================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 September 30, 1998
OR
[ ] 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 1740
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 November 13, 1998, there were 18,007,082 shares of Cheniere Energy, Inc.
Common Stock, $.003 par value, issued and outstanding.
================================================================================
CHENIERE ENERGY, INC.
INDEX TO FORM 10-Q
Page
----
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................................................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 12
Item 2. Changes in Securities and Use of Proceeds............................ 12
Item 5. Other Information.................................................... 12
Item 6. Exhibits and Reports on Form 8-K..................................... 13
SIGNATURES............................................................................. 14
2
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1998 1997
------------- -------------
ASSETS
------
CURRENT ASSETS
Cash $ 75,407 $ 787,523
Accounts Receivable 95,033 102,330
Debt Issuance Costs, net 27,978 224,306
Prepaid Expenses and Other Current Assets 35,423 10,543
----------- -----------
TOTAL CURRENT ASSETS 233,841 1,124,702
OIL AND GAS PROPERTIES, full cost method
Unevaluated 19,542,690 16,534,054
FIXED ASSETS, net 97,006 46,871
----------- -----------
TOTAL ASSETS $19,873,537 $17,705,627
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 423,292 $ 369,766
Notes Payable 2,000,000 2,000,000
Note Payable - Related Party 2,000,000 2,000,000
Less: Cost of Detachable Warrants (87,500) (84,167)
----------- -----------
TOTAL LIABILITIES 4,335,792 4,285,599
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 45,000,000 shares
Issued and Outstanding: 17,107,082 and 14,457,866 shares
at September 30, 1998 and December 31, 1997, respectively 51,322 43,374
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none - -
Additional Paid-in-Capital 18,820,528 15,563,330
Deficit Accumulated During the Development Stage (3,334,105) (2,186,676)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 15,537,745 13,420,028
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,873,537 $17,705,627
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30, Cumulative
--------------------------- ----------------------------- from the Date
1998 1997 1998 1997 of Inception
---------- ---------- ----------- ----------- ------------
Revenue $ - $ - $ - $ - $ -
---------- ---------- ----------- ----------- -----------
General and Administrative Expenses 532,272 872,197 1,164,099 1,626,539 3,428,397
---------- ---------- ----------- ----------- -----------
Loss from Operations Before Other Income
and Income Taxes (532,272) (872,197) (1,164,099) (1,626,539) (3,428,397)
Interest Income 4,157 3,067 16,670 50,045 133,293
Interest Expense - (6,718) - (6,718) (39,001)
---------- ---------- ----------- ----------- -----------
Loss From Operations Before Income Taxes (528,115) (875,848) (1,147,429) (1,583,212) (3,334,105)
Provision for Income Taxes - - - - -
---------- ---------- ----------- ----------- -----------
Net Loss $ (528,115) $ (875,848) $(1,147,429) $(1,583,212) $(3,334,105)
========== ========== =========== =========== ===========
Net Loss Per Share (basic and diluted) $ (0.03) $ (0.06) $ (0.07) $ (0.12) $ (0.26)
========== ========== =========== =========== ===========
Weighted Average Number of Shares
Outstanding 16,507,625 13,798,062 15,436,103 13,065,977 12,813,853
========== ========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional
------------------------------ Paid-In
Per Share Shares Amount Capital
------------- --------------- ------------ -----------------
Sale of Shares on April 9, 1996 $0.012 6,242,422 $ 18,727 $ 56,276
Sale of Shares on May 5, 1996 1.50 2,000,000 6,000 2,994,000
Issuance of Shares to an Employee
on July 1, 1996 1.00 30,000 90 29,910
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
Sale of Shares on August 1, 1996 2.00 508,400 1,525 1,015,275
Sale of Shares on August 30, 1996 2.00 500,000 1,500 998,500
