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U.S. Securities and Exchange Commission
Washington DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 33-95156
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Wolverine Energy 1998-1999(A) Development Company, L.L.C.,
Wolverine Energy 2000(B) Development Company, L.L.C.,
Wolverine Energy 1998-1999(C) Development Company, L.L.C.,
Wolverine Energy 1998-1999(D) Development Company, L.L.C.,
Wolverine Energy 1998-1999(E) Development Company, L.L.C.,
Wolverine Energy 1998-1999(F) Development Company, L.L.C.,
Wolverine Energy 1998-1999(G) Development Company, L.L.C.,
Wolverine Energy 1998-1999(H) Development Company, L.L.C.,
Wolverine Energy 1998-1999(I) Development Company, L.L.C.,
and Wolverine Energy 1998-1999(J) Development Company, L.L.C.
-------------------------------------------------------------
(Exact name of small business issuer in its charter)
Michigan 38-3435348 (Program A)
------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4660 South Hagadorn Road, Suite 230, East Lansing, MI 48823
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 517-351-4444
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----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
-------------------------------------
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. FINANCIAL STATEMENTS
In the following materials, "Program A" and "LLC" both refer to
Wolverine Energy 1998-1999(A) Development Company, L.L.C. and "the Manager" and
"WELLC" both refer to Wolverine Energy, L.L.C.
WOLVERINE ENERGY 1998-1999 (A) DEVELOPMENT CO.
FINANCIAL STATEMENT, NOTES & DISCUSSION
Balance Sheet
-------------------------------------------------------------------
9/30/99 9/30/00 Variance 12/31/99*
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 160,681 $ 2,619 $ (158,062) $ 410,928
Accounts Receivable -- 1,250 1,250 10,624
----------- ----------- ----------- -----------
Total Current Assets 160,681 3,869 (156,812) 421,552
PROPERTY AND EQUIPMENT
Wells and related equipment &
facilities -- 2,581,091 2,581,091 2,581,091
Wells in progress 1,250,313 (1,250,313)
Accumulated Depreciation -- (16,206) (16,206) (535)
----------- ----------- ----------- -----------
Net Carrying Amount 1,250,313 2,564,885 1,314,572 2,580,556
----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,410,994 $ 2,568,754 $ 1,157,760 $ 3,002,108
=========== =========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Related Party $ 136,092 $ 123,425 $ (12,667) $ 328,583
Accrued commissions 23,715 -- (23,715) 96,876
----------- ----------- ----------- -----------
Total Current Liabilities 159,807 123,425 (36,382) 425,459
Members' Equity 1,251,187 2,445,329 1,194,142 2,576,649
----------- ----------- ----------- -----------
TOTAL LIABILITIES
AND MEMBERS' EQUITY $ 1,410,994 $ 2,568,754 $ 1,157,760 $ 3,002,108
----------- ----------- ----------- -----------
* Condensed from audited financial statements
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WOLVERINE ENERGY 1998-1999 (A) DEVELOPMENT CO.
FINANCIAL STATEMENT, NOTES & DISCUSSION
Statement of Operations
For the nine months ended September 30
----------------------------------------
1999 2000 Variance
-------- -------- --------
REVENUE
Natural Gas Sales $ -- $ 4,120 $ 4,120
Interest Income 1,102 2,804 1,702
-------- -------- --------
Total revenue 1,102 6,924 5,822
EXPENSES
Well Operating Fees 4,705 4,705
Professional fees 16,978 11,801 (5,177)
General & Administrative 10,000 15,734 5,734
Insurance & Other 833 -- (833)
-------- -------- --------
Total expenses 27,811 32,240 4,429
-------- -------- --------
NET LOSS $(26,709) $(25,316) $ 1,393
======== ======== ========
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WOLVERINE ENERGY 1998-1999 (A) DEVELOPMENT CO.
FINANCIAL STATEMENT, NOTES & DISCUSSION
Statement of Operations
For the three months ended September 30
----------------------------------------
1999 2000 Variance
-------- -------- --------
REVENUE
Natural Gas Sales $ -- $ 1,518 $ (1,518)
Interest Income 484 -- 484
-------- -------- --------
Total revenue 484 1,518 (1,034)
EXPENSES
Well Operating Fees -- 1,551 (1,551)
Professional fees 6,978 9,072 (2,094)
General & Administrative (700) (4) (696)
Insurance & Other -- -- --
-------- -------- --------
Total expenses 6,278 10,619 (4,341)
-------- -------- --------
NET LOSS $ (5,794) $ (9,101) $ (3,307)
======== ======== ========
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WOLVERINE ENERGY 1998-1999 (A) DEVELOPMENT CO.
