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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 June 30, 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.)
2170 PLAZA OF THE AMERICAS NORTH TOWER, 700 N. PEARL ST.
DALLAS, TEXAS
(Address of principal executive offices)
75201
(Zip Code)
(214) 999-9300
(Registrant's telephone number, including area code)
1710 TWO ALLEN CENTER, 1200 SMITH ST.
HOUSTON, TEXAS 77002
(Former address of Registrant's principal executive offices)
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 August 12, 1999 there were 10,357,096 shares of Zydeco Energy, Inc.
Common Stock, $.001 par value, issued and outstanding.
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1
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............................................................... 12
Signatures.................................................................. 13
2
Part I. - Financial Information
Item 1.
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1999 December 31, 1998
---------------------- ----------------------
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 851,596 $ 1,912,970
Receivables 92,625 189,580
Prepaid Expenses and Other Assets 39,102 50,235
---------------------- ----------------------
Total Current Assets 983,323 2,152,785
---------------------- ----------------------
Oil & Gas Properties, using successful efforts method of accounting
Proved Properties 334,972 334,972
Unproved Properties 1,870,467 2,796,471
Equipment and Software, at cost 2,324,537 2,331,361
---------------------- ----------------------
4,529,976 5,462,804
Less: Accumulated Depreciation, Depletion and Amortization (2,361,359) (2,167,489)
---------------------- ----------------------
2,168,617 3,295,315
---------------------- ----------------------
Investment in Wavefield Imaging Technology 928,789 928,229
Operating Bond and Other Assets 306,611 313,329
---------------------- ----------------------
TOTAL ASSETS $ 4,387,340 $ 6,689,658
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 614,935 $ 1,181,387
Accrued Liabilities 118,810 330,041
---------------------- ----------------------
Total Current Liabilities 733,745 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 Outstanding 11,338 11,338
Additional Paid-In Capital 24,531,668 24,531,668
Accumulated Deficit (20,453,159) (18,928,524)
Less: Treasury Stock, at Cost; 981,255 Shares (436,252) (436,252)
---------------------- ----------------------
Total Stockholders' Equity 3,653,595 5,178,230
---------------------- ----------------------
----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,387,340 $ 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 June 30, Six Months Ended June 30,
------------------------------------- --------------------------------------
1999 1998 1999 1998
----------------- ----------------- ------------------ ------------------
Revenues
Oil and Gas Sales $ 33,275 $ 113,506 $ 87,570 $ 237,646
Gain/Loss on Sale of Properties - - 98,360 -
Other - - 14,625 -
----------------- ----------------- ------------------ ------------------
33,275 113,506 200,555 237,646
Expenses
Exploration 505,809 616,019 1,296,294 1,280,520
Production 4,143 4,807 7,703 9,631
Research and Development 53,966 97,282 124,942 218,307
Depreciation, Depletion and Amortization 104,188 125,245 228,719 274,428
General and Administrative (198,949) 775,148 101,429 1,304,382
----------------- ----------------- ------------------ ------------------
469,157 1,618,501 1,759,087 3,087,268
----------------- ----------------- ------------------ ------------------
Operating Loss (435,882) (1,504,995) (1,558,532) (2,849,622)
Other Income (Expense)
Interest Income and Expense, net 8,216 97,823 33,897 236,676
----------------- ----------------- ------------------ ------------------
8,216 97,823 33,897 236,676
----------------- ----------------- ------------------ ------------------
Net Loss $ (427,666) $ (1,407,172) $ (1,524,635) $ (2,612,946)
================= ================= ================== ==================
Per Common Share -
Weighted Average Number of Common Shares
Outstanding (Basic and Diluted) 10,357,096 10,357,096 10,357,096 10,373,117
================= ================= ================== ==================
Net Loss Per Common Share
(Basic and Diluted) $ (0.04) $ (0.14) $ (0.15) $ (0.25)
================= ================= ================== ==================
The accompanying notes are an integral part of these financial statements.