Expenses Related to Offerings - - - (686,251)
Issuance of Warrants - - - 12,750
Net Loss - - - -
---------- --------- -----------
Balance - August 31, 1996 9,931,767 29,795 4,518,507
Sale of Shares on September 12, 1996 2.00 50,000 150 99,850
Sale of Shares on September 16, 1996 2.00 80,250 241 160,259
Conversion of Debt 2.00 105,000 315 209,685
Sale of Shares on October 30, 1996 2.25 457,777 1,373 1,028,627
Issuance of Warrants - - - 6,450
Sale of Shares on December 6, 1996 2.25 475,499 1,426 1,068,448
Sale of Shares on December 9, 1996 2.50 400,000 1,200 998,800
Sale of Shares on December 11, 1996 2.25 22,222 67 49,933
Sale of Shares on December 19, 1996 2.50 200,000 600 499,400
Sale of Shares on December 20, 1996 2.50 220,000 660 549,340
Sale of Shares on February 28, 1997 4.25 352,947 1,059 1,498,967
Sale of Shares on March 4, 1997 4.25 352,947 1,059 1,498,966
Sale of Shares on May 22, 1997 3.00 535,000 1,605 1,603,395
Issuance of Shares to Adjust Prices of
Shares Sold on February 28 and March 4 - 294,124 883 (883)
Sale of Shares on June 26, 1997 3.00 33,333 100 99,900
Sale of Shares on July 24, 1997 3.00 250,000 750 749,250
Issuance of Shares in Connection with
Financial Advisory Services 3.125 200,000 600 624,400
Sale of Shares on July 30, 1997 3.00 100,000 300 299,700
Sale of Shares on August 19, 1997 3.00 100,000 300 299,700
Expenses Related to Offerings - - - (1,153,441)
Net Loss - - - -
---------- --------- -----------
Balance - August 31, 1997 14,160,866 42,483 14,709,253
Sale of Shares on September 15, 1997 3.00 67,000 201 200,799
Sale of Shares on September 16, 1997 3.00 130,000 390 389,610
Expenses Related to Offerings - (74,532)
Issuance of Warrants and Shares with
Bridge Notes on December 15, 1997 2.375 100,000 300 338,200
Net Loss - - - -
---------- --------- -----------
Balance - December 31, 1997 14,457,866 43,374 15,563,330
Sale of Shares on April 8, 1998 2.00 530,000 1,590 1,058,410
Issuance of Shares in Settlement of
Charges for Previous Legal Services 1.40 70,000 210 97,790
Sale of Shares on May 29, 1998 2.00 22,000 66 43,934
Sale of Shares on June 4, 1998 1.40 890,644 2,672 1,244,230
Expenses Related to Offerings - - - (138,000)
Issuance of Shares to Adjust Prices of
Shares Sold on April 8 and May 29 - 236,572 710 (710)
Issuance of Warrants with
Bridge Notes on June 4, 1998 - - - 3,661
Issuance of Shares on August 26, 1998
Pursuant to exercise of warrants 1.00 100,000 300 99,700
Sale of Shares on August 31, 1998 0.67 750,000 2,250 499,000
Issuance of Warrants and Shares to
Extend Bridge Notes on September 15, 1998 0.67 50,000 150 349,183
Net Loss - - - -
---------- --------- -----------
Balance - September 30, 1998 17,107,082 51,322 18,820,528
========== ========= ===========
Total
Retained Stockholders'
Deficit Equity
--------------- -----------------
Sale of Shares on April 9, 1996 $ - $ 75,003
Sale of Shares on May 5, 1996 - 3,000,000
Issuance of Shares to an Employee
on July 1, 1996 - 30,000
Issuance of Shares in Reorganization to
Former Bexy Shareholders - -
Sale of Shares on July 30, 1996 - 100,000
Sale of Shares on August 1, 1996 - 1,016,800
Sale of Shares on August 30, 1996 - 1,000,000
Expenses Related to Offerings - (686,251)
Issuance of Warrants - 12,750
Net Loss (121,847) (121,847)
----------- -----------
Balance - August 31, 1996 (121,847) 4,426,455
Sale of Shares on September 12, 1996 - 100,000
Sale of Shares on September 16, 1996 - 160,500
Conversion of Debt - 210,000
Sale of Shares on October 30, 1996 - 1,030,000
Issuance of Warrants - 6,450
Sale of Shares on December 6, 1996 - 1,069,874
Sale of Shares on December 9, 1996 - 1,000,000
Sale of Shares on December 11, 1996 - 50,000
Sale of Shares on December 19, 1996 - 500,000
Sale of Shares on December 20, 1996 - 550,000
Sale of Shares on February 28, 1997 - 1,500,026
Sale of Shares on March 4, 1997 - 1,500,025
Sale of Shares on May 22, 1997 - 1,605,000
Issuance of Shares to Adjust Prices of
Shares Sold on February 28 and March 4 - -
Sale of Shares on June 26, 1997 - 100,000
Sale of Shares on July 24, 1997 - 750,000
Issuance of Shares in Connection with
Financial Advisory Services - 625,000
