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, 2000
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)
(Former address of Registrant's principal executive offices, if changed from
last report)
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.
X
Yes ___ No ___
As of May 8, 2000 there were 10,039,096 shares of Zydeco Energy, Inc.
Common Stock, $.001 par value, issued and outstanding.
- --------------------------------------------------------------------------------
1
FORM 10-QSB
TABLE OF CONTENTS
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Page
Number
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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
Item 6............................................................. 10
</TABLE>
2
Part I. - Financial Information
ITEM 1.
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------------- --------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 684,613 $ 500,876
Oil and gas receivables 8,935 26,020
Other Current Assets 73,923 85,271
------------- -------------
TOTAL CURRENT ASSETS 767,471 612,167
------------- -------------
Oil & Gas Properties, using successful efforts method of accounting
Proved Properties 334,972 334,972
Unproved Properties 1,643,339 1,643,324
Equipment and Software, at cost 41,896 41,896
------------- -------------
2,020,207 2,020,192
Less: Accumulated Depreciation, Depletion, Amortization and Impairment (1,121,152) (1,118,791)
------------- -------------
899,055 901,401
Investment in Wavefield Imaging Technology 654,914 671,206
Other Stock Investments 63,448 69,244
Operating Bond and Other Assets 50,022 300,994
------------- -------------
TOTAL ASSETS $ 2,434,910 $ 2,555,012
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 244,554 $ 225,044
Accrued Liabilities 32,061 28,401
------------- -------------
TOTAL CURRENT LIABILITIES 276,615 253,445
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.001 Per Share; 50,000,000 Shares
Authorized; 11,338,351 Shares Issued at December 31, 1999;
10,039,096 and 10,069,096 Shares Outstanding at March 31, 2000
and December 31, 1999, respectively 11,338 11,338
Additional Paid-In Capital 24,531,668 24,531,668
Unrealized Loss on Investments (22,445) (16,256)
Accumulated Deficit (21,898,114) (21,763,842)
Less: Treasury Stock, at Cost; 1,299,255 and 1,269,255 Shares
at March 31, 2000 and December 21, 1999, respectively (464,152) (461,341)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,158,295 2,301,567
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,434,910 $ 2,555,012
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
2000 1999
-------------------- ---------------------
<S> <C> <C>
REVENUES
Oil and Gas Sales $ 21,169 $ 54,295
Gain/Loss on Sale of Properties -- 98,360
Other -- 14,625
----------- -------------
Total 21,169 167,280
EXPENSES
Lease Operating Production 3,871 3,560
Exploration and dry hole costs 267 536,784
Geological and geophysical (506) 253,701
Research and Development (187) 70,976
Depreciation, Depletion and Amortization 18,668 124,531
General and Administrative 147,730 300,378
----------- -------------
169,846 1,289,930
----------- -------------
OPERATING LOSS (148,676) (1,122,650)
OTHER INCOME (EXPENSE)
Interest Income and Expense, net 14,404 25,681
----------- -------------
14,404 25,681
----------- -------------
NET LOSS $ (134,272) $ (1,096,969)
=========== =============
PER COMMON SHARE -
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (BASIC AND DILUTED) 10,044,096 10,357,096
============== ==============
NET LOSS PER COMMON SHARE
(BASIC AND DILUTED) $ (0.01) $ (0.11)
============== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
ZYDECO ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
2000 1999
-------------------------- --------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss
Adjustments to Reconcile Net Loss to Net Cash $ (134,272) $ (1,096,969)
Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization 18,668 124,532
Gain on Sales of Properties -- (95,625)
Exploration Costs -- 790,485
Changes in Operating Assets and Liabilities 302,167 (96,349)
------------ --------------
Net Cash Used in Operating Activities 186,563 (373,926)
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Change in Exploration Obligations/Receivables $ -- $ (117,560)
Exploration Costs (15) (662,774)
Purchases of Equipment and Software -- (4,023)
Additions to Oil and Gas Properties -- (23,816)
Proceeds from the Sales of Properties 411,752
------------ --------------
Net Cash Used in Investing Activities (15) (396,421)
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Treasury Stock $ (2,811) $ --
Other -- --
------------ --------------
Net Cash Used in Financing Activities (2,811) --
------------ --------------
Net Increase (Decrease) in Cash and Cash Equivalents $ 183,737 $ (770,347)
Cash and Cash Equivalents at Beginning of Period 500,876 1,912,970
------------ --------------
Cash and Cash Equivalents at End of Period $ 684,613 $ 1,142,623
============ ==============
Cash Paid During the Period for:
Interest $ -- $ --
Income Taxes $ -- $ --
The accompanying notes are an integral part of these financial statements.
