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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: March 31, 2001
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 33-95156
Wolverine Energy 1998-1999(A) Development Company, L.L.C.,
Wolverine Energy 2001(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.
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L.L.C.
Financial Notes and Discussion
Unaudited
BALANCE SHEET
--------------------
3/31/01
--------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,475
Accounts Receivable --
-------------------
Total Current Assets 3,475
PROPERTY AND EQUIPMENT
Wells and related equipment and facilities 2,581,091
Accumulated depreciation and depletion (16,552)
-------------------
Net carrying amount 2,564,539
-------------------
TOTAL ASSETS $ 2,568,014
===================
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Bank overdraft --
Accounts payable 18,778
Accounts payable-related party 62,039
Advances from related party 158,516
-------------------
Total current liabilities 239,333
MEMBERS' EQUITY 2,328,681
-------------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 2,568,014
===================
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L.L.C.
Financial Notes and Discussion
Unaudited
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31
------------------------------------
2001 2000
----------------- ---------------
REVENUE
Natural gas sales $ 6,934 $ 418
Interest income -- 2,759
---------------- --------------
Total revenue 6,934 3,177
EXPENSES
Well operating fees 6,851 919
Depreciation and depletion 4,000 --
Professional fees 21,003 2,729
General and administrative 11,897 7,886
---------------- --------------
Total expenses 43,751 11,534
---------------- --------------
NET LOSS $ (36,817) $ (8,357)
================ ==============
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L.L.C.
Financial Notes and Discussion
Unaudited
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS
ENDED MARCH 31
------------------------------------
2001 2000
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 6,934 $ 9,670
Cash paid to suppliers and related party (23,472) (3,699)
Interest received -- 2,759
--------------- ---------------
Net cash provided by (used in)
operating activities (16,538) 8,730
CASH FLOWS FROM FINANCING ACTIVITIES
Syndication costs paid -- (96,876)
Repayment of short-term loan from related
party -- (154,590)
Advances from related party 90,791 --
Distributions to members (70,778) --
--------------- ---------------
Net cash provided by (used in)
financing activities 20,013 (251,466)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,475 (242,736)
CASH AND CASH EQUIVALENTS - Beginning of period -- 410,928
CASH AND CASH EQUIVALENTS - End of period $ 3,475 $ 168,192
================ ================
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 and 2000, the LLC advanced monies for re-completion at properties
located in Kansas. By the end of 2000, the LLC had 36 net well
interests in 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 entered into contracts with the Manager to
drill gas wells. Under the terms of the contracts, the Manager managed
the drilling of the wells and the LLC paid a fixed cost per well
working interest. The LLC advanced 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 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, 2000, all of the Wells in which the LLC owns an
interest were completed and in production. 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.
The Manager participated in a joint venture that acquired the pipeline
in 2000. In the first quarter of 2001, the joint venture undertook
certain improvements to the pipeline. Nonetheless, the volume of
production is still not meeting expectations, and the Manager is
engaged in further study of the wells and their infrastructure.
NOTE 3 - RELATED PARTY TRANSACTIONS
The LLC had acquired working interests in 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 required the investor interest holders to pay
approximately 95 percent of the cost of acquiring the working interests
and the Manager to pay 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, $62,039 and $173,993,
respectively, is included in accounts payable at March 31, 2001 and
2000.
WELLC advanced $90,791 to the LLC during the first quarter of 2001. The
balance sheet also reflects advances from WELLC to the LLC made in 2000
in the amount of $67,725. These amounts are due on demand.
NOTE 4 - CASH FLOWS
The LLC still owes money associated with the expense of acquiring the
gas well working interests and drilling expense that were incurred in
1999 and 2000. Accounts payable includes $62,039 and $173,993,
respectively for this purpose, at March 31, 2001 and 2000. Accounts
payable for operations were $18,778 and $0 respectively at March 31,
2001 and 2000.
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WOLVERINE ENERGY, L.L.C.