Sale of Shares on July 30, 1997 - 300,000
Sale of Shares on August 19, 1997 - 300,000
Expenses Related to Offerings - (1,153,441)
Net Loss (1,676,468) (1,676,468)
----------- -----------
Balance - August 31, 1997 (1,798,315) 12,953,421
Sale of Shares on September 15, 1997 - 201,000
Sale of Shares on September 16, 1997 - 390,000
Expenses Related to Offerings (74,532)
Issuance of Warrants and Shares with
Bridge Notes on December 15, 1997 338,500
Net Loss (388,361) (388,361)
----------- -----------
Balance - December 31, 1997 (2,186,676) 13,420,028
Sale of Shares on April 8, 1998 - 1,060,000
Issuance of Shares in Settlement of
Charges for Previous Legal Services - 98,000
Sale of Shares on May 29, 1998 - 44,000
Sale of Shares on June 4, 1998 - 1,246,902
Expenses Related to Offerings - (138,000)
Issuance of Shares to Adjust Prices of
Shares Sold on April 8 and May 29 - -
Issuance of Warrants with
Bridge Notes on June 4, 1998 - 3,661
Issuance of Shares on August 26, 1998
Pursuant to exercise of warrants - 100,000
Sale of Shares on August 31, 1998 - 501,250
Issuance of Warrants and Shares to
Extend Bridge Notes on September 15, 1998 - 349,333
Net Loss (1,147,429) (1,147,429)
----------- -----------
Balance - September 30, 1998 (3,334,105) 15,537,745
=========== ===========
The accompanying notes are an integral part of the financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30, Cumulative
--------------------------------- from the Date
1998 1997 of Inception
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,147,429) $ (1,583,212) $ (3,334,105)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 31,676 6,309 46,483
Compensation Paid in Common Stock - - 654,400
(Increase) Decrease in Accounts Receivable 7,297 - (95,033)
Increase in Prepaid Expenses and Other Current Assets (24,880) (35,649) (35,423)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 53,526 168,275 423,292
Decrease in Advances from Officers (961) -
Non-Cash Interest Expense (Issuance of Warrants) - - 19,200
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES $ (1,079,810) (1,445,238) (2,321,186)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets (81,810) (10,048) (143,488)
Proceeds from Sales of Oil and Gas Seismic Data - - 46,000
Oil and Gas Property Additions (2,462,648) (7,498,919) (19,012,675)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,544,458) (7,508,967) (19,110,163)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes with Detachable Warrants 180,000 - 4,605,000
Proceeds from Issuance of Notes Payable or Advances 592,000 - 1,092,000
Repayment of Notes Payable or Advances (772,000) - (1,487,000)
Sale of Common Stock 3,050,152 7,271,066 19,348,980
Offering Costs (138,000) (531,000) (2,052,224)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,912,152 6,740,066 21,506,756
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (712,116) (2,214,139) 75,407
CASH - BEGINNING OF PERIOD 787,523 2,419,264 -
------------ ------------ ------------
CASH - END OF PERIOD $ 75,407 $ 205,125 $ 75,407
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 286,977 $ 6,718 $ 309,330
============ ============ ============
Cash Paid for Income Taxes $ - $ - $ -
============ ============ ============
The accompanying notes are an integral part of the financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
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 Transition Report on Form 10-K for the four months
ended December 31, 1997. Interim results are not necessarily indicative of
results to be expected for the full fiscal year ended December 31, 1998.
The Company is currently a development stage enterprise and reports as such
under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
7, "Accounting and Reporting by Development Stage Enterprises." The Company's
future business will be in the field of oil and gas exploration and
exploitation.
The Company adopted SFAS 130, "Reporting Comprehensive Income", effective
January 1, 1998. However, the Company had no items of other comprehensive
income in any period presented and, as a result, is not required to report
comprehensive income.
