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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[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
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 NUMBER: 0-22076
ZYDECO ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
76-0404904
(I.R.S. Employer Identification No.)
1710 TWO ALLEN CENTER, 1200 SMITH ST.
HOUSTON, TEXAS
(Address of principal executive offices)
77002
(Zip Code)
(713) 659-2222
(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 12, 1999 there were 10,357,096 shares of Zydeco Energy, Inc.
Common Stock, $.001 par value, issued and outstanding.
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FORM 10-QSB
TABLE OF CONTENTS
Page
Number
------
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets.................. 3
Condensed Consolidated Statements of Operations........ 4
Condensed Consolidated Statements of Cash Flows........ 5
Notes to Condensed Consolidated Financial Statements... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
Part II Other Information and Signatures
Items 1. to 6................................................... 11
Signatures...................................................... 12
2
Part I. - Financial Information
ITEM 1.
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 1999 DECEMBER 31, 1998
------------------- -------------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and Cash Equivalents $ 1,142,623 $ 1,912,970
Receivables 117,687 189,580
Prepaid Expenses and Other Assets 50,080 50,235
------------ ------------
TOTAL CURRENT ASSETS 1,310,390 2,152,785
------------ ------------
Oil & Gas Properties, using successful efforts method of accounting
Proved Properties 334,972 334,972
Unproved Properties 2,358,875 2,796,471
Equipment and Software, at cost 2,323,736 2,331,361
------------ ------------
5,017,583 5,462,804
Less: Accumulated Depreciation, Depletion and Amortization (2,273,198) (2,167,489)
------------ ------------
2,744,385 3,295,315
------------ ------------
Investment in Wavefield Imaging Technology 944,956 928,229
Operating Bond and Other Assets 312,032 313,329
------------ ------------
TOTAL ASSETS $ 5,311,763 $ 6,689,658
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 1,161,403 $ 1,181,387
Accrued Liabilities 69,099 330,041
------------ ------------
TOTAL CURRENT LIABILITIES 1,230,502 1,511,428
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.001 Per Share; 50,000,000 Shares
Authorized; 11,338,351 Shares Issued; 10,357,096 Shares Outstanding 11,338 11,338
Additional Paid-In Capital 24,531,668 24,531,668
Accumulated Deficit (20,025,493) (18,928,524)
Less: Treasury Stock, at Cost; 981,255 Shares (436,252) (436,252)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,081,261 5,178,230
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,311,763 $ 6,689,658
============ ============
The accompanying notes are an integral part of these financial statements.
3
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1999 1998
---------- ----------
REVENUES
Oil and Gas Sales $ 54,295 $ 124,140
Gain/Loss on Sales of Properties 98,360 -
Other 14,625 -
----------- -----------
167,280 124,140
EXPENSES
Exploration 790,485 664,501
Production 3,560 4,824
Research and Development 70,976 121,025
Depreciation, Depletion and Amortization 124,531 149,183
General and Administrative 300,378 529,234
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1,289,930 1,468,767
----------- -----------
OPERATING LOSS (1,122,650) (1,344,627)
OTHER INCOME (EXPENSE)
Interest Income and Expense, net 25,681 138,853
----------- -----------
25,681 138,853
----------- -----------
NET LOSS $(1,096,969) $(1,205,774)
=========== ===========
PER COMMON SHARE -
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (BASIC AND DILUTED) 10,357,096 10,389,139
=========== ===========
NET LOSS PER COMMON SHARE (BASIC AND DILUTED) $ (0.11) $ (0.12)
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,096,969) $(1,205,772)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization 124,532 149,183
Gain on sales of properties (95,625) -
Exploration Costs 790,485 664,501
Changes in Operating Assets and Liabilities (96,349) 102,191
----------- -----------
Net Cash Used in Operating Activities (373,926) (289,897)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Change in Exploration Obligations/Receivables $ (117,560) $ (232,178)
Exploration Costs (662,774) (567,414)
Purchases of Equipment and Software (4,023) (340,130)
Additions to Oil and Gas Properties (23,816) (391,201)
Other 411,752 (1,756)
----------- -----------
Net Cash Used in Investing Activities (396,421) (1,532,679)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Treasury Stock $ - $ (429,000)
Other - 29,158
----------- -----------
Net Cash Used in Financing Activities - (399,842)
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Net Decrease in Cash and Cash Equivalents $ (770,347) $(2,222,418)
Cash and Cash Equivalents at Beginning of Period 1,912,970 12,200,306
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,142,623 $ 9,977,888
=========== ===========
Cash Paid During the Period for:
Interest $ - $ -
Income Taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
5
ZYDECO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS.
