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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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1943
For the transition period from _______ to ________
Commission File No. 2-63115
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 10, 1997, there were 11,942,515 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.............................. 3
Consolidated Balance Sheets.................................. 3
Consolidated Statements of Operations........................ 4
Consolidated Statements of Stockholders' Equity.............. 5
Consolidated Statements of Cash Flows........................ 6
Notes to Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................... 13
Signatures.................................................................. 14
2
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Unaudited)
Nov. 30, 1996 Aug. 31, 1996
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 324,550 $ 1,093,180
Prepaid Expenses And Other Current Assets 6,622 4,800
----------- -----------
TOTAL CURRENT ASSETS 331,172 1,097,980
----------- -----------
PROPERTY AND EQUIPMENT, NET 50,988 46,830
----------- -----------
OTHER ASSETS
Investment 6,000,000 4,000,000
Security Deposit 500 500
----------- -----------
TOTAL OTHER ASSETS 6,000,500 4,000,500
----------- -----------
TOTAL ASSETS $ 6,382,660 $ 5,145,310
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 374,184 $ 292,894
Loans Payable 215,000 425,000
Advances for Issuance of Common Stock 384,985 -
Advance from Officers 961 961
----------- -----------
TOTAL LIABILITIES 975,130 718,855
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock - $.003 Par Value
Authorized 20,000,000 shares;
10,624,794 and 9,931,767 Issued and
Outstanding at November 30, 1996 and
August 31, 1996, respectively 31,875 29,795
Preferred Stock - Authorized
1,000,000 shares; None Issued
and Outstanding - -
Additional Paid-in-Capital 6,757,501 5,626,840
Retained Deficit (1,381,846) (1,230,180)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,407,530 4,426,455
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,382,660 $ 5,145,310
=========== ===========
See Accompanying Notes to Financial Statements
3
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Three Months Ended
November 30,
1996 1995
----------- -----------
Revenue $ - $ 2,522
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General and Administrative Expenses 145,928 82,614
Interest Expense 7,239 -
----------- ----------
153,167 82,614
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Loss from Operations Before Other
Income ( 153,167) ( 80,092)
Interest Income 1,501 606
----------- ----------
Loss From Continuing Operations
Before Income Taxes ( 151,666) ( 79,486)
Provision for Income Taxes - -
----------- ----------
Net Loss $( 151,666) $( 79,486)
=========== ==========
Loss Per Share $( .01) $( .03)
=========== ==========
Weighted Average Number of Shares
Outstanding 10,310,670 1,659,203
========== =========
See Accompanying Notes to Financial Statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
Common Stock Additional Total
------------ Paid-in Retained Stockholders'
Shares Par Value Capital Deficit Equity
------------ ---------------------- ------------ -------------- ------------
Balance - September 1, 1996 9,931,767 $29,795 $5,626,840 $(1,230,180) $4,426,455
Sales of Shares 588,027 1,765 1,288,736 - 1,290,501
Conversion of Debt 105,000 315 209,685 - 210,000
Expenses Related to Offering - - ( 367,760) - ( 367,760)
Net Loss - - - ( 151,666) ( 151,666)
---------- ------- ---------- ------------- ----------
Balance - November 30, 1996 10,624,794 $31,875 $6,757,501 $(1,381,846) $5,407,530
========== ======= ========== ============= ==========
See Accompanying Notes to Financial Statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $( 151,666)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation 2,023
(Increase) in Prepaid Expenses and Other Current Assets ( 1,822)
Increase in Accounts Payable and Accrued Expenses 81,290
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NET CASH USED BY OPERATING ACTIVITIES ( 70,175)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment ( 6,180)
Investment (2,000,000)
----------
NET CASH USED BY INVESTING ACTIVITIES (2,006,180)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 1,290,500
Offering Costs ( 367,760)
Advances for Issuance of Common Stock 384,985
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,307,725
----------
NET DECREASE IN CASH ( 768,630)
CASH - BEGINNING OF YEAR 1,093,180
----------
CASH - NOVEMBER 30, 1996 $ 324,550
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 8,570
==========
Cash Paid for Income Taxes $ -
==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES:
Common stock totaling 105,000 shares was issued upon the conversion of
$210,000 of debt.