Financial Notes and Discussion
Unaudited
BALANCE SHEET
-----------------------
3/31/01
-----------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 99,622
Accounts Receivable:
Related entities 2,272,106
Member Receivable 238,000
Other 211,348
Working interests held for resale 1,773,235
Prepaid expenses 14,000
----------------------
Total Current Assets 4,608,311
EQUIPMENT
Office equipment 45,465
Accumulated depreciation (35,219)
----------------------
Net carrying amount 10,246
INVESTMENTS IN RELATED ENTITIES 1,436,951
OTHER ASSETS, NET --
----------------------
Total Assets $6,055,508
======================
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of Credit $ 325,000
Current portion of long-term debt 105,000
Accounts payable:
Trade 881,928
Operators 4,544,290
Other --
Accrued expenses 3,209
----------------------
Total current liabilities 5,859,427
LONG-TERM DEBT 244,910
MEMBERS' EQUITY (DEFICIT) (48,829)
----------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY (DEFICIT) $ 6,055,508
======================
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WOLVERINE ENERGY, L.L.C.
Financial Notes and Discussion
Unaudited
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31
----------------------------------------
2001 2000
------------------ ------------------
REVENUE
Turnkey revenue $ 2,078,281 $ 568,030
Management fees -- 16,051
Other income 19 173
----------------- -----------------
Total revenue 2,078,300 584,254
EXPENSES
Cost of Sales 1,603,834 500,028
General and administrative 983,517 373,730
----------------- -----------------
Total expenses 2,587,351 873,758
----------------- -----------------
OPERATING LOSS $ (509,051) $ (289,504)
================= =================
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WOLVERINE ENERGY, L.L.C.
Financial Notes and Discussion
Unaudited
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31
--------------------------------------------
2001 2000
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers and related
parties $ 5,504,092 $ 505,553
Cash paid to operators, employees and
suppliers (6,707,418) (1,189,342)
------------------- -------------------
Net cash used in investing activities (1,203,326) (683,789)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment -- (6,243)
Cash paid for investments in LLC's (21,458) (14,543)
------------------- -------------------
Net cash used in investing activities (21,458) (20,786)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net of
repayments 325,000 --
Payments on Long term debt (18,750) (20,392)
Loans to member (238,000) --
Contributions from member -- 267,332
Distributions to member (635,895) --
------------------- -------------------
Net cash provided by (used in)
financing activities (567,645) 246,940
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NET DECREASE IN CASH AND CASH EQUIVALENTS (1,792,429) (457,635)
------------------- -------------------
CASH AND CASH EQUIVALENTS - Beginning of period 1,892,051 584,002
------------------- -------------------
CASH AND CASH EQUIVALENTS - End of period $ 99,622 $ 126,367
=================== ===================
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WOLVERINE ENERGY, L.L.C.
Notes to Financial Statements
March 31, 2001
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 and land leases 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 interests and land leases have been
impaired. If impairment exists, a loss is recognized by recording an
impairment allowance. Abandonments of working interests and land leases
held for resale are charged to expense. As of March 31, 2001 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 Drilling Revenue - 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
March 31, 2001 and 2000, 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.
Organizational Fees - In connection with the organization and offering
stage of related oil and gas entities, WELLC may receive an
organizational fee ranging from 1.0 to 2.5 percent from investor
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subscriptions, which is 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 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
companies, 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
at March 31:
2001 2000
---- ----
Wolverine Antrim Development 1995, LLC 18.9% 18.9%
Wolverine Antrim Development 1996-1, LLC 12.8% 12.8%
Wolverine Antrim Development 1996-2, LLC 14.5% 14.5%
Wolverine Antrim Development 1997-1, LLC 14.8% 14.8%
Wolverine Antrim Development 1997-2, LLC 14.5% 14.5%
Wolverine Antrim Development 1998-1, LLC 12.5% 12.5%
Wolverine Energy 1998-1999(A) Development
Company, LLC 10.0% 10.0%
Wolverine Antrim Development 1999-1, LLC 11.5% 11.5%
Wolverine Antrim Development Spotted Horse
Prospect, LLC 5.0%
Wolverine Antrim Development Spotted Horse
Prospect #2, LLC 1.0%
Wolverine Antrim Development Spotted Horse
Prospect #3, LLC 1.0%
Wolverine Antrim Development Spotted Horse
Prospect #4, LLC 1.0%
Wolverine Development 2000-1A, LLC 1.0%
Wolverine Development Spotted Horse Prospect
2001(A), LLC 1.0%
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. As of March 31, 2001, the full $325,000
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had been borrowed against the line of credit.
