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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 March 31, 1999
[_] 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 May 14, 1999, there were 22,670,752 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
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....................................... 7
Notes to Consolidated Financial Statements................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 13
Part II. Other Information
Item 2. Changes in Securities...................................................... 13
Item 5. Other Information.......................................................... 13
Item 6. Exhibits and Reports on Form 8-K........................................... 14
Signatures.................................................................................. 15
2
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
1999 1998
------------ ------------
ASSETS
------
CURRENT ASSETS
Cash $ 83,732 $ 143,868
Accounts Receivable 288,012 97,837
Subscriptions Receivable - 500,000
Prepaid Expenses and Other Current Assets 151,670 8,833
------------ ------------
TOTAL CURRENT ASSETS 523,414 750,538
OIL AND GAS PROPERTIES, full cost method
Unevaluated 20,737,609 20,000,425
FIXED ASSETS, net 79,167 89,511
------------ ------------
TOTAL ASSETS $ 21,340,190 $ 20,840,474
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 916,263 $ 523,144
Notes Payable 1,974,980 1,974,980
------------ ------------
Total Current Liabilities 2,891,243 2,498,124
------------ ------------
LONG-TERM NOTES PAYABLE
Related Party - 2,000,000
Other - 25,020
------------ ------------
- 2,025,020
------------ ------------
PRODUCTION PAYMENT 400,000 -
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 45,000,000 shares
Issued and Outstanding: 21,786,277 and 18,973,749 shares
at March 31, 1999 and December 31, 1998, respectively 65,359 56,922
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none - -
Additional Paid-in-Capital 22,137,213 20,084,928
Deficit Accumulated During the Development Stage (4,153,625) (3,824,520)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,048,947 16,317,330
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,340,190 $ 20,840,474
============ ============
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
Ended March 31, Cumulative
------------------------------- from the Date
1999 1998 of Inception
----------- ----------- -------------
Revenue $ - $ - $ -
----------- ----------- -----------
General and Administrative Expenses 334,043 195,394 4,256,819
----------- ----------- -----------
Loss from Operations Before Other Income
and Income Taxes (334,043) (195,394) (4,256,819)
Interest Income 4,938 5,894 142,195
Interest Expense - - (39,001)
----------- ----------- -----------
Loss From Operations Before Income Taxes (329,105) (189,500) (4,153,625)
Provision for Income Taxes - - -
----------- ----------- -----------
Net Loss $ (329,105) $ (189,500) $(4,153,625)
=========== =========== ===========
Net Loss Per Share (basic and diluted) $ (0.02) $ (0.01) $ (0.30)
=========== =========== ===========
Weighted Average Number of Shares
Outstanding 19,508,942 14,457,866 13,785,646
=========== =========== ===========
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 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 Offerings - - - (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* - 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 Offerings - - - (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
* 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.
All of the sales of shares indicated above were made pursuant to private placement transactions.