See Accompanying Notes to Financial Statements.
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CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
a) Basis of Presentation
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The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q.
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 only of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Certain reclassifications have been made to the prior period to
conform to the current period's presentation.
For further information refer to the financial statements and
footnotes included in the Registrant's Annual Report on form 10-K
for the year ended August 31, 1996.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year
ended August 31, 1997.
The accompanying consolidated financial statements include the
accounts of Cheniere Energy, Inc. ("The Company") and its 100% owned
subsidiary, Cheniere Energy Operating Co., Inc. ("Cheniere
Operating"). Accordingly, all references herein to Cheniere Energy,
Inc. or the "Company" include the consolidated results of its
subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
b) Loss Per Share
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Loss per share is based on the weighted average number of shares of
common stock outstanding during the period.
NOTE 2 - WARRANTS
The Company has issued and outstanding certain warrants described
herein.
The Company has issued and outstanding 141,666 and 2/3 warrants
(collectively, the "June Warrants"), each of which entitles the
registered holder thereof to purchase one share of Common Stock. The
June Warrants are exercisable at any time on or before June 14,
1999, at an exercise price of $3.00 per share (subject to customary
anti-dilution adjustments). The June Warrants were originally issued
by
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CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
Cheniere Operating and were converted to warrants of Cheniere
following the Reorganization. The June Warrants were issued to a
group of 11 investors in connection with a private placement of
unsecured promissory notes.
Effective September 14, 1996, the Company failed to pay all amounts
due and payable under the Notes by the Maturity Date. Certain of the
noteholders converted their notes into 105,000 shares of common
stock.
An individual note holder has purchased the promissory notes of the
remaining note holders. As per the terms of the notes, the holder is
also entitled to receive up to an aggregate of 21,500 additional
warrants for each month, or partial month, any amounts remain due
and payable after September 14, 1996, up to a maximum aggregate
number of 86,000 such additional warrants. (See Note 6 - Subsequent
Events).
In consideration of certain investment advisory and other services
to the Company, pursuant to warrant agreements each dated as of
August 21, 1996, the Company issued warrants to purchase 13,600 and
54,400 shares of Common Stock, (collectively the "Adviser
Warrants"). The Adviser Warrants are exercisable at any time on or
before May 15, 1999 at an exercise price of $3.00 per share (subject
to customary anti-dilution adjustments).
In connection with the July and August 1996 placement of 508,400
shares of Common Stock, the Company agreed to issue warrants to
purchase 12,500 shares of Common Stock to one of two distributors
who placed the shares. Such warrants are exercisable on or before
the second anniversary of the sale of the shares of Common Stock at
an exercise price of $3.125 per share (subject to customary anti-
dilution adjustments).
In late August 1996, the Company sold 100,000 units, each such unit
consisting of 5 shares of Common Stock and a warrant to purchase one
share of Common Stock. Each such warrant is exercisable on or before
September 1, 1999 at an exercise price of $3.125 per share (subject
to customary anti-dilution adjustments).
The Warrants do not confer upon the holders thereof any voting or
other rights of a stockholder of the Company.
NOTE 3 - STOCK OPTIONS
The Company has granted certain options to purchase shares of Common
Stock to 2 executives. Such options aggregate 300,000 shares at an
exercise price of $3.00 per share. The options vest and are
exercisable as follows:
8
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1) 75,000 options vest and become exercisable on June 1, 1997 and
expire June 1, 2001.
2) 75,000 options vest and become exercisable on June 1, 1998 and
expire June 1, 2001.
3) 150,000 options vest and become exercisable in equal annual
installments of 25% each on the first through fourth anniversary of
July 16, 1996 and expire July 16, 2001.
In addition, the Company has granted options to the former President
of the Company. The holder has the option to acquire 19,444 and 2/3
shares of Common Stock at an exercise price of $1.80 per share. The
options expire November 11, 2003.