The accompanying unaudited condensed consolidated financial statements of
Zydeco Energy, Inc. and its wholly owned subsidiaries have been prepared by the
Company without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments necessary to present fairly the
financial position as of March 31, 1999 and December 31, 1998, the results of
operations for the three month periods ended March 31, 1999 and 1998 and the
statements of cash flows for the three-month periods then ended have been
included. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. Interim period results are not necessarily indicative
of the results to be achieved for an entire year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. As
used herein, unless the context indicates otherwise, the term "Company" refers
to Zydeco Energy, Inc. and its wholly owned subsidiaries.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications. Certain reclassifications of prior period amounts have
been made to conform to current presentation.
Forward-looking Statements. When used in this document, the words
"anticipate", "believe", "expect", "estimate", "project" and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
expected, estimated or projected.
2. CAPITAL RESOURCES
The Company has generated funds from public and private equity offerings, cash
flow from the Company's operations, and cash payments made to it under
exploration agreements. The Company does not maintain any credit facilities. The
company may in the future explore the possibility of obtaining such a facility
in the event the Company increases oil and gas production through the successful
completion of oil and gas wells drilled by the Company. The Company anticipates
that capital needs during 1999 will be satisfied by cash on hand, cash flows
from operations or, potentially, cash sales of interests in prospects or
interests in its West Cameron Seismic Project ("Project"). Should the Company be
required to fund additional capital requirements, then it will need to acquire
sources of capital such as, but not limited to, an issuance of equity securities
as well as the aforementioned cash sales of interests in prospects or its
Project. There is no assurance that the Company will be able to sell such equity
securities or prospect and Project interests or a combination of any such sale.
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3. FORM OF REPORTING
The Company has elected to report its activities pursuant to the provisions
of Regulation S-B effective with this interim filing on Form 10-QSB. The Company
believes that it meets the criteria required for a small business issuer
provided for in Regulation S-B.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Formed in 1993, the Company is an independent energy company engaged in the
exploration for oil and gas utilizing advanced three-dimensional ("3D") seismic
and computer-aided exploration ("CAEX") techniques. The Company has developed
comprehensive in-house technology and software and expertise, which enabled it
to use recent advances in such 3D seismic and CAEX technology. Such technology
includes the Company's "Wavefield Imaging Technology", a patented data
processing technique designed to substantially reduce the cost of 3D seismic
data acquisition for certain surveys without significantly sacrificing the
quality of the 3D subsurface image.
The Company's primary business objective is to discover and develop oil and
gas reserves and thereby increase revenues, net income and cash flows. In order
to achieve this objective, it has utilized these technologies and software in
its principal exploration areas. Because market conditions for selling
interests in prospects significantly deteriorated during the second half of
1998, the Company altered its business plan with a view to focusing its efforts
on (1) conserving cash resources including, but not limited to, employee
terminations and negotiations of deferred or foregone compensation with key
executives, (2) concentrating exploration efforts strictly on marketing sellable
West Cameron Seismic Project ("Project") prospects and (3) seeking alternate
sources of capital for possible drilling participation and general working
capital. The Company believed that its revised strategy would permit it to
operate with existing cash resources into the year 2000 and withstand the
current downturn in the oil and gas exploration industry. Should the Company be
successful in selling interests in its prospects, an interest in the Project
itself or raising alternate capital resources, sufficient capital may be
available in the Company to quickly expand its operations. However, during the
1999 first quarter, the Company's first Project well was completed as a dry
hole. Due to this event coupled with the current industry downturn, the Company
has temporarily ceased active marketing efforts of its Project prospects.
Should industry conditions improve, then the Company may recommence such
marketing efforts.
Since early 1996, the Company focused most of its exploration efforts on
its West Cameron Seismic Project, located in western Cameron Parish, Louisiana
in an area known as the Louisiana Transition Zone. The Louisiana Transition Zone
is an area of shoreline, near shore and within shallow coastal and bay waters
where the combination of marine and land seismic and processing techniques are
difficult and expensive. During 1998, the Company had begun to market for sale
interests in various Project prospects to industry participants. However, due
mostly to potential prospect buyers' concerns over uncertainties of ownership
interests in Project prospects prior to the December 1998 arbitration ruling
described below and market conditions thereafter, the Company has not generated
sufficient sales of Project prospects and, therefore, has not produced adequate
levels of cash inflows during the near term.