NOTE 4 - LONG TERM DEBT
Long-term debt consists of the following:
2001 2000
---- ----
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. The balance of the note was paid during 2000. -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. The balance of the note was paid during 2000. -0- 5,549
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. Final payment is due April 2003. 149,910 224,910
Total $349,910 $630,459
Less current portion 105,000 107,500
Long-term portion $244,910 $522,959
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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 quarter of 2001 and 2000, WELLC earned turnkey revenue
from related entities in the amount of $2,078,281 and $568,030,
respectively. The balance of turnkey revenues, allocated expenses, and
advance reimbursements owed to WELLC included in accounts receivable at
March 31, 2001 and 2000 totaled $2,272,106 and $915,999, respectively.
WELLC loaned $238,000 to its Member in the first quarter of 2001, which
is payable on demand.
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 March 30, 2001, WELLC currently 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 $60,000 in limited company memberships.
In the first quarter of 2001, WELLC guaranteed 20 percent of the
outstanding $3,100,000 in debt of a related party, for a total of
$620,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion should be read in conjunction with the financial
statements and accompanying notes.
PROGRAM A - FOR THE PERIOD ENDING MARCH 31, 2001
RESULTS OF OPERATIONS
During the three months ending March 31, 2001, Program A sold 977 mcf
of gas at an average price $7.08 per mcf, compared to the sale of 201
mcf at an average price of $2.08 per mcf during the first three months
of 2000. Revenues from operations were $6,934 during the first quarter
of 2001, compared with $418 during the first quarter of 2000.
Operating expenses averaged $7.01 per mcf during the first three months
of 2001 compared to $4.57 per mcf during the first three months of
2000. This is reflected in well operating fees for the first three
months of 2001 of $6,851 compared with $919 for the first three months
of 2000. The reason for this significant increase in operating expenses
during the year 2001 was the very cold conditions in the field, which
caused freezing problems at the wells and created difficulty in keeping
the compressors running. It is impossible to predict from year to year
how severe winter weather conditions will be and what impact that may
have on operating expenses.
Other expenses during the first quarter of 2001 were significantly
greater than the first quarter of 2000. For example, a depreciation and
depletion expense of $4,000 was recorded for the first quarter of 2001.
Because the wells were not yet in production during the first quarter
of 2000, there was no depreciation and depletion expense recorded in
the first quarter of 2000. In addition, professional fees were
significantly higher in the first three months of 2001 ($21,003
compared with $2,729 in the first three months of 2000). This
difference in expense levels for professional fees is explained in part
by the fact that the Company's financial statements for the year 1999
were completed late in the year of 2000, with invoices paid during the
first quarter of 2001. Additional legal fees were also recorded because
of certain regulatory problems associated with the Company's reliance
on prior counsel to register the offering of memberships in Program A
with certain state regulatory offices and the later discovery that this
had not occurred in some cases. Expenses for general and administrative
were recorded at $7,886 in the first quarter of 2000, as compared to
$11,897 in the first quarter of 2001. This $4,001 variance reflects the
cost of the engineering report for the evaluation of reserves. An
engineering report will be obtained annually from this point forward at
an anticipated annual cost of $4,000 to $6,000.
As reflected in the Company's 10-KSB for the fiscal year ending
December 31, 2000, CB Pipeline, L.L.C., which is owned 50 percent by
affiliates of the Manager and 50 percent by Spartan Energy, Ltd.,
purchased Great Eastern Pipeline, which is intended to service the
wells in Program A. During the first quarter of 2001, CB Pipeline,
L.L.C. replaced two compressors associated with the pipeline, including
the main compressor at the Williams Tap. While there has been some
improvement in overall volumes, the response has not met the Manager's
expectations. Accordingly, the Manager has contracted with Bach
Enterprises, an independent third party based in Kalkaska, Michigan, to
review all of the wells and infrastructure in the Independence
Prospect, which is
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where all of the wells owned by Program A are located. Bach
Enterprises' report is expected to be received in late summer or early
fall of 2001, and will provide the basis for any additional steps to be
taken with a goal of improving results.