FINANCIAL STATEMENT, NOTES AND DISCUSSION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
1999 2000 Variance Cumulative
----------- ----------- ----------- -----------
Cash Flows from Operating Activity
Cash received from
customers $ -- $ 13,494 $ 13,494 $ 14,378
Cash paid to suppliers and
related party (27,811) (16,569) 11,242 (104,691)
Interest received 1,102 2,804 1,702 5,688
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (26,709) (271) 26,438 (84,625)
Cash Flows from Investing Activities
Advances on wells in
process (470,759) -- 470,759 (2,252,508)
Cash Flows from Financing Activities
Capital contributions from
Members 713,055 -- (713,055) 2,948,912
Syndication costs paid (84,086) (96,876) (12,790) (297,998)
Distributions to members -- (106,004) (106,004) (106,004)
Repayment of short-term loan from
related party (42,408) (205,158) (162,750) (205,158)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 586,561 (408,038) (994,599) 2,339,752
----------- ----------- ----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents 89,093 (408,309) (497,402) 2,619
Cash and Cash Equivalents
Beginning of Period 71,588 410,928 339,340 0
----------- ----------- ----------- -----------
End of Period $ 160,681 $ 2,619 $ (158,062) $ 2,619
=========== =========== =========== ===========
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Wolverine Energy 1998-1999(A) Development Company, L.L.C. (the LLC) was
organized on May 30, 1998 under the laws of the State of Michigan to
engage in oil and gas exploration, drilling, production and sales of
natural gas at properties located throughout the United States. During
1999, the LLC advanced monies for re-completion at properties located
in Kansas. In the first quarter of 2000, work was completed on the
wells and efforts began to tie the wells in to production.
Cash and Cash Equivalents - The LLC considers all liquid investments
purchased with an original maturity date of three months or less to be
cash and cash equivalents.
Turnkey Agreements - The LLC enters into contracts with the Manager to
drill oil and gas wells. Under the terms of the contracts, the Manager
manages the drilling of the wells and the LLC pays a fixed cost per
well working interest. The LLC advances funds to the Manager in order
to finance the drilling activity.
Wells in Process - The LLC uses the successful efforts method of
accounting for its oil and gas working interests. Costs to acquire the
working interest, which include the LLC's proportionate share of
acquisition, drilling and completion costs, are capitalized.
Capitalized costs of acquiring the working interests are depreciated
and depleted by the unit of production method once the wells are
completed. Costs to acquire working interests that do not find proven
reserves are expensed.
Income Taxes - No provision for Federal income taxes has been included
in the financial statements since all income and expenses of the LLC
are allocated to the members in their respective Federal income tax
returns.
Fair Value of Financial Instruments - The fair value of short-term
financial instruments, including cash and cash equivalents, accounts
receivable and accounts payable, approximate their carrying value in
the financial statements due to the short maturity of such instruments.
Syndication - Costs and expenses incurred by the LLC in connection with
syndication have been charged to members' equity.
Use of Estimates - 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 these estimates.
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NOTE 2 - STATUS OF WELLS IN PROCESS
As of December 31, 1999, approximately 70 percent of the wells the LLC
owns an interest in were drilled, with the remaining 30 percent being
completed during the first three months of 2000. The wells are
connected to a pipeline that is experiencing mechanical restraints and
capacity limitations that affect the amount of gas that can flow from
the wells. Subsequent to December 31, 1999, the Manager began
negotiations to acquire the pipeline.
NOTE 3 - RELATED PARTY TRANSACTIONS
The LLC acquires working interests in oil and gas properties. Wolverine
Energy, L.L.C. (WELLC) serves as manager for the LLC and, as such, has
full and exclusive discretion in the management and control of the LLC.
The operating agreement provides that investor interest holders pay
approximately 95 percent of the cost of acquiring the working interests
and the Manager pays the remaining five percent of such costs.
Intangible drilling costs are allocated 100 percent to the investor
interest holders. Net profits from sales of production are allocated
approximately 90 percent to the investor interest holders and 10
percent to the Manager; until such time that the investor interest
holders have recovered their investment in the LLC. Thereafter, net
profits are allocated approximately 70 percent to the investor interest
holders and 30 percent to the Manager.