The Company intends to adopt SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", issued in June 1998 effective with its
fiscal year beginning January 1, 2000 as required by the Statement. Due to the
Company's current and anticipated limited use of derivative instruments,
management anticipates that adoption of SFAS 133 will not have any significant
impact on the Company's financial position or results of operations.
NOTE 2 - NOTES PAYABLE
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing (the "December 1997 Bridge Financing"). The notes payable
issued by Cheniere had an initial maturity date of March 15, 1998, which was
extended to September 15, 1998. The notes bear interest, payable quarterly at a
rate of LIBOR plus 4% (ranging from 9.5% to 9.9%). The securities purchase
agreements which govern such bridge financing specify that, during the term of
the notes, capital raised by the Company in excess of $5,000,000 must be
directed to repayment of the notes.
In connection with the December 1997 Bridge Financing, Cheniere issued
100,000 shares of common stock and four-year warrants to purchase 1,333,334
shares of common stock at $2-3/8 per share. Additional warrants to purchase
1,600,000 shares of Cheniere common stock were issued on September 15, 1998 in
consideration for the extension to that date. The notes were extended again in
September 1998 to a maturity date of December 15, 1998, which date may be
further extended to January 15, 1999 at the option of the Company. In
connection with the extension to December 15, 1998, the Company offered two
alternatives of consideration. Holders of $3,000,000 of the notes elected to
reduce the exercise price of their warrants to $1.50. The holder of $1,000,000
of the notes elected to reduce the exercise price of its warrants to $2.00 per
share, to extend the term of such warrants to five years from the latter of
September 15, 1998 or
7
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the date of issue, to receive additional warrants to purchase as many as 387,500
shares of common stock and to receive 50,000 shares of common stock.
In June 1998, the Company issued $180,000 in short-term notes with
detachable warrants to purchase 83,334 shares of common stock at an exercise
price of $2.00 per share on or before June 4, 2002. Such notes bore interest at
LIBOR plus 4% (9.7%) and matured on August 14, 1998. After extensions to dates
on or about August 31, 1998, the notes were repaid in full.
NOTE 3 - COMMON STOCK ISSUANCE
During the nine months ended September 30, 1998, the Company completed six
private placements. Net proceeds from these offerings totaled $2,912,152. In
April 1998, Cheniere issued 530,000 shares, generating net proceeds of
$1,018,000. In May 1998, the Company issued 22,000 shares with proceeds of
$44,000 and an additional 70,000 shares in partial payment of legal charges
related principally to previous offerings of the Company's common stock. In
June 1998, Cheniere issued 890,644 shares of common stock, generating net
proceeds of $1,175,902. Because the June private placement was issued at a
price of $1.40 per share at a time soon after the Company had completed
offerings at $2.00 per share, the Company also issued in June 236,572 additional
shares to the stockholders who had purchased shares in April and May at $2.00
per share to give them the benefit of the lower price. In August, the Company
issued 100,000 shares pursuant to the exercise of outstanding warrants, for
which the exercise price was adjusted from $3.125 per share to $1.00 per share,
resulting in proceeds of $100,000. Also in August, the Company sold 750,000
units, each unit representing one share of common stock and one half warrant to
purchase one share of common stock at $2.00. The units were offered at $0.67
per unit and resulted in net proceeds of $476,250. In September, the Company
issued 50,000 shares of common stock in connection with an extension of the
maturity date of its notes payable.
NOTE 4 - STOCK OPTIONS
On January 1, 1998, the Company granted options to certain employees under
the Cheniere Energy, Inc. 1997 Stock Option Plan. Options covering a total of
100,000 shares of common stock were granted, exercisable at $3.00 per share,
vesting 25% at each of the first four anniversaries of the dates of grant and
expiring on the fifth anniversary dates of the grants.
On April 7, 1998, the Company's Board of Directors elected a new outside
director. This director was granted options to purchase 35,000 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 22,500 on April 7, 1999,
and 12,500 on April 7, 2000, and will expire on April 7, 2002.
NOTE 5 - RELATED PARTY TRANSACTIONS
In conjunction with certain of the Company's private placements of equity,
placement fees have been paid to Investors Administration Services, Limited
("IAS"), a company in which the brother of the Company's Co-Chairman, Charif
Souki, is a principal. Placement fees to IAS totaled $138,000 for the nine
months ended September 30, 1998.
