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U.S. 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 September 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
As of November 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
SEPTEMBER, 1999 DECEMBER 31, 1998
--------------- -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 647,208 $ 1,912,970
Receivables 83,596 189,580
Prepaid Expenses and Other Assets 35,494 50,235
------------ ------------
TOTAL CURRENT ASSETS 766,298 2,152,785
------------ ------------
Oil & Gas Properties, using successful efforts method of accounting
Proved Properties 334,972 334,972
Unproved Properties 1,870,488 2,796,471
Equipment and Software, at cost 121,122 2,331,361
------------ ------------
2,326,583 5,462,804
Less: Accumulated Depreciation, Depletion and Amortization (412,247) (2,167,489)
------------ ------------
1,914,336 3,295,315
------------ ------------
Investment in Wavefield Imaging Technology 887,497 928,229
Operating Bond and Other Assets 306,595 313,329
------------ ------------
TOTAL ASSETS $ 3,874,726 $ 6,689,658
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 369,353 $ 1,181,387
Accrued Liabilities 113,693 330,041
------------ ------------
TOTAL CURRENT LIABILITIES 483,046 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 (20,715,074) (18,928,524)
Less: Treasury Stock, at Cost; 981,255 Shares (436,252) (436,252)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,391,680 5,178,230
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,874,726 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
REVENUES
Oil and Gas Sales $ 38,517 $ 75,988 $ 126,087 $ 313,634
Gain/Loss on Sale of Properties (83,505) 37,000 14,855 37,000
Other - 34,125 14,625 34,125
----------- ----------- ----------- -----------
(44,988) 147,113 155,567 384,759
EXPENSES
Exploration 4,112 646,068 1,300,406 1,926,588
Production 4,670 2,690 12,373 12,321
Research and Development 31,973 101,548 156,915 319,855
Depreciation, Depletion and Amortization 68,749 123,030 297,468 397,458
General and Administrative 120,731 873,034 222,160 2,177,416
----------- ----------- ----------- -----------
230,235 1,746,370 1,989,322 4,833,638
----------- ----------- ----------- -----------
OPERATING LOSS (275,223) (1,599,257) (1,833,755) (4,448,879)
OTHER INCOME (EXPENSE)
Interest Income and Expense, net 13,308 40,823 47,205 277,499
----------- ----------- ----------- -----------
13,308 40,823 47,205 277,499
----------- ----------- ----------- -----------
NET LOSS $ (261,915) $(1,558,434) $(1,786,550) $(4,171,380)
=========== =========== =========== ===========
PER COMMON SHARE -
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (BASIC AND DILUTED) 10,357,096 10,357,096 10,357,096 10,367,777
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
(BASIC AND DILUTED) $ (0.03) $ (0.15) $ (0.17) $ (0.40)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,786,550) $ (4,171,381)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization 298,176 397,458
Gain on sales of properties (12,120) -
Exploration Costs 1,300,406 1,926,588
Changes in Operating Assets and Liabilities (572,140) 760,577
----------- ------------
Net Cash Used in Operating Activities (772,228) (1,086,758)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Change in Exploration Obligations/Receivables $ (194,000) $ (536,254)
Exploration Costs (817,339) (1,684,043)
Purchases of Equipment and Software (4,823) (441,318)
Additions to Oil and Gas Properties (30,179) (6,031,969)
Proceeds from the sales of properties 529,965 -
Other 25,000 (7,962)
----------- ------------
Net Cash Used in Investing Activities (491,376) (8,701,546)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Treasury Stock $ - $ (429,000)
Other (2,158) 29,158
----------- ------------
Net Cash Used in Financing Activities (2,158) (399,842)
----------- ------------
Net Decrease in Cash and Cash Equivalents $(1,265,762) $(10,188,146)
Cash and Cash Equivalents at Beginning of Period 1,912,970 12,200,306
----------- ------------
Cash and Cash Equivalents at End of Period $ 647,208 $ 2,012,160
=========== ============
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 September 30, 1999 and December 31, 1998, the results
of operations for the three month and nine month periods ended September 30,
1999 and 1998 and the statements of cash flows for the nine-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 the near term 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 June 30, 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, enabling it to
employ recent advances in such 3D seismic and CAEX technology. Such technology
included 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 the described 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 nine months 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 project wells, in which the Company had an interest, were drilled in
the second or third quarter. 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 5,000 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. During the quarter, two additional employees resigned. The
Company presently has three employees. The Company intends to pay to its
Chairman and CEO on November 15, 1999 all salary deferred and owed such
executive, including approximately $81,250 owed as of September 30, 1999. The
amount of this payment will be approximately $100,000. Thereafter, the Company
will resume his regular wage payments, calculated on a salary of $150,000 per
year.