During 1999, the LLC incurred $1,937,629 in costs under turnkey
agreements to WELLC. Of this amount, $123,425 and $136,092,
respectively, is included in accounts payable at September 30, 2000 and
1999.
In connection with the sponsorship of the LLC, WELLC is entitled to
management fees of two and one-half percent from the investor interest
holder subscriptions, which are expensed when incurred. During 1999,
the LLC paid WELLC $53,109 in management fees.
NOTE 4 - CASH FLOWS
During 1999, the LLC acquired working interests in oil and gas wells
that were still in process at year-end. Accounts payable includes
$123,425 and $136,092 respectively, at September 30, 2000 and 1999.
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WOLVERINE ENERGY, L.L.C.
FINANCIAL STATEMENT, NOTES AND DISCUSSION
BALANCE SHEET - SEPTEMBER 30
--------------------------------------------------------------------
2000 1999 Variance 12/31/99*
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 852,187 $ 126,958 $ 725,229 $ 584,002
Accounts receivable:
Related entities 735,677 502,620 233,057 945,997
Other 340,053 42,073 297,980 32,067
Working interests held for resale 1,500,357 357,090 1,143,267 853,656
Prepaid expenses 18,928 60,970 (42,042) 22,130
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 3,447,202 1,089,711 2,357,491 2,437,852
EQUIPMENT
Office equipment 44,069 67,385 (23,316) 70,507
Accumulated depreciation (29,200) (50,636) 21,436 (58,430)
----------- ----------- ----------- -----------
TOTAL FIXED ASSETS 14,869 16,749 (1,880) 12,077
INVESTMENTS IN RELATED ENTITIES 1,372,799 1,109,720 263,079 1,212,698
OTHER ASSETS, NET 591 5,541 (4,950) 3,980
----------- ----------- ----------- -----------
TOTAL ASSETS $ 4,835,461 $ 2,221,721 $ 2,613,740 $ 3,666,607
=========== =========== =========== ===========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit $ 325,000 $ 325,000 $ -- $ 325,000
Current portion of long-term debt 107,500 305,067 (195,567) 307,500
Accounts payable:
Trade 309,851 121,560 188,291 220,645
Operators 3,480,244 1,285,887 2,194,357 1,519,385
Other (259) 12,687 (12,946) 3,009
Accrued expenses 2,766 9,773 (7,007) 10,611
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 4,225,102 2,057,974 2,167,128 2,386,150
LONG-TERM DEBT 283,261 366,184 (82,923) 343,351
MEMBER'S EQUITY (DEFICIT) 327,098 (204,437) 531,535 937,106
----------- ----------- ----------- -----------
Total liabilities and
member's equity (deficit) $ 4,835,461 $ 2,221,721 $ 2,613,740 $ 3,666,607
----------- ----------- ----------- -----------
* Condensed from audited financial statements
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WOLVERINE ENERGY, L.L.C.
FINANCIAL STATEMENT, NOTES AND DISCUSSION
Statement of Operations
For the nine months ended September 30
-------------------------------------------------
2000 1999 Variance
----------- ----------- -----------
REVENUE
Turnkey revenue $ 5,557,337 $ 1,861,744 $ 3,695,593
Management fees 116,419 107,187 9,232
Other income 196 23,563 (23,367)
----------- ----------- -----------
Total revenue 5,673,952 1,992,494 3,681,458
EXPENSES
Cost of sales 4,270,594 1,199,164 3,071,430
General and administrative 1,538,994 1,221,071 317,923
----------- ----------- -----------
Total expenses 5,809,588 2,420,235 3,389,353
----------- ----------- -----------
NET LOSS $ (135,636) $ (427,741) $ 292,105
=========== =========== ===========
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WOLVERINE ENERGY, L.L.C.
FINANCIAL STATEMENT, NOTES AND DISCUSSION
Statement of Operations
For the three months ended September 30
-----------------------------------------------
2000 1999 Variance
----------- ----------- -----------
REVENUE
Turnkey revenue $ 2,948,963 $ 956,752 $ 1,992,221
Management fees 77,452 55,549 21,903
Other income 6 17,341 (17,335)
----------- ----------- -----------
Total revenue 3,026,421 1,029,642 1,996,779
EXPENSES
Cost of sales 2,204,618 550,194 1,654,424
General and administrative 306,860 422,391 (115,531)
----------- ----------- -----------
Total expenses 2,511,478 972,585 1,538,893
----------- ----------- -----------
NET LOSS $ 514,943 $ 57,057 $ 457,886
=========== =========== ===========
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WOLVERINE ENERGY, L.L.C.