The Project was completed in phases. Seismic data acquisition for
this Project commenced over approximately 230 square miles during the second
half of 1996 and was completed in July 1997. The seismic processing phase of
this Project immediately commenced during mid 1997 and was completed in October
1998. The interpretive phase commenced also during mid 1997 and continued
throughout 1998. For the Project's initial leasing phase, the major portion of
1998 lease acquisitions occurred during the first half and aggregated more than
12,000 gross acres through State of Louisiana lease sales, private land
negotiations and a federal lease sale.
In April 1996, the Company executed an Exploration Agreement (the "Cheniere
Agreement") with Cheniere Energy Operating Co., Inc., a wholly owned subsidiary
of Cheniere Energy, Inc. and formerly known as FX Energy, Inc., (collectively
"Cheniere") covering the area of Project land and waters in
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western Cameron Parish, Louisiana. In exchange for earning a 50% interest,
Cheniere agreed to fund certain Project costs including, but not limited to, 3D
seismic acquisition costs, including the purchase of seismic rights or lease
options on the related onshore acreage of the Project, the purchase of other 3D
seismic data, and processing of seismic data over the Project area. On December
9, 1998 a three-member arbitration panel issued its decision in the arbitration
proceedings brought by Zydeco against Cheniere. The arbitration claim and
Cheniere's counterclaim sought to resolve differences over Cheniere's funding
obligations, the parties' ownership in various leases and prospects, the scope
of pre-drilling activities that Cheniere can conduct within the Project area,
the dissemination by Cheniere of confidential seismic data covering the Project
area, and a variety of related issues. As a result of the arbitration panel's
decision, Zydeco and Cheniere informally agreed to share responsibilities and
ownership for certain activities incurred in the maintenance, marketing and sale
of prospects generated and assembled by the parties. Except for the costs of one
prospect and certain other activities, neither party would seek reimbursement
from the other for seismic and prospect costs generally incurred prior to the
arbitration ruling.
In order to conserve its cash resources, the Company through
terminations and resignations reduced the number of its employees by a combined
total of approximately 17 in December 1998 and March 1999. In addition, the
Chairman of the Board, whose annual salary is $150,000, has deferred his salary
effective March 15, 1999. Subsequent to March 31, 1999, the Company terminated
an additional three employees.
The Company accounts for its oil and gas exploration and production
activities using the successful efforts method of accounting. Under this
method, acquisition costs for proved and unproved properties are capitalized
when incurred. Exploration costs, including geological and geophysical costs
and the costs of carrying and retaining unproved properties, are expensed.
Exploratory drilling costs are initially capitalized, but charged to expense if
and when the well is determined not to have found proved reserves. Costs of
productive wells, developmental dry holes, and productive leases are capitalized
and amortized on a property-by-property basis using the units-of-production
method. The estimated costs of future plugging, abandonment, restoration, and
dismantlement are considered as a component of the calculation of depreciation,
depletion, and amortization. Unproved properties with significant acquisition
costs are assessed periodically on a property-by-property basis and any
impairment in value is charged to expense.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
The Company recorded a loss of $1,096,969, or $.11 per share, for the
three months ended March 31, 1999 compared to a loss of $1,205,774, or $.12 per
share, in the three months ended March 31, 1998. The decrease in the loss is
primarily due to a decline in general and administrative expenses.
General and administrative expenses decreased from $529,234 in the
1998 first quarter to $300,378 in the comparable 1999 period mostly due to cost
reducing actions commenced in December 1998. The Company expects that general
and administrative expenses will continue to decline in the near term due to the
impact of further cost reductions that were made since January 1, 1999.
Exploration expenses increased from $664,501 in the 1998 first quarter
to $790,485 in the comparable 1999 period due to a combination of a one time
charge for dry hole costs and a decline in Project geological and geophysical
costs. During the 1999 first quarter, the Company incurred $536,784 in dry hole
costs as a result of the plugging and abandonment of an unsuccessful exploratory
well. The Company did not have any similar level of dry hole costs in the 1998
first quarter. Partly offsetting this increase, geological and geophysical
expenses decreased from $663,895 in the three months ended March 31, 1998 to
$253,701 in the comparable 1999 period due to the completion of Project seismic
processing efforts in the 1998 fourth quarter. With the completion of that
activity, the Company does not anticipate any significant geological and
geophysical expenses in the near term. However, because the Company utilizes the
successful efforts method of accounting, exploration expenses typically vary
materially from period to period based upon exploration program activities, the
Company's cost participation and other factors.