</TABLE>
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, 2000 and December 31, 1999, the results of
operations for the three month periods ended March 31, 2000 and 1999 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, 1999. 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 fund additional capital requirements, it may 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 prospects and Project interests or a combination of
any such sale.
3. 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.
6
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 developed
comprehensive in-house technology and software and expertise, enabling it to
employ 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 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 all 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 restructuring of vendor obligations; (2)
concentrating exploration efforts strictly on marketing sellable West Cameron
Seismic Project ("Project") prospects, and sale of assets; and (3) seeking
alternate sources of capital for possible drilling participation and general
working capital, including potential business combinations outside of the oil
and gas industry. The Company believes that its revised strategy will permit it
to operate with existing cash resources through December 31, 2000. Should the
Company be successful in selling interests in its assets, prospects or an
interest in the Project or raising alternate capital resources, sufficient
capital may be available in the Company to quickly expand its operations.
Since early 1996, the Company has 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 Company's development of 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 of
that year and aggregated to 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 caused the Company to
drop all but approximately 4,000 gross acres. The Company did not have
sufficient capital resources to drill exploratory wells on the terminated
leases.
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 in all Project
interests, 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 the 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
7
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 reduced the number of
its employees by a combined total of approximately 22 in 1998 and 1999 through
terminations and resignations.
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.
The Company purchased 30,000 shares of its common stock on the open market
in January 2000. These shares were held by the Company as treasury stock until
April 2000 when all outstanding shares of treasury stock were cancelled and
retired.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
The Company recorded a loss of $134,272, or $.01 per share, for the three
months ended March 31, 2000 compared to a loss of $1,096,969, or $.11 per share,
for the three months ended March 31, 1999. 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 $300,378 in the first
quarter of 1999 to $147,730 in the comparable 2000 period mostly due to cost
reducing actions that commenced in December 1998 and the negotiated reduction of
vendor obligations.
Exploration expenses decreased from $536,784 in the 1999 first quarter to
$267 in the comparable 2000 period. 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 $167,280 in the 1999 first quarter to $21,169 in
the 2000 first quarter due to declines in oil and gas sales volumes. Although
the Company expects that the 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 1999 first quarter to the comparable
2000 period will continue in the near term. In addition, one of these wells
which is not presently commercially viable will be plugged and abandoned.
Interest income decreased from $25,681 to $14,404 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
8
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, 2000 and the twelve
months ended December 31, 1999, 1998 and 1997, the Company incurred net losses
of $134,272, $2,835,318, $9,611,738 and $6,152,127, respectively. 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 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 unproved property cost amounted to $893,339, net of an
impairment allowance of $750,000, as of March 31, 2000.
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, office
lease cancellations, sales of surplus office furniture and equipment and
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 or the Company engages in a business combination which may be outside
of the oil and gas industry. There can be no assurance when such industry
conditions may improve and permit the resumption of such activities or whether
the Company will find a merger partner.
The Company does not expect to generate operating cash flow or net income
in 2000 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.
9
In order to hold its federal oil and gas leases, the Company has maintained
a $50,000 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.
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, 2000.
PART II - OTHER INFORMATION
Item 6.
(a) Exhibits
27.1 Financial Data Schedule
(b) Report on Form 8-K.
None
10
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 8, 2000
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 684,613
<SECURITIES> 0
<RECEIVABLES> 8,935
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 767,471
<PP&E> 2,020,207
<DEPRECIATION> (1,121,152)
<TOTAL-ASSETS> 2,434,910
<CURRENT-LIABILITIES> 276,615
<BONDS> 0
0
0
<COMMON> 11,338
<OTHER-SE> 2,146,957
<TOTAL-LIABILITY-AND-EQUITY> 2,434,910
<SALES> 21,169
<TOTAL-REVENUES> 21,169
<CGS> 3,871
<TOTAL-COSTS> 3,871
<OTHER-EXPENSES> 165,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (134,272)
<INCOME-TAX> 0
<INCOME-CONTINUING> (134,272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (134,272)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