The accompanying notes are an integral part of the financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY, CONTINUED
(Unaudited)
Common Stock Additional Total
---------------------- Paid-In Retained Stockholders'
Per Share Shares Amount Capital Deficit Equity
----------- ------------ --------- ----------- ------------ -----------
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 - (74,532) (74,532)
Issuance of Warrants and Shares with
Bridge Notes on December 15, 1997 2.375 100,000 300 338,200 338,500
Net Loss - - - - (388,361) (388,361)
----------- ------ ---------- ---------- ----------
Balance - December 31, 1997 14,457,866 43,374 15,563,330 (2,186,676) 13,420,028
Sale of Shares on April 8, 1998 2.00 530,000 1,590 1,058,410 - 1,060,000
Issuance of Shares in Settlement of
Charges for Previous Legal Services 1.40 70,000 210 97,790 - 98,000
Sale of Shares on May 29, 1998 2.00 22,000 66 43,934 - 44,000
Sale of Shares on June 4, 1998 1.40 890,644 2,672 1,244,230 - 1,246,902
Expenses Related to Offerings - - - (168,000) - (168,000)
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 - 3,661
Issuance of Shares on August 26, 1998
Pursuant to Exercise of Warrants 1.00 100,000 300 99,700 - 100,000
Sale of Shares on August 31, 1998 0.67 750,000 2,250 499,000 - 501,250
Issuance of Warrants and Shares to
Extend Bridge Notes on March 15 and
September 15, 1998 0.67 50,000 150 349,183 - 349,333
Sale of Shares on November 15, 1998 0.67 1,200,000 3,600 796,400 - 800,000
Sale of Shares on December 30, 1998 0.75 666,667 2,000 498,000 - 500,000
Net Loss - - - - (1,637,844) (1,637,844)
----------- ------ ---------- ---------- ----------
Balance - December 31, 1998 18,973,749 56,922 20,084,928 (3,824,520) 16,317,330
Issuance of Shares in Exchange for Notes
on February 2 and March 15, 1999 0.72 2,812,528 8,437 2,016,583 - 2,025,020
Repricing of Warrants to Extend Bridge
Notes on January 15, 1999 - 35,702 35,702
Net Loss - - - - (329,105) (329,105)
----------- ------ ---------- ---------- ----------
Balance - March 31, 1999 21,786,277 65,359 22,137,213 (4,153,625) 18,048,947
=========== ====== ========== ========== ==========
** Additional shares were issued to the purchasers of shares sold on April 8, 1998 and May 29, 1998 at $2.00 per share in order to
adjust the purchase price to the $1.40 per share price offered and received on June 4, 1998.
All of the sales of shares indicated above were made pursuant to private placement transactions.
The accompanying notes are an integral part of the financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31, Cumulative
--------------------------------- from the Date
1999 1998 of Inception
---------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (329,105) $ (189,500) $ (4,153,625)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 10,344 7,772 64,322
Compensation Paid in Common Stock - - 654,400
(Increase) Decrease in Accounts Receivable (190,175) 6,891 (288,012)
(Increase) Decrease in Subscriptions Receivable 500,000 - -
Increase in Prepaid Expenses and Other Current Assets (142,837) (73,372) (151,670)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 393,119 (85,014) 1,014,263
Non-Cash Interest Expense (Issuance of Warrants) - - 19,200
---------- ---------- ------------
NET CASH USED IN OPERATING ACTIVITIES $ 241,346 (333,223) (2,841,122)
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets - (70,279) (143,488)
Proceeds from Sales of Oil and Gas Seismic Data - - 46,000
Oil and Gas Property Additions (701,482) (427,903) (20,056,412)
---------- ---------- ------------
NET CASH USED IN INVESTING ACTIVITIES (701,482) (498,182) (20,153,900)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes with Detachable Warrants - - 4,605,000
Proceeds from Issuance of Notes Payable or Advances - - 1,197,000
Repayment of Notes Payable or Advances - - (1,592,000)
Sale of Production Payment 400,000 400,000
Issuance of Common Stock - 720,000 20,550,980
Offering Costs - - (2,082,224)
---------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 400,000 720,000 23,078,756
---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH (60,136) (111,405) 83,732
CASH - BEGINNING OF PERIOD 143,868 787,523 -
---------- ---------- ------------
CASH - END OF PERIOD $ 83,732 $ 676,118 $ 83,732
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ - $ - $ 22,353
========== ========== ============
Cash Paid for Income Taxes $ - $ - $ -
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
The Company issued 105,000 shares of common stock upon the conversion of
$210,000 of notes payable in September 1996.