FINANCIAL NOTES AND DISCUSSION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
1999 2000 Variance
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers and
related parties $ 1,815,292 $ 5,576,286 $ 3,760,994
Cash paid to operators,
employees and suppliers (1,918,877) (4,408,719) (2,489,842)
----------- ----------- -----------
Net cash provided by (used
in) operating activities (103,585) 1,167,567 1,271,152
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (7,872) (4,819) 3,053
Cash paid for investment in LLCs -- (160,101) (160,101)
----------- ----------- -----------
Net cash used in investing activities (7,872) (164,920) (157,048)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (60,946) (260,090) (199,144)
Repayments from member 329,545 -- (329,545)
Contributions from Member -- 267,332 267,332
Distributions to Member (484,225) (741,704) (257,479)
----------- ----------- -----------
Net cash used in financing activities (215,626) (734,462) (518,836)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (327,083) 268,185 595,268
CASH AND CASH EQUIVALENTS
Beginning of Period 454,041 584,002 129,961
----------- ----------- -----------
End of Period $ 126,958 $ 852,187 $ 725,229
=========== =========== ===========
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WOLVERINE ENERGY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Wolverine Energy, L.L.C. (WELLC) acquires working interests in natural
gas prospects throughout the United States, forms oil and gas entities
and sells them the interests on a turnkey basis. WELLC is responsible
for managing the operations of the entities.
Working Interests Held for Resale - WELLC has acquired certain oil and
gas working interests for the purpose of selling these interests to oil
and gas entities. Such working interests held for resale are recorded
at cost, but are periodically reviewed to determine if the market value
of the working interest has been impaired. If impairment exists,
recording an impairment allowance recognizes a loss. Abandonments of
working interests held for resale are charged to expense. As of
September 30, 2000 no reserve for impairment has been recorded.
Investments in Related Entities - Investments in related entities are
accounted for under the equity method since WELLC has significant
influence over the management of these entities. WELLC is the manager
of the oil and gas entities and makes initial capital contributions in
accordance with provisions in the respective placement memorandum or
prospectus governing the activities of the particular entity. Income or
losses are allocated to the investment accounts according to WELLC's
ownership interest in the entities. Distributions received are deducted
from the investment accounts.
Turnkey Agreements - WELLC enters into contracts with affiliated
entities to sell them oil and gas working interests under turnkey
drilling agreements. Under the terms of the agreements, the entities
pay a fixed price for acquisition, drilling and completion costs and
receive working interests in the wells. WELLC agrees to monitor the
well operators' obligation to conduct the drilling and completion of
each well. Turnkey revenue is recognized when the related services have
been performed (working interests have been sold) and substantially all
future obligations have been settled.
Cost of Sales - The Company acquires oil and gas working interests for
resale that require the Company to pay a pro rata portion of all costs
to drill and complete a well. The Company sells these oil and gas
working interests in the wells at a fixed price, generally before the
drilling is completed. Actual costs to drill and complete a well may
exceed the sales price. The Company has the burden of paying all costs
in excess of the turnkey price. Included in the accounts payable at
September 30, 2000 and 1999, and cost of sales, is the estimated total
cost that the Company will be required to pay on working interests that
have been sold. Due to the uncertainties inherent in the estimation
process, it is at least reasonably possible that the Company may incur
expenses in excess of the amount recorded. Management is of the opinion
that any adjustment of the amount recorded would not have a material
adverse effect on the financial statements.
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Management Fees - In connection with the organization and offering
stage of related oil and gas entities, WELLC may receive a management
fee, an organizational and offering cost allowance and/or an
organization fee. Fees and cost allowances are credited to income as
earned.
Equipment - Equipment is recorded at cost. Depreciation is computed
using straight line and accelerated methods over the estimated useful
lives of the assets. Costs of maintenance and repairs are charged to
expense as incurred.
Income Taxes - No provision for Federal income taxes has been included
in the financial statements since all income and expenses of WELLC are
allocated to the member in his respective Federal income tax return.
Use of Estimates - 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 these estimates.
NOTE 2 - AFFILIATED OIL AND GAS ENTITIES
WELLC sponsors the formation of entities, typically limited liability
corporations, for the purpose of conducting oil and gas exploration,
development and production activities on oil and gas properties. WELLC
serves as manager of these entities and, as such, has full and
exclusive discretion in the management and control. The turnkey
drilling and operating agreements that WELLC enters into with the
entities provide that the entities pay for the drilling costs of the
wells at an agreed upon price per well. Profits from oil and gas
properties are allocated based on the working interest ownership
percentage of the properties.