NOTE 4 - COMMON STOCK RESERVED
The Company has reserved 322,166 and 2/3 share of Common Stock for
issuance upon the exercise of outstanding warrants.
The Company has reserved 319,444 and 2/3 shares of Common Shares for
insurance upon the exercise of outstanding options.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
1) The Company subleases its Houston, Texas headquarters from Zydeco
under a month-to-month sublease.
2) On July 26, 1996, the Company signed a Letter of Intent with
Poseidon Petroleum, LLC ("Poseidon") to purchase Poseidon's 47%
working interest in undeveloped reserves in the Bonito unit of the
Pacific Outer Continental Shelf, offshore Santa Barbara County,
California. The parties are conducting due diligence and are
negotiating a definitive purchase and sale agreement and related
documentation. (See Note 6 - Subsequent Events). The transactions
contemplated in the Letter of Intent may be terminated by either
party upon the occurrence of certain events and there can be no
assurance that the Company will successfully consummate such
transactions. Moreover, if such transactions are consummated, the
Company expects that development of the reserves will not occur for
at least five years. There can be no assurance that the Company will
successfully develop the reserves or that the reserves will yield
sufficient quantities of oil and gas to be economically viable.
3) As of November 30, 1996, the Company has an investment of $6,000,000
in a 3-D seismic exploration project in south Louisiana (the "3-D
Joint Venture") pursuant
9
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
to an Exploration Agreement (the "Exploration Agreement") between
the Company and Zydeco Exploration, Inc. ("Zydeco"). Under the terms
of the Exploration Agreement, the Company is required to make
additional monthly payments aggregating, at least, $7.5 million. The
Company's potential participation in the 3-D Joint Venture could be
significantly reduced in the event of a failure by the Company to
make such required monthly payments when due.
NOTE 6 - SUBSEQUENT EVENTS
During the month of December 1996, the Company issued 1,317,721
shares of common stock for gross proceeds of $3,169,875. Proceeds
received are intended to fund future commitments to the 3-D Joint
Venture.
Certain of these proceeds aggregating $384,895 were received during
the quarter ended November 30, 1996, and were classified as Advances
for Issuance of Common Stock.
Also, on December 14, 1996, the Company repaid the $215,000 loan
payable and related accrued interest. Upon repaying the loan, the
Company issued 64,500 warrants in accordance with the loan
agreement.
On December 19, 1996, Cheniere Energy California, Inc. ("Cheniere
California") was incorporated. Cheniere California is a 100% owned
subsidiary of the Company.
On December 20, 1996, Cheniere Energy California, inc. ("Cheniere
California"), a wholly-owned subsidiary of the Company, signed a
Purchase and Sale Agreement with Poseidon Petroleum, LLC
("Poseidon") to acquire Poseidon's 60% working interest in six
undeveloped leases in the Bonito Unit of the Pacific Outer
Continental Shelf (OCS) off Santa Barbara County, California (which
is equal to a 47% working interest in the Bonito Unit). Poseidon
estimates that the net proved undeveloped reserves attributable to
its interests are approximately 47 million barrels of oil
equivalent. As payment for this interest, Poseidon will receive
production payments aggregating $18,000,000 to be paid as three
percent of the production revenue from the leases being assigned.
Minimum prepayments of the annual production payment shall be made
at the rate of $540,000 per year, payable in advance. Poseidon will
have a reserve report prepared with respect to the leases which is
subject to Cheniere California's acceptance. The principal amount of
the production payment and the required minimum yearly payments are
subject to adjustment based on the results of the reserve report.
Subject to the satisfaction of certain conditions, it is anticipated
that closing of the purchase will occur during the second calendar
quarter of 1997.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the Company's financial operations for the
three month periods ended November 30, 1996 and 1995. The Company's
accompanying unaudited financial statements and notes thereto and the
consolidated financial statements included in the Company's Annual Report of
Form 10-K for the year ended August 31, 1996 contain detailed information that
should be referred to in conjunction with the following discussion.
