-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D0kwC8bDO4iAYoSi+P3i+i6f9P4mIGWRQMsdl5hk1eoZGur+BSCGYPU/wDM83LPg F3Ow54H4EO3aroLNtDigVQ== 0000899243-00-001216.txt : 20000511 0000899243-00-001216.hdr.sgml : 20000511 ACCESSION NUMBER: 0000899243-00-001216 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZYDECO ENERGY INC CENTRAL INDEX KEY: 0000908246 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760404904 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22076 FILM NUMBER: 623632 BUSINESS ADDRESS: STREET 1: 1710 TWO ALLEN CENTER STREET 2: 1200 SMITH STREET CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136592222 MAIL ADDRESS: STREET 1: 1710 TWO ALLEN CENTER STREET 2: 1200 SMITH STREET CITY: HOUSTON STATE: TX ZIP: 77002-4312 FORMER COMPANY: FORMER CONFORMED NAME: TN ENERGY SERVICES ACQUISITION CORP DATE OF NAME CHANGE: 19930701 10QSB 1 FORM 10-Q FOR QUARTER ENDING MARCH 31, 2000 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
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 Item 6............................................................. 10
2 Part I. - Financial Information ITEM 1. ZYDECO ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 DECEMBER 31, 1999 -------------------- -------------------- (UNAUDITED) ASSETS CURRENT ASSETS 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.
3 ZYDECO ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------------------------------- 2000 1999 -------------------- --------------------- 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.
4 ZYDECO ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------------------------------------- 2000 1999 -------------------------- -------------------------- 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.
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 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 684,613 0 8,935 0 0 767,471 2,020,207 (1,121,152) 2,434,910 276,615 0 0 0 11,338 2,146,957 2,434,910 21,169 21,169 3,871 3,871 165,975 0 0 (134,272) 0 (134,272) 0 0 0 (134,272) (.01) (.01)
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