WELLC holds the following investment interest in the following
entities:
2000 1999
Wolverine Antrim Development 1995, L.L.C. 18.9% 18.9%
Wolverine Antrim Development 1996-1, L.L.C. 12.8% 12.8%
Wolverine Antrim Development 1996-2, L.L.C. 14.5% 14.5%
Wolverine Antrim Development 1997-1, L.L.C. 14.8% 14.8%
Wolverine Antrim Development 1997-2, L.L.C. 14.5% 14.5%
Wolverine Antrim Development 1998-1, L.L.C. 12.5% 12.5%
Wolverine Energy 1998-1999 (A)
Development Company, L.L.C. 10.0% 10.0%
Wolverine Antrim Development 1999-1, L.L.C. 11.5% 11.5%
Wolverine Development Spotted Horse
Prospect #1, L.L.C, 5.0%
Wolverine Development Spotted Horse
Prospect #2, L.L.C, 1.0%
Wolverine Development Spotted Horse
Prospect #3, L.L.C. 1.0%
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NOTE 3 - LINE OF CREDIT
The line of credit to a bank is unsecured and due on demand. The
line of credit bears interest at one and one-half percent above the
New York Citibank prime rate. WELLC's credit limit is $325,000. The
member guarantees the line of credit.
NOTE 4 - LONG TERM DEBT
Long-term debt consists of the following:
2000 1999
-------- --------
Notes payable to unrelated parties due in monthly installments of
$2,500, with any remaining balance due January 2003. The note bears
an interest rate of 14 percent. The note is collateralized by
certain investments of the Company and is guaranteed by the member.
$200,000 $200,000
Note payable to an unrelated company due in monthly interest
payments of $3,083 at a rate of prime plus 10 percent. The note is
collateralized by all assets of the Company and is guaranteed by the
member.
0 200,000
Note payable to bank due in monthly installments of $502 including
interest at a rate of 15.95 percent. The note is collateralized by
equipment.
3,351 8,841
Note payable to bank due in monthly installments of $6,250 plus
interest at a rate of prime plus one and one-half percent. The note
is collateralized by all assets of the Company and is guaranteed by
the member.
187,410 262,410
Total $390,761 $671,251
Less current portion 107,500 305,067
Long-term portion $283,261 $366,184
NOTE 5 - RELATED PARTY TRANSACTIONS
Because of the nature of WELLC's business, a significant number of
transactions are with related parties. During the first three quarters
of 2000 and 1999, WELLC earned turnkey revenue from related entities in
the amount of $5,557,337, and $1,861,744, respectively. The balance of
turnkey revenues and allocated expenses owed to WELLC included in
accounts receivable at September 30, 2000 and 1999 totaled $735,677 and
$502,620, respectively.
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NOTE 6 - COMMITMENTS AND CONTINGENCIES
As managing member in various affiliated oil and gas entities, WELLC is
subject to contingencies that may arise in the normal course of
business of those entities. Management is of the opinion that
liabilities, if any, related to such contingencies that may arise would
not be material to the financial statements.
As of September 30, 2000, WELLC has one offering it is soliciting with
a maximum investor contribution limit of $6,000,000. WELLC is required
to match every capital contribution from an investor with a capital
contribution of one percent of the investor contribution. If maximum
investor contributions are obtained, WELLC is committed to purchase an
additional $59,406 in limited company memberships.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PROGRAM A - FOR THE PERIOD ENDING SEPTEMBER 30, 2000
FINANCIAL CONDITION
Liquidity and Capital Resources - As a passive investment entity, the
registrant does not engage in active operations of the sort which
require it to maintain liquidity beyond that required to pay its
operating costs as they occur. Such operating costs are a small
percentage of the capital, which it invests in relatively illiquid
fractional working interests in natural gas well development projects.
The registrant engaged minimally in operations during the nine months
ending September 30, 2000 and recognized minimal cash flows during the
period. The registrant's cash flow during the period was derived from
operating activities and interest income and outflows for
administrative and operating expenses. The registrant will, in the
future, generate additional liquidity from operations after additional
wells are connected to the pipeline and the mechanical constraints on
the pipeline are resolved. The registrant has no commitments to provide
it with a lending facility from which it could borrow funds to provide
additional liquidity in the future.