4
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-------------------------------------
1999 1998
----------------- -----------------
Cash Flows from Operating Activities:
Net Loss $(1,524,635) $(2,612,946)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization 229,422 274,428
Gain on sales of properties (95,765) -
Exploration Costs 790,485 664,501
Changes in Operating Assets and Liabilities (373,867) 216,724
----------------- -----------------
Net Cash Used in Operating Activities (974,360) (1,457,293)
----------------- -----------------
Cash Flows from Investing Activities:
Net Change in Exploration Obligations/Receivables $ (180,856) $ (323,744)
Exploration Costs (286,228) (424,229)
Purchases of Equipment and Software (4,823) (394,080)
Additions to Oil and Gas Properties (26,862) (5,657,797)
Other 411,755 (7,735)
----------------- -----------------
Net Cash Used in Investing Activities (87,014) (6,807,585)
----------------- -----------------
Cash Flows from Financing Activities:
Acquisition of Treasury Stock $ - $ (429,000)
Other - 29,158
----------------- -----------------
Net Cash Used in Financing Activities - (399,842)
----------------- -----------------
Net Decrease in Cash and Cash Equivalents $(1,061,374) $(8,664,720)
Cash and Cash Equivalents at Beginning of Period 1,912,970 12,200,306
----------------- -----------------
Cash and Cash Equivalents at End of Period $ 851,596 $ 3,535,586
================= =================
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 June 30, 1999 and December 31, 1998, the results of
operations for the three month and six month periods ended June 30, 1999 and
1998 and the statements of cash flows for the six-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.
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 oil
and gas exploration agreements. The Company does not maintain any credit
facilities. The company may in the future explore the possibility of obtaining
such a facility. Circumstances which may prompt the Company to obtain a credit
facility may include, but not be limited to, events where the Company increases
oil and gas production through the successful completion of oil and gas wells
drilled by the Company or where the Company may seek to acquire productive
assets or other lines of businesses or enterprises. The Company anticipates
that capital needs during 1999 will be satisfied by cash on hand, cash flows
from operations or, potentially, cash sales of assets or 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 assets or interests in
prospects or its Project. There is no assurance that the Company will be able
to sell such equity securities, assets or prospect and Project interests or a
combination of any such sale.
3. FORM OF REPORTING
The Company elected to report its activities pursuant to the provisions of
Regulation S-B effective with its interim filing on Form 10-QSB for the
quarterly period ended March 31, 1999. The Company believes that it meets the
criteria required for a small business issuer provided for in Regulation S-B.
6
4. TRADING OF STOCK ON THE NASD OTC BULLETIN BOARD
On May 25, 1999 the Company commenced trading on the NASD OTC Bulletin Board
system under the ticker symbol ZNRG. The stock had previously traded on the
NASDAQ National Market system.
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
and the first half of 1999, the Company altered its business plan. As a result,
it focused its efforts on (1) conserving cash resources including, but not
limited to, employee terminations and negotiations to defer compensation with
the key executive and restructuring of vendor obligations; (2) concentrating
exploration efforts strictly on marketing sellable West Cameron Seismic Project
("Project") prospects, and sale of assets; (3) seeking alternate sources of
capital for possible drilling participation and general working capital. The
Company believes that its revised strategy will 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 assets, prospects, or 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. No wells
were drilled in the second quarter. 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
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. However, during 1999, failing to pay the yearly
rentals has caused the Company to drop all but approximately 4,600 gross acres.
The Company did not have sufficient capital resources to drill exploratory wells
on the terminated leases.
7
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 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 sought 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. Prior to June 30, 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 June 30, 1999 Compared to Three Months Ended June 30, 1998
The Company recorded a loss of $427,666, or $.04 per share, for the three
months ended June 30, 1999 compared to a loss of $1,407,172, or $.14 per share,
in the three months ended June 30, 1998. The decrease in the loss is primarily
due to a decline in general and administrative expenses and exploration
expenses.
General and administrative expenses decreased from $775,148 in the 1998
second quarter to a credit of $198,949 in the comparable 1999 period mostly due
to cost reducing actions that commenced in December 1998 and the restructuring
of vendor obligations. During the 1999 second quarter, the Company was
successful in negotiating reduced payment terms on various invoices incurred
during 1998, resulting in credits to general and administrative expenses for the
current period. The Company expects that general and administrative expenses
will continue to decline in the near term compared to the similar 1998 period
due to the impact of further cost reductions that have been made since January
1, 1999.