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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1998
The Company recorded a loss of $261,915, or $.03 per share, for the three
months ended September 30, 1999 compared to a loss of $1,558,434, or $.15 per
share, in the three months ended September 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 $873,034 in the 1998
third quarter to $120,731 in the comparable 1999 period mostly due to cost
reducing actions that commenced in December 1998 and the restructuring of vendor
obligations. 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 $646,068 in the 1998 third quarter to
$4,112 in the comparable 1999 period. Most of the 1998 third quarter's
exploration expense was composed of Project geological and geophysical expense.
The Company had no comparable expense in the 1999 third quarter.
8
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 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 $147,113 in the 1998 third quarter to a negative
$44,988 in the 1999 third quarter due to declines in oil and gas sales volumes
and losses on the sales of furniture, fixtures and office equipment. Although
the Company expects that the combined production rates of its producing wells
will continue to decline during the near term, the Company cannot ascertain
whether the rate of decline experienced from the 1998 third 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.
During the 1999 third quarter, the Company sold most of its furniture, fixtures
and office equipment and recorded a loss on such sales that amounted to
approximately $94,000. The Company had no comparable activity during the 1998
third quarter. Interest income decreased from $40,823 to $13,308 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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1998
The Company recorded a loss of $1,786,550, or $.17 per share, for the nine
months ended September 30, 1999 compared to a loss of $4,171,380, or $.40 per
share, in the nine months ended September 30, 1998. The decrease in the loss is
primarily due to a decline in general and administrative expenses.
General and administrative expenses decreased from $2,177,416 in the nine
month period ended September 30, 1998 to $222,160 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 and
1999. 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 $313,634 in the nine months ended
September 30, 1998 to $126,087 in the similar 1999 period due to the natural
production declines discussed in the preceding section. As also discussed in
the "Overview" 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 $277,499 to $47,205 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 previous year's periods,
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 nine months ended September 30, 1999 and the twelve
months ended December 31, 1998, 1997 and 1996, the Company incurred net losses
of $1,786,550, $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
9
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 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 nine
months ended September 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 $1,870,488 as of September 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 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, sales of surplus office furniture and equipment 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.
In order to hold its federal oil and gas leases, the Company has maintained
a $300,000 bond collateralized by a United States Treasury Note. 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. However, with the expiration and other disposition
of certain federal leases, the Company has requested that the bond be decreased
and the collateral reduced, permitting a refund to the Company of some portion
of the collateral. The Company expects that such approval from federal
authorities will be granted in the near term and will receive a $250,000 refund.
10
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 September 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 disruptions to various activities and operations. The Company
previously had 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 was 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. With changes in its business activities,
currently the Company does not anticipate using certain systems that Year 2000
issues may have impacted. The Company does not believe Year 2000 results will
have a negative impact on the Company.
SUBSEQUENT EVENTS
The Company had a carried working interest in the S.L. 16208 #1, which
was completed as a dry hole on October 29, 1999. Although the Company incurred
no dry hole expense on this well, its remaining carrying cost of its leasehold
amounts to approximately $176,000.
The Company may, from time to time, purchase shares of its common stock in
the open market at the prevailing market price at the time of purchase. The
Company does not intend to cause its shares to be delisted under Section 12 of
the Securities and Exchange Act of 1934.
On October 14, 1999, the Company sold its overriding royalty interest in
three producing wells located in the Bay Marchand area of Louisiana. During the
1999 fourth quarter, the Company will recognize a gain of approximately $137,000
on these wells, which had been placed on production during the 1999 third
quarter.
On November 15, 1999, the Company's Chairman and CEO will be paid his
deferred salary of $100,000, including approximately $81,250 deferred by the
Company as of September 30, 1999. Thereafter, the Company will pay his regular
wages equal to $150,000 per year.
The Company has reduced the stock option price for one of its employees to
$.12 1/2 per share. The employee has an option for 52,500 shares.
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.
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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
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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: November 12, 1999
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