On June 4, 1998, short-term advances totaling $592,000 were received from
the Company's Co-Chairman, William Forster, and from family members of Mr.
Forster who are also shareholders of the Company. Such advances bore interest
at LIBOR plus 4% (9.7%) and were repaid during June 1998.
8
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to September 30, 1998, the Company received short-term advances
totaling $60,000 from Mr. Forster and from BSR Inverstments, Ltd., a company
controlled by the mother of Charif Souki. In addition, the Company sold 900,000
additional units of stock and warrants, resulting in net proceeds of $540,000.
During October 1998, a hearing was conducted before a panel of independent
arbitrators pursuant to arbitration proceedings which were initiated in April
1998 concerning rights, duties and obligations of the parties to a certain
exploration agreement. The hearing has been completed, and decisions are
expected to be forthcoming from the panel shortly after the completion of an
audit of expenditures made pursuant to the exploration agreement. Such audit
has begun and is expected to be completed during November 1998.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL - Cheniere Energy, Inc. is currently a development stage company,
which has not yet begun generating revenues, and reports as such under the
provisions of SFAS No. 7. The Company's unaudited consolidated financial
statements and notes thereto relate to the three-month and nine-month periods
ended September 30, 1998 and 1997. These statements, the notes thereto and the
consolidated financial statements included in the Company's Transition Report on
Form 10-K for the four-month transition period ended December 31, 1997 contain
detailed information that should be referred to in conjunction with the
following discussion.
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 - The
Company's operating results for the three months ended September 30, 1998
reflect a loss of $528,115, or $0.03 per share, compared to a loss of $875,848
or $0.06 per share a year earlier. The Company has not yet begun to generate
operating revenues; it is in the development stage. General and administrative
expenses of $532,272 in the three months ended September 30, 1998 were lower
than the $872,197 reported for the comparable period a year earlier. Both
periods included significant non-recurring expenses. The decrease in expenses
results principally from the inclusion in 1997 of $624,400 related to financial
advisory services, offset by approximately $425,000 in legal and other expenses
related to arbitration proceedings which were initiated in April 1998.
COMPARISON OF NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 - The
Company's operating results for the nine months ended September 30, 1998 reflect
a loss of $1,147,429 or $0.07 per share, compared to a loss of $1,583,212 or
$0.12 per share a year earlier. General and administrative expenses of
$1,164,099 in the nine months ended September 30, 1998 were lower than the
$1,626,539 reported for the comparable period a year earlier. Both periods
included significant non-recurring expenses. The decrease in expenses results
principally from the inclusion in 1997 of $624,400 related to financial advisory
services. The resulting decrease is offset partially by an increase in legal
expenses in 1998 related to the arbitration proceedings which began in April.
Cheniere reported interest income of $16,670 in the current year to date
compared to $50,045 a year ago, varying as a function of funds available for the
Company to invest.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that future liquidity requirements, including
repayment of outstanding short-term notes payable, future commitments to the 3-D
Exploration Program and other oil and gas activities, will be met by cash
balances, the sale of equity, further borrowings, and/or the sale of portions of
its interest in the 3-D Exploration Program or in the prospects generated
thereunder. At this time, no assurance can be given that such sales of equity,
future borrowings, or sales of portions of its interest in the 3-D Exploration
Program or in the prospects generated thereunder will be accomplished.
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 through September 30,
1998, Cheniere has raised $17.5 million through the sale of its common stock and
another $4.0 million (net of repayments) in private debt placements.
10
The Company's $4,000,000 in notes payable are scheduled to mature on
December 15, 1998 and may be extended at the option of the Company to January
15, 1999. At present, the Company is considering alternatives for satisfying
this debt obligation. Such alternatives include a conversion of notes payable
into common stock, the sale of additional equity securities and the sale of a
partial interest in the 3-D Exploration Program or in the prospects generated
thereunder.
Although its timetable has been delayed by the arbitration proceedings in
1998, the Company presently expects drilling operations to commence on one or
more prospects during the first quarter of 1999. The related capital needs of
the Company will depend upon the level of participation it chooses to retain in
the drilling projects. The Company expects to finance such activities through
the additional placement of its equity securities, short-term debt issuances
and/or the partial sale of its interest in the 3-D Exploration Program or in the
prospects generated thereunder, but can offer no assurance that it will be able
to successfully obtain such financing.