8
Revenues increased from $124,140 in the 1998 first quarter to $167,280 in
the 1999 first quarter mostly due to an increase in gains on sales of
properties. Such gains amounted to $98,360 in the 1999 first quarter. The
Company had no comparable gain from the sales of properties in the three months
ended March 31, 1998. Partly offsetting these gains was a decline in oil and gas
revenues. Oil and gas revenues declined from $124,140 in the three months ended
March 31, 1998 to $54,295 in the comparable 1999 period due to declines in both
oil and gas sales volumes and oil and gas sales prices. Although the Company
expects that the production rates of these wells will continue to decline during
the near term, the Company cannot ascertain whether the rate of decline
experienced from the 1998 first quarter to the comparable 1999 period will
continue in the near term. In addition, the Company has not assigned any proved
oil and gas reserves to one of these wells.
Because the Company believes that the marketing and sale of prospects may
recommence when industry conditions improve, the Company may record gains or
losses for sale transactions resulting from these activities. However, the
timing and amount of such sales and the extent of their gain or loss are
uncertain due to a number of factors such as, but not limited to, the timing and
cost of lease acquisitions, the availability of leaseholds in particular
prospect areas and market conditions, both generally and in the oil and gas
industry, at the time of such activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred net losses and negative cash flows from operations
since its inception. For the three months ended March 31, 1999 and the twelve
months ended December 31, 1998, 1997 and 1996, the Company incurred net losses
of $1,096,969, $9,611,738, $6,152,127 and $1,858,132, respectively. The Company
is principally engaged in one industry and geographic segment, oil and gas
exploration and production, and has concentrated its exploration efforts since
early 1996 in an area of the Louisiana Transition Zone, known as the West
Cameron Seismic Project (the "Project"). Since inception of the Project, the
Company and Cheniere have expended approximately $21,640,171 pursuant to the
terms of the Project's agreement. In addition, during 1998 the Company expended
approximately $5,753,010 on unproved property costs, almost all of which were on
prospects within the Project. The source of funding for these activities has
come from funds generated from public and private equity offerings, cash flow
from the Company's operations, and cash payments made to it under the Cheniere
Exploration Agreement. Sources of funds include approximately $24.1 million from
the sale of securities in 1993, 1994, 1995 and 1997, and $16.4 million provided
under the Cheniere Exploration Agreement. The Company does not currently hold
any funds advanced under that agreement.
During mid 1998 subsequent to the acquisition of most of its current
inventory of Project leases, the Company commenced marketing activities with a
view to selling interests in Project prospects that were ready for sale. The
Company understands that during this period suitable buyers were available and
that such buyers were conducting exploration activities including the
acquisition of oil and gas prospects and the drilling of wells on their
prospects. It believes that its marketing efforts were unsuccessful mostly
because of uncertainties over the Cheniere litigation, primarily those matters
relating to the Company's and Cheniere's Project lease ownership interests.
Subsequent to the arbitration ruling in December 1998, the Company and Cheniere
informally agreed to the resolution of certain matters in order that they could
recommence their prospect marketing activities. However, market conditions have
considerably deteriorated to the point that significantly fewer industry
participants are actively acquiring oil and gas prospect interests.
Although the Company believes that it may ultimately sell interests in its
prospects, there can be no assurance that it will sell such interests in the
near term and at sales prices that will be sufficient to permit it to expand its
operations to levels comparable to the period before its restructuring. The
Company cannot ascertain the duration of the current depressed market nor if it
will be able to obtain alternate capital sources if an extended downturn exists
into the year 2000. In addition, because each non-producing oil and gas lease
acquired by the Company and Cheniere requires annual delay rental payments, if
the Company does not successfully market Project prospects in the near term it
may forfeit its interest in some number of leases due to insufficient cash
resources to meet such commitments at the time such delay rentals are due.
Because of these factors and its belief that such sale prices may not be
sufficient to exceed the carrying
9
value of the applicable prospects, the Company recognized an unproved property
impairment of $3,000,000 in 1998. The Company and Cheniere will continue to
evaluate their lease inventory, cash resources, market conditions and other
factors in the near term with a view to retaining its interests or forfeiting
some portion of its interests in such leases. There can be no assurance that the
Company and Cheniere will pay any or all portions of such delay rentals or enter
into sale agreements with other participants who would share the cost of such
commitments. Should the Company forfeit its interest in some portion of these
leases, then it may be required to recognize a material charge to expense for
such forfeitures. The Company's remaining unproved property cost amounts to
$2,358,875 as of March 31, 1999.
Due to the adverse factors presented above, the Company has had to
rely principally on available cash to continue its operations. However, in
order to conserve its remaining cash resources, the Company has instituted
certain cost reducing actions, including, but not limited to, employee
terminations and negotiations of deferred or foregone compensation with key
executives. For the near term, the Company's principal business strategy is to
conserve cash until improved industry conditions permit the resumption of lease
acquisition and prospect marketing activities. There can be no assurance when
such industry conditions may improve and permit the resumption of such
activities. Should the current industry downturn persist indefinitely and
alternate capital sources cannot be secured, the Company may be unable to
continue as a going concern.