Exploration expenses decreased from $616,019 in the 1998 second quarter to
$505,809 in the comparable 1999 period. Most of the 1998 second quarter's
exploration expense was composed of Project geological and geophysical expense,
while the comparable 1999 second quarter expenses included mostly lease
abandonments for Project leases released during such quarter. With the
completion of the Project seismic processing activity during the 1998 fourth
quarter, the Company does not anticipate significant spending for geological and
geophysical expenses in the near term. However, because the Company
8
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.
Revenues decreased from $113,506 in the 1998 second quarter to $33,275 in
the 1999 second quarter due to declines in oil and gas sales volumes. 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 second quarter to the comparable 1999 period
will continue in the near term. In addition, one of these wells which is not
presently commercial will be plugged and abandoned. Interest income
decreased from $97,823 to $8,216 due to a decreased level of cash available for
investment.
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.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
The Company recorded a loss of $1,524,635, or $.15 per share, for the six
months ended June 30, 1999 compared to a loss of $2,612,946, or $.25 per share,
in the six months ended June 30, 1998. The decrease in the loss is primarily
due to a decline in general and administrative expenses.
General and administrative expenses decreased from $1,304,382 in the 1998
first half to $101,429 in the comparable 1999 period mostly due to cost reducing
actions that commenced in December 1998 and the restructuring of vendor
obligations. As discussed in the "Results of Operations" for the three-month
period and "Overview", the Company terminated employees, deferred certain
executive compensation and was successful in negotiating reduced payment terms
on various invoices incurred during 1998. The Company expects that general and
administrative expenses will continue to decline in the near term compared to
the similar 1998 period due to the impact of these and other cost reductions.
Oil and gas revenues declined from $237,646 in the six months ended June
30, 1998 to $87,570 in the similar 1999 period due to the natural production
declines discussed in the preceding section. Partly offsetting this decline
were revenues resulting from the sale of interests in prospects. As also
discussed in the preceding section, the Company may record gains and/or losses
from the sales of prospects in the near term. However, there can be no
assurance that such sales may occur. Interest income decreased from $236,676 to
$33,897 due to a decreased level of cash available for investment.
Although the Company expects that its level of exploration expenses will
decline significantly in the near term compared to the similar 1998 periods and
the first half of 1999, exploration expenses may vary materially due to
exploration program activities, the Company's cost participation and other
factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred net losses and negative cash flows from
operations since its inception. For the six months ended June 30, 1999 and the
twelve months ended December 31, 1998, 1997 and 1996, the Company incurred net
losses of $1,524,635, $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 Cheniere 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
Agreement. Sources of funds
9
include approximately $24.1 million from the sale of securities in 1993, 1994,
1995 and 1997, and $16.4 million provided under the Cheniere Agreement. The
Company does not currently hold any funds advanced under that agreement. The
cost of capitalized leases that expired during the three months ended June 30,
1999 for non-payment of rentals amounted to approximately $3,342,411. 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 any such remaining 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 its remaining leases, then it
may be required to recognize a material charge to expense for such forfeitures.
The Company's remaining net unproved property cost amounted to $1,870,467 as of
June 30, 1999.
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.
However, market conditions have considerably deteriorated to the point that
significantly fewer industry participants are actively acquiring oil and gas
prospect interests.
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 instituted certain
cost reducing actions, including, but not limited to, employee terminations and
negotiations to defer compensation with the key executive, office lease
cancellations and negotiations restructuring obligations with vendors. 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.
The Company does not expect to generate operating cash flow or net
income in 1999 unless it sells substantial interests in remaining Project
prospects or interests in the Project itself or makes an asset sale. 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 would be able to acquire new cash resources if the
Company is not successful in selling assets or 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 June 30, 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
10
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 scenario includes the interruption of a
significant part of the Company's business as a result of critical information
systems failures. The Company does not believe Year 2000 results will have a
negative impact on the Company.
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.
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.
11
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 21.1 List of Subsidiaries
Exhibit 27 Financial Data Schedule (follows signature page).
(b) Report on Form 8-K.
None
12
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: August 12, 1999
13