Natural gas prices reached an all-time high of close to $10 per mcf in
January, 2001. By March 2001, gas prices had fallen to an average of
$3.91 per mcf. Various factors beyond the control of Program A and the
Manager will affect prices of gas in the future including, but not
limited to, the world wide 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
alternative fuels, and changes in existing federal regulations and
price controls. Prices for gas have historically fluctuated greatly,
and markets for gas 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
to be inaccurate. Nonetheless, the Manager does anticipate that gas
prices will probably be higher during the winter heating season than
during periods of warmer weather.
Under Program A's operating agreement, the Manager is entitled to
receive an administrative cost allowance. The Manager is allowed to
waive or defer the administrative cost allowance. For the first quarter
of 2001, the Manager has elected to waive its administrative cost
allowance from Program A. Accordingly, no liability was booked for this
expense.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2001, Program A's cash flow from operations
was $(16,538), compared to $8,730 in 2000. This difference was caused
predominantly by the higher operating costs created by the cold
weather, as reflected in the discussion above.
Program A continues to owe the Manager $62,039 as the balance due on
the turnkey price payable to the Manager for the well interests
purchased by Program A. This compares to a balance owed to the Manager
for the turnkey price of $173,993 owed as of March 31, 2000. The
Manager has made advances to Program A to permit distributions to the
investors. These advances are payable on demand. During the first
quarter of 2001, the Manager advanced $90,791 to Program A, and Program
A made distributions to members equal to $70,778. Program A continues
to experience shortages of cash flow due to unexpectedly low
production. To date, shortfall has been satisfied through advances from
the Manager. Program A does not have any line of credit or similar debt
facility.
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THE MANAGER - FOR THE PERIOD ENDING MARCH 31, 2001
RESULTS OF OPERATIONS
Total turnkey revenues earned by the Manager have risen significantly.
During the first quarter of 2000, turnkey revenues were $568,030.
During the first quarter of 2001, turnkey revenues were $2,078,281,
reflecting an increase of $1,510,251 or 366 percent. Costs of sales
associated with the turnkey revenues also increased significantly from
$500,028 in the first quarter of 2000 to $1,603,834 in the first
quarter of 2001. This is a difference of $1,103,806 or 321 percent.
There was a resulting increase in gross margin from 11.97 percent in
the first quarter of 2000 to 22.82 percent in the first quarter of
2001.
The Manager also experienced a significant increase in general
administrative expense, from $373,730 in the first quarter of 2000, to
$983,517 in the first quarter of 2001, an increase of $609,787, or 263
percent. This increase reflects the Manager's focus on growing the
business during a period of strong demand for natural gas. In addition,
because of the substantial number of programs now under management by
the Manager, additional administrative personnel support had to be
added. There was also a significant increase in expenditures for
travel.
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 investments in natural gas investment programs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Manager had $99,622 in cash and cash equivalents
available. This compares with $126,367 available at March 31, 2000. The
Manager has a line of credit in the amount of $325,000, which had not
been drawn on at March 31, 2000, but which has been entirely drawn down
as of March 31, 2001. While the Manager's accounts payable have
increased substantially as of March 31, 2001 ($5,426,218) compared to
March 31, 2000 ($1,711,823), the Manager's accounts receivable have
also increased substantially (March 31, 2001 of $2,721,454 compared to
March 31, 2000 of $1,056,765). The accounts receivable at March 31,
2001 are all due on demand and include amounts due from related
entities in the amount of $2,272,106 and an account receivable from the
Manager's member for a loan advance in the amount of $238,000. The
Manager does not contemplate having to borrow additional moneys or open
an additional line of credit.
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Exhibits listed on the Index to Exhibits immediately following the
signatures are filed as part of, or incorporated by reference, into 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: //George H. Arbaugh, Jr.//
----------------------------------
George H. Arbaugh, Jr., Sole Manager
and Chief Executive Officer
Date: October 5, 2001
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EXHIBIT INDEX
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Exhibit No. Description Cross-Reference
----------- ----------- ---------------
--------------------- -------------------------------------------------------------- ----------------------------------------
2 Plan of acquisition, etc. N/A
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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
--------------------- -------------------------------------------------------------- ----------------------------------------
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