At September 30, 1998, total assets had increased to $19,873,537 from
$17,705,627 at December 31, 1997 due primarily to Cheniere's continued
investment in oil and gas properties, funded principally by net proceeds from
the sale of the Company's common stock.
Year 2000
The Year 2000 presents significant issues for many computer systems. Much
of the software in use today may not be able to accurately process data beyond
the year 1999. The vast majority of computer systems process transactions using
two digits for the year of the transaction, rather than the full four digits,
making such systems unable to distinguish January 1, 2000 from January 1, 1900.
Such systems may encounter significant processing inaccuracies or become
inoperable when Year 2000 transactions are processed. Such matters could impact
not only the Company in its day-to-day operations but also the Company's
financial institutions, customers and vendors as well as state, provincial and
federal governments with jurisdictions where the Company maintains operations.
The Company is currently addressing Year 2000 issues and is presently
focussing on its internal business systems and processes. To the extent
necessary, the Company will assess the readiness of any key business partners
(financial institutions, customers, vendors, oil and gas operators, etc.).
It has been the Company's strategy to use, wherever possible, industry
prevalent products and processes with minimal customization. As a result, the
Company does not expect any extensive in-house hardware, software or process
conversions in an effort to be Year 2000 compliant nor does the Company expect
its Year 2000 compliance related costs to be material to its operations.
The Company's goal is to be Year 2000 compliant by June 30, 1999 wherever
possible and to have contingency plans in place where compliance is not possible
in a timely manner. While it is the Company's goal to be Year 2000 compliant,
there can be no assurance that there will not be a material adverse effect on
the Company as a result of a Year 2000 related issue. The Company's business
partners may present the area of greatest risk to the Company, in part because
of the Company's limited ability to influence actions of third parties, and in
part because of the Company's inability to estimate the level and impact of
noncompliance of third parties. Additionally, there are many variables and
uncertainties associated with judgments regarding any contingency plans
developed by the Company.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in the second paragraph of Note 6 to the Consolidated
Financial Statements is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information contained in Notes 2, 3 and 4 to the Consolidated Financial
Statements is incorporated herein by reference.
ITEM 5. OTHER INFORMATION
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other filings with the Securities and Exchange Commission and in reports to its
stockholders.
All statements, other than statements of historical facts so included in
this report that address activities, events or developments that the Company
intends, expects, projects, believes, or anticipates will or may occur in the
future, including, without limitation: statements regarding the Company's
business strategy, plans and objectives; statements expressing beliefs and
expectations regarding the ability of the Company to successfully raise the
additional capital necessary to meet its obligations under the Exploration
Agreement, the ability of the Company to secure the leases necessary to
facilitate anticipated drilling activities and the ability of the Company to
attract additional working interest owners to participate in the exploration and
development within the Survey AMI; and statements about non-historical Year 2000
information, are forward-looking statements within the meaning of the Act.
These forward-looking statements are, and will be, based on management's then
current views and assumptions regarding future events.
FACTORS THAT MAY IMPACT FORWARD-LOOKING STATEMENTS OR FINANCIAL PERFORMANCE
The following are some of the important factors that could affect the
Company's financial performance or could cause actual results to differ
materially from estimates contained in the Company's forward-looking statements.
-- The Company's ability to generate sufficient cash flows to support
capital expansion plans, obligations to repay debt and general
operating activities.
-- The Company's ability to obtain additional financing from lenders,
through debt or equity offerings, or through sales of a portion of its
interest in the 3-D Exploration Program.
12
-- The Company's ability to encounter hydrocarbons in sufficient
quantities to be economically viable, and its ability to overcome the
operating hazards that are inherent in the oil and gas industry.
-- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax
laws and revised tax law interpretations) and environmental laws in
domestic or foreign jurisdictions.
-- The uncertainties of litigation, including but not limited to the
Company's ongoing arbitration proceedings, as well as other risks and
uncertainties detailed from time to time in the Company's Securities
and Exchange Commission filings.
-- The Company's ability to replace, modify or upgrade computer programs
in ways that adequately address the Year 2000 issue.
The foregoing list of important factors is not exclusive.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is incorporated by reference or filed
herewith:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(b) None.
13
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 (on behalf of the
registrant and as principal accounting
officer)
Date: November 13, 1998
14