900 net of placement fees from such sales.
Information regarding each sale is set forth in the table below.
Date Shares Price Proceeds Fee/Commission Net Proceeds
- - - - - - ---- ------ ----- -------- -------------- ------------
9/15 67,000 $3.00 $201,000 $20,100 $180,900
9/16 130,000 $3.00 $390,000 $39,000 $251,000
Proceeds from the sales of Common Stock made in September 1997, were used
to fund the repayment of the Company's short-term note payable which matured
September 29, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIODS ENDED NOVEMBER 30, 1997 AND 1996 - The
Company's operating results for the three months ended November 30, 1997 reflect
a loss of $255,382, or $0.02 per share, compared to a loss of $158,116 or $0.02
per share a year earlier. The Company is in the development stage; accordingly,
there continue to be no operating revenues. General and administrative expenses
of $309,975 in the three months ended November 30, 1997 were significantly
higher than the $145,928 reported for the comparable period a year earlier. The
increased expenses include greater professional fees, additional insurance and
increased printing costs as well as increased personnel costs. Interest expense
of $2,551 was less than the $13,689 reported a year ago due to a decrease in the
number of days the Company had interest-bearing obligations outstanding.
Cheniere reported interest income of $51,144 in the current-year's quarter
compared to $1,501 a year ago. The increase in income relates to an agreement
that interest earned from inception to date on funds advanced by the Company to
its exploration joint venture inures to the benefit of Cheniere.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital expenditures and working
capital requirements through private placements of equity securities and short-
term debt issuances. Since its inception in February 1996, Cheniere has raised
$16.3 million through the sale of its Common Stock.
The Company expects drilling operations to commence on more than one
prospect in the 3-D Exploration Program during 1998. The related capital needs
of the Company will depend
9
upon the level of participation it chooses to retain in the drilling projects.
The Company expects to finance such activities through additional private
placements of equity securities, short-term debt issuances or the partial sale
of its interest in the projects.
At November 30, 1997, total assets were $13,728,172 compared to $13,841,712
at August 31, 1997. The decrease in assets is due primarily to the Company's
repayment of a $500,000 short-term note payable and to its operating loss for
the three months, offset by the proceeds from the issuance of Common Stock
The Company's balance sheet at November 30, 1997 reflected current assets
of $142,306 and current liabilities of $513,665. In addition, Cheniere had a
contractual commitment to make a payment of $2.9 million on December 31, 1997 in
order to earn a 50% interest in its 3-D Exploration Program. The Company has no
long term liabilities.
In December 1997, the Company completed a $4,000,000 bridge financing and
used a portion of the proceeds to meet its $2.9 million obligation to earn the
full 50% interest in its joint venture 3-D Exploration Program. It also
initiated a $10,000,000 offering of 100,000 units each comprised of one share of
the Company's Preferred Stock and warrants to purchase 20 shares of Cheniere
Common Stock. The Company seeks to complete the equity offering during the
first half of 1998. Proceeds will be used to retire the bridge notes and to
fund additional exploration expenditures.
OTHER
This document includes "forward looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended. Although the Company believes that the
expectations reflected in such forward looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Certain risks and uncertainties inherent in the Company's business
are set forth in the filings of the Company with the Securities and Exchange
Commission.
10
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
The information contained in Note 4 to the Consolidated Financial Statements is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held an annual meeting of its shareholders on November 5, 1997. The
following individuals, were nominated to be elected to the Board of Directors:
William D. Forster, Kenneth R. Peak, Charif Souki, Walter L. Williams and Efrem
Zimbalist III. In addition to the election of Directors, the following matters
were submitted to a vote: the adoption of the 1997 Stock Option Plan; the
Amendment to the Company's Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock, par value of $.003 per
share, to 40,000,000 shares and to increase the number of authorized shares of
Preferred Stock, par value $.0001 per share, to 5,000,000 shares; and the
ratification and approval of the appointment of Merdinger, Fruchter, Rosen and
Corso, P.C. as auditors of the Company. The results of voting on these matters
is summarized in the following table:
Votes Abstentions or
Description Votes For Against Broker Non-Votes
- - - - - - ----------------------------- ------------ -------------- ----------------------
William D. Forster 10,464,736 - 0 - - 0 -
Kenneth R. Peak 10,464,736 - 0 - - 0 -
Charif Souki 10,464,736 - 0 - - 0 -
Walter L. Williams 10,464,736 - 0 - - 0 -
Efrem Zimbalist III 10,464,736 - 0 - - 0 -
1997 Stock Option Plan 7,233,003 87,049 3,144,726
Approve Auditors 10,460,727 4,051 - 0 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is filed herewith:
Exhibit No. Description
- - - - - - ----------- -----------
3.3 Amendment to Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock from
20,000,000 to 40,000,000 and to increase the number of authorized
shares of Preferred Stock from 1,000,000 to 5,000,000.
10.25 Cheniere Energy, Inc. 1997 Stock Option Plan.
27.1 Financial Data Schedule
11
(b) The following reports on Form 8-K were filed for the three months ended
November 30, 1997:
Current Report on Form 8-K, filed on September 24, 1997 under Item 5
reporting the repayment by Cheniere of a $500,000 short-term note and the
extension of payments due under the Company's 3-D Exploration Agreement until
December 31, 1997, and under Item 9 reporting the sale of 197,000 shares of
Common Stock pursuant to Regulation S under the Securities Act of 1933,
Current Report on Form 8-K, filed on October 10, 1997 under Item 5 reporting
a new outside director appointment and management changes.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHENIERE ENERGY, INC.
/s/ Don A. Turkleson
-------------------------------------------
Don A. Turkleson
Chief Financial Officer
Date: January 14, 1998
12