General. On July 3, 1996, the Company changed its name to Cheniere Energy,
Inc. and its principal business became oil and gas exploration. The assets and
liabilities relating to its former business were distributed to the previous
shareholders as of that same date. The comparative financial results for the
period ended November 30, 1995 relate to those discontinued operations.
Private Placement of Common Shares. In September and October 1996,
pursuant to Regulation D promulgated under the Securities Act of 1933
("Regulation D"), the Company sold an aggregate of 352,472 shares of Common
Stock to twelve "accredited investors" pursuant to Rule 506 of Regulation D and
received proceeds of $760,500 net of placement fees from such sales.
Information regarding the sales is set forth in the table below.
Date Shares Price Proceeds Fee/Commission Net Proceeds
- ---- ------- ----- -------- -------------- ------------
9/12 50,000 $2.00 $100,000 $0 $100,000
9/16 80,250 $2.00 $160,500 $0 $160,500
10/30 222,222 $2.25 $500,000 $0 $500,000
------- -------- -- --------
352,472 $760,500 $0 $760,500
In October 1996, pursuant to Regulation S promulgated under the
Securities Act of 1933, the Company sold an aggregate of 235,555 shares of
Common Stock to one offshore investor and received proceeds of $477,000 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
---- ------ ----- -------- -------------- ------------
10/30 235,555 $2.25 $530,000 $53,000 $477,000
The proceeds of the sales of Common Stock during September and October 1996
tabulated above, together with cash balances, were used to fund $2 million in
payments to the 3-D Joint Venture.
Amendment to Exploration Agreement. On November 27, 1996, the Company and
Zydeco Exploration, Inc. amended the Exploration Agreement between the two
entities relating to the 3-D Joint Venture whereby the schedule for payment of
Seismic Funds defined by the Exploration Agreement and its amendments from
Cheniere to Zydeco is suspended. The new amendment calls for Cheniere to
furnish funds to maintain a $1,000,000 balance in the Seismic Fund account and
for Cheniere to resume the payment schedule within thirty days of Zydeco's
notification. The suspension of payment of Seismic Funds is intended to better
align the payment schedule with Zydeco's need for such funds. Under the revised
agreement, Cheniere
11
expects to fund an additional $7.5 million of Seismic Fund payments during the
final three quarters of its fiscal year.
Results of Operations; Three Months ended November 30, 1996 and 1995
The Company's operating results for the three months ended November 30,
1996 reflect a loss of $151,666, or $0.01 per share, as there were no operating
revenues. General and administrative expenses of $145,928 and interest expenses
of $7,239 were offset by interest income of $1,501. Operating results for the
prior year's quarter relate to discontinued operations. For the three months
ended November 30, 1995, the Company had an operating loss of $79,486, or $0.03
per share.
Liquidity and Capital Resources
At November 30, 1996, total assets were $6,382,660 compared to $5,145,310
at August 31, 1996. The increase is due to primarily to equity proceeds of
$1,237,000 received during the quarter. Current assets declined to $324,550
from $1,093,180 during the same period. Other assets reflect an increase in
investment to $6 million from $4 million in the Joint Venture. This increase
was funded primarily from equity proceeds and from cash balances.
The Company's balance sheet reflected current assets of $331,172 and
current liabilities of $975,130. Current liabilities included $384,985
representing funds advanced for the issuance of common stock and $215,000
representing a short term note due January 14, 1997 (see Notes 2 and 6, Notes to
Consolidated Financial Statements). The Company has no long term liabilities.
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.
12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Each of the following exhibits is filed herewith:
10.12 --Fourth Amendment to the Exploration Agreement between FX Energy, Inc.
(now known as Cheniere Energy Operating Co., Inc. ("Cheniere Operating") and
Zydeco Exploration, Inc.
27.1 --Financial Data Schedule
(b) There were no reports on Form 8-K filed for the three months ended November
30, 1996.
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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, thereto duly authorized.
CHENIERE ENERGY, INC.
/s/ William D. Forster
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William D. Forster
President and Chief Executive Officer
Date: January 15, 1997
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