RESULTS OF OPERATIONS
The registrant is engaged in the development and operation of natural
gas wells and the sale of natural gas production therefrom. During the
nine months ending September 30, 2000, income and expenses were
recognized from initial operations. The level of revenues from
operations will increase as additional wells are tied in to the sales
pipeline and as mechanical restraints are removed from the pipeline.
The level of revenues from operations of the registrant will be closely
tied to the level of prices for natural gas deliveries and price levels
generally. However, the levels of operating expenses related to
production of natural gas from wells in which the registrant owns a
fractional interest may not always change in response to economic
conditions generally, resulting in diminished levels of profitability
in periods of decreasing natural gas prices without corresponding
decreases in operating costs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The registrant is indirectly engaged exclusively in the development and
operation of natural gas wells as an owner of fractional working
interests therein. Such wells are developed and operated by
unaffiliated parties who have primary responsibility for and control of
the production and marketing of natural gas therefrom. The registrant
is, therefore, entirely subject to fluctuations in the value of its
share of the natural gas production from such wells, which are
reflective of the greater market for natural gas and the cost of
transportation thereof. Various factors beyond the control of the
registrant will affect prices of gas and natural gas liquids, including
but not limited to, the worldwide supply of gas, political instability
or armed conflict in gas-producing regions, the price of foreign
imports, the levels of consumer demand, the price and availability of
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alternative fuels, the availability of and proximity to pipelines and
changes in existing Federal regulations and price controls. Prices for
gas have historically fluctuated greatly and markets for gas and
natural gas liquids continue to be volatile. The generally unsettled
nature of energy markets makes it particularly difficult to estimate
future prices of gas and any assumptions about future prices may prove
inaccurate.
THE MANAGER - FOR THE PERIOD ENDING SEPTEMBER 30, 2000
RESULTS OF OPERATIONS
Net loss for the first three quarters of 2000 was $135,636 as compared
to $427,741 for the first three quarters of 1999. Although turnkey
revenues have risen substantially, cost of goods sold has risen
disproportionately. This is because well interests for new projects are
located in a very active area with resultant higher costs.
The natural gas investment programs organized by the Manager have not
begun to generate sufficient levels of production to result in
meaningful distributions of operating profits to the Manager. Therefore
the Manager has not recognized a meaningful level of profits from its
interests in such programs.
Total turnkey expenses and related costs increased 256 percent
($3,071,430) while turnkey revenues have increased only 199 percent
($3,695,593) resulting in a decrease in profit margin to 23.15 percent
from 35.59 percent. General and administrative expense increased 26.04
percent, reflecting the higher level of capital raising through
affiliated natural gas investment programs and the cumulative effect on
the level of administrative efforts of the new capital to the capital
already under management.
WORKING INTERESTS HELD FOR RESALE
Historically high prices for natural gas have piqued investor interest
in direct investment in natural gas development. Company sales for the
first nine months of the year are at record levels. In anticipation of
the continuation of this trend, the company has acquired a significant
acreage position in the Wyoming Powder River Basin to ensure
availability of product through 2002.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Nothing to report.
ITEM 2. CHANGES IN SECURITIES
There have been no material changes in the rights of Program A's
outstanding Interestholders. There have been no sales of securities in Program A
that were not registered under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
Nothing to report.
ITEM 5. OTHER INFORMATION
Nothing to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibits listed on the Index to Exhibits immediately following
the signatures are filed as part of, or incorporated by reference, into this
Report.
(b) No reports on Form 8-K were filed during the period covered by this
report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT
COMPANY, L.L.C.
BY: WOLVERINE ENERGY, L.L.C., MANAGER
By: /s/ George H. Arbaugh, Jr.
--------------------------------
George H. Arbaugh, Jr., Sole manager
And Chief Executive Officer
Date: February 21, 2001
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19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ------- ----------------------------------------------------- ----------------------
2 Plan of acquisition, etc. N/A
3.1 Articles of Organization of Program A 10-KSB (12/99)
3.2 Articles of Organization of Manager Registration Statement
Instruments defining rights of security holders
4.1 (Operating Agreement - Program A) 10-KSB (12/99)
4.2 (Operating Agreement - Manager) Registration Statement
11 Statement of Computation of per-share earnings N/A
18 Letter regarding change in accounting principles N/A
19 Previously unfiled documents N/A
20 Reports furnished to security holders N/A
23 Published report regarding matters submitted to vote N/A
24 Consent of experts and counsel N/A
25 Power of Attorney N/A
27 Financial Data Schedule