In conjunction with its December 1997 Bridge Financing, the Company issued
at closing 100,000 shares of common stock (valued at $237,500), and upon
extension of the maturity date 50,000 shares (valued at $33,500), which were
recorded as debt issuance costs. In the same financing, the Company issued
1,333,334 warrants (valued at $101,000) and 1,987,500 warrants (valued at
$315,833) related to extensions of the maturity dates. In conjunction with a
short-term bridge financing in June 1998, the Company issued 83,334 warrants
(valued at $3,661). In conjunction with a 1999 extension of the maturity dates
of the December 1997 notes, the exercise price was reduced by $0.25 per share
for warrants related to the extended notes. This repricing of warrants was
valued at $35,702. The amortization of such warrant costs was included in
interest expense which was capitalized as a cost of oil and gas properties.
In 1998, the Company issued 70,000 shares of common stock (valued at
$98,000) in settlement of invoices for previously rendered legal services.
In 1999, the Company issued 2,812,528 shares of common stock in exchange
for the cancellation of long-term notes payable totaling $2,025,000.
The accompanying notes are an integral part of the financial statements.
7
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 Annual Report on Form 10-K for the year ended December
31, 1998. Interim results are not necessarily indicative of results to be
expected for the full fiscal year ended December 31, 1999.
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 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 and further extended to January 15, 1999. In
December 1998, Cheniere received commitments from certain noteholders to
exchange notes payable for an aggregate of 2,812,528 shares of Cheniere common
stock at a price of $0.72 per share. Accordingly, the $2,025,020 face amount of
the exchanged notes was classified as a long-term obligation as of December 31,
1998. For those notes which were not exchanged for common stock, the maturity
date has been extended to July 15, 1999. The notes bear interest at a rate of
LIBOR plus 4%. 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. In connection with the extension
to January 15, 1999, the Company offered two alternatives of consideration.
8
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Holders of $3,000,000 of the notes elected to reduce the exercise price of their
warrants to $1.50 per share. 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 the date
of issue, to receive additional warrants to purchase 387,500 shares of common
stock and to receive 50,000 shares of common stock. In January 1999, the
maturity date was extended to March 15, 1999. In March 1999, the maturity date
was extended to April 15, 1999. As consideration for the extension to April 15,
1999, the Company reduced the exercise price by $0.25 per share for all warrants
issued in connection with the issuance or extensions of the notes. In April
1999, the maturity date was extended to July 15, 1999.
NOTE 3 - PRODUCTION PAYMENT
In March 1999, the Company sold a production payment and stock option for
$400,000. Under the terms of the production payment and stock option agreement,
the production payment could be exchanged for common stock at the election of
the holder. In April 1999, the production payment was exchanged for 584,475
shares of common stock.
NOTE 4 - STOCK OPTIONS
On March 18, 1999, the Company granted options to certain employees under
the Cheniere Energy, Inc. 1997 Stock Option Plan. Options covering a total of
218,500 shares of common stock were granted to employees, exercisable at $1.50
per share, which is above the quoted market price of the stock at the time of
the grant. The options vest 25% at each of the first four anniversaries of the
date of grant and expire on the fifth anniversary date of the grants.
Also on March 18, 1999, 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, which is
above the quoted market price at the time of the grant. These options vest on
22,500 shares on March 18, 2000, and on 12,500 shares on March 18, 2001, and
will expire on March 17, 2004.
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 totaling $30,000 were paid to IAS related
to the April 1999 private placement of units described in Note 6.
NOTE 6 - SUBSEQUENT EVENTS
In April 1999, the Company completed the private placement of 300,000
units, each unit representing one share of Cheniere common stock and a warrant
to purchase one share of common stock at a share price equal to the lesser of
$1.00 or an amount calculated as 65% times the lowest trading price of Cheniere
common stock during the 30-day period ending June 12, 1999.
Also in April 1999, the Company issued 584,475 shares of common stock in
exchange for the cancellation of a production payment which it had sold in March
1999. The terms of the production payment and stock option agreement provided
for the per share price of the exchange
9
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
to be an amount equal to 75% times the average closing bid price for the five-
day period preceding notice of the exchange. The balance of the production
payment at the time of the exchange was $400,000.