The Company does not expect to generate operating cash flow or net
income in 1999 unless it sells substantial interests in Project prospects or
interests in the Project itself. The Company contemplates that the sale of such
interests would include prospect development commitments and financing provided
by the purchasers coupled with retained interests and back-in rights to the
Company, and additional cash consideration to the Company for recoupment of
costs incurred in identifying such prospective interests. As generally required
by the successful efforts method of accounting, the Company has expensed all of
its seismic and other geological and geophysical costs in the Project, and
accordingly, any payments for the recoupment of non-capitalized costs would be
treated as income to the Company. There can be no assurance that the Company
will be successful in the selling of significant interests or in receiving
payments for the recoupment of the Company's costs incurred to date on this
project. In addition, there can be no assurance that the Company will have
sufficient cash available or be able to acquire new cash resources if the
Company is not successful in selling its desired level of interests in a Project
prospect or on terms that require little or no cash resources for prospect
commitments. The Company does not presently maintain any credit facilities.
The Company currently maintains a $300,000 bond required to hold its
present federal oil and gas leases. A United States Treasury Note
collateralizes this bond. In the event that the Company would act as operator
on a federal offshore lease or is otherwise required to increase its bonding by
federal or state authorities, significant amounts of capital may be required for
additional collateral to satisfy bonding requirements.
The Company is unaware of any possible exposure from actual or
potential claims or lawsuits involving environmental matters. As such, no
liability is accrued at March 31, 1999.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures, miscalculations or the corruption of databases, any of which
could cause disruptions to various activities and operations. The Company has
initiated assessments to identify the work efforts required to assure that
systems supporting the business successfully operate beyond the turn of the
century. The Company's program is designed to minimize the possibility of
serious Year 2000 interruptions, which worst case scenarios include the
interruption of a significant part of the Company's business as a result of
critical information systems failures.
10
There are two major components to the Company's computer based systems.
One system is an office wide local area network ("LAN") comprised of several
personal computer ("PC") based servers and numerous PC workstations. This
system contains numerous applications including, but not limited to, geological
and geophysical interpretive programs, general office applications and
accounting software. The other "system" is comprised of several networked
workstations (called "UNIX systems") currently utilized by the Company in its
geological and geophysical interpretive process. The Company employs geological
and geophysical programs from both systems in such process. The Company does
not rely significantly on outside parties for goods and services and thus does
not expect any material impact from failures of outside parties due to Year 2000
issues.
The Company has reviewed both systems and believes that its LAN system is
materially compliant on Year 2000 issues. It does not expect to incur any
material costs on its LAN system directly on Year 2000 issues and does not
expect that any failures that could occur from such issues will materially
effect its business. With regards to its UNIX systems, the Company has
identified two areas that will require modifications for Year 2000 compliance if
the Company continues its UNIX systems use. The Company does not consider the
costs of modifications to one of these two areas to be material, but estimates
that the cost to bring the other area into Year 2000 compliance will be a
minimum of $75,000 and a maximum of $150,000. During the near term, the Company
will continue to review whether to maintain its UNIX systems capability and
incur the costs of modification. As discussed in Liquidity and Capital
Resources, the availability of capital to fund commitments is severely limited.
There can be no assurance that the Company will have sufficient capital or be
able to obtain capital to fund such modifications. The Company has not accrued
any costs as of March 31, 1999 to bring any of its systems into compliance. If
the Company chooses to maintain its UNIX systems capability, then it will
recognize the cost of modifications at that time.
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in
commodity prices.
The Company operates principally in one industry and geographic segment-
oil and gas exploration and production with a focus on marketing its Project
prospects. The Company's primary market risk exposure is in the industry
impact of the fluctuation of pricing of crude oil and natural gas, which is
driven by the prevailing worldwide spot prices. Historically, prices received
for oil and gas production have been volatile and unpredictable. Pricing
volatility is expected to continue and could adversely impact the Company's
ability to market its Project prospects.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5.
Items 1 2, 3, 4 and 5 for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
Item 6.
(a) Exhibits.
Exhibit 27 Financial Data Schedule (follows signature page).
(b) Report on Form 8-K.
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZYDECO ENERGY, INC.
/s/ Sam B. Myers, Jr.
--------------------------------------
Sam B. Myers, Jr.
Chairman, President, CEO and COO
(Principal Executive Officer and Principal
Financial and Accounting Officer)
Dated: May 14, 1999
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