10
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 periods ended March 31,
1999 and 1998. These statements, the notes thereto and the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 contain detailed information that should be
referred to in conjunction with the following discussion.
Results of Operations
Comparison of Three-Month Periods Ended March 31, 1999 and 1998 - The
Company's operating results for the three months ended March 31, 1999 reflect a
loss of $329,105, or $0.02 per share, compared to a loss of $189,500 or $0.01
per share a year earlier. The Company has not yet begun to generate operating
revenues. General and administrative expenses of $334,043 in the three months
ended March 31, 1999 were higher than the $195,394 reported for the comparable
period a year earlier. The 1999 quarter included an increased level of activity
related to the commencement of the Company's drilling operations. This activity
included additional personnel and office costs as well as legal expenses related
to oil and gas contract matters. Expenses in the first quarter of 1999 also
included legal and professional fees related to year-end financial reporting for
the fiscal year ended December 31, 1998. The comparable three months of 1998
did not include such expenses. At that time, the Company's fiscal year ended on
August 31 rather than December 31.
Liquidity and Capital Resources
Since Cheniere's inception in February 1996, the business plan of the
Company has included a lengthy start-up period before revenues would begin.
Some of the prerequisite activities to be accomplished before the commencement
of operating revenues were: the acquisition of 3-D seismic data, the processing
of that seismic data, the interpretation of that seismic data to identify
prospects, the leasing of those prospects, and the drilling of those prospects
to prove up oil and gas reserves for production and sale to generate operating
revenues. Cheniere has completed the acquisition of proprietary data over a
230-square-mile 3-D seismic survey in Cameron Parish, Louisiana, and the
adjacent offshore area. It has processed and is interpreting the seismic data.
It has identified 15 prospects to date and has acquired leases over the majority
of those prospects. Cheniere has just begun the drilling phase of its
exploration project.
Drilling operations commenced in February 1999. A completion attempt was
made on the Company's initial well (at the Cobra Prospect) but the well was not
productive in commercial quantities. Cheniere then commenced drilling a test
well on its second prospect, Redfish, where completion operations and testing
are presently underway. The Company has drilled a well on its third prospect,
Shark, and determined that the indicated reserves found present were not
adequate to justify a completion in an offshore environment. Cheniere is
presently making plans for the drilling of its fourth and fifth prospects.
To fund its activities to date, Cheniere has raised $22,125,000 through
private placements of its equity securities and $1,974,980 (net) through the
issuance of bridge notes payable. The
11
Company has raised these funds through a series of private placements of
moderate amounts of its securities. The Company has consistently issued its
common stock in amounts necessary to meet financial needs when required. It has
not been the strategy of the Company to raise a significant amount of capital in
excess of its current needs, but rather, to sell stock as funds are required.
The Company anticipates that future liquidity requirements, including
repayment of $1,974,980 in short-term notes payable maturing on July 15, 1999,
exploration and development activities within the 3-D Exploration Program, other
oil and gas activities and general corporate requirements will be met by a
combination of: 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 further 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.
Subsequent to December 31, 1998, however, Cheniere has raised funds from
the following sources: $658,000 through the sale of interests in three wells,
$275,000 through the sale of a seismic option on three additional prospects,
$2,025,020 through the issuance of common stock in exchange for the cancellation
of notes payable, $400,000 through the sale of a production payment and $300,000
through the issuance of units comprised of common stock and warrants.
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.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None.
PART II. Other Information
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.
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-- The Company's ability to discover 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 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
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere") (Incorporated by reference to Exhibit
3.1 of the Company's Registration Statement on Form S-1 filed on
August 27, 1996 (File No. 333-10905))
3.2 By-laws of Cheniere as amended through April 7, 1997
(Incorporated by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K filed on March 29, 1999 (File
No. 0-9092))
27.1 Financial Data Schedule
(b) None.
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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: May 14, 1999
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