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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ...............to.......................
Commission file number: 33-95156
WOLVERINE ENERGY 1998-1999(A)
DEVELOPMENT COMPANY, L.L.C.
(Exact name of registrant as specified in its Articles of Organization)
Michigan Applied for
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
4660 South Hagadorn Road, Suite 230
East Lansing, Michigan 48823
(517) 351-4444
(Address of principal executive offices)
None
(Former name, former address and former fiscal year,
if changed since 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 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Yes [X] No
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L. L. C.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEET
SEPTEMBER 30, 1999
ASSETS
CASH AND CASH EQUIVALENTS $ 160,681
WELLS IN PROCESS 1,250,313
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Total assets $1,410,994
==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable - Related party (Note 2) $ 136,092
Accrued commissions (Note 3) 23,715
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Total current liabilities 159,807
MEMBERS' EQUITY 1,251,187
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Total liabilities and members' equity $1,410,994
==========
See Notes to Financial Statements
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L. L. C.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
<S> <C> <C>
Interest income $ 1,102 $ 484
Management fees (16,978) (6,278)
Professional and other organizational costs (10,000) -
Insurance expense (833) (90)
----------- ------------
NET LOSS $ (26,709) $ (5,794)
=========== ============
</TABLE>
See Notes to Financial Statements
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L. L. C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
MEMBERS' EQUITY - January 1, 1999 $ 644,067
Member contributions 713,055
Syndication costs (79,226)
Net Loss (26,709)
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MEMBERS' EQUITY - September 30, 1999 $ 1,251,187
=============
</TABLE>
See Notes to Financial Statements
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L. L. C.
STATEMENT OF CASH FLOWS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to related party $ (27,811)
Interest received 1,102
---------
Net cash used in operating activities (26,709)
CASH FLOWS FROM INVESTING ACTIVITIES
Advances on wells in progress (470,759)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from members 713,055
Repayment of short-term loan from related party (42,408)
Syndication costs paid (84,086)
---------
Net cash provided by financing activities 586,561
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS 89,093
CASH AND CASH EQUIVALENTS - Beginning of period 71,588
Cash and Cash Equivalent s - End of period $ 160,681
=========
</TABLE>
See Notes to Financial Statements
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L. L. C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 drilling at properties located
in Kansas.
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 general
member to drill oil and gas wells. Under the terms of the contracts,
the general member manages the drilling of the wells and the LLC pays a
fixed cost per well working interest. The LLC advances funds to the
general member in order to finance the drilling activity.
Wells in Process - The Company uses the successful efforts method of
accounting for its oil and gas working interests. Costs to acquire the
working interests, which includes the LLCs proportionate share of
acquisition, drilling and completion costs are capitalized. Capitalized
costs of acquiring the working interests are depreciated and depleted
by the u n it-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.
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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
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WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L. L. C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 2 - 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 interestholders pay
approximately 95 percent of the cost of acquiring the working interests
and the manager pays the remaining 5 percent of such costs. Intangible
drilling costs are allocated 100 percent to the investor
interestholders. Net profits from sales of production are allocated
approximately 90 percent to the investor interestholders and 10 percent
to the manager, until such time that the investor interestholders have
recovered their investment in the LLC. Thereafter, net profits are
allocated approximately 70 percent to the investor interestholders and
30 percent to the manager.
During 1999, the LLC incurred $606,851 in costs under turnkey
agreements to WELLC. Of this amount, $136,092 is included in accounts
payable at September 30, 1999.
In connection with the sponsorship of the LLC, WELLC is entitled to
management fees of 2.5 percent from investor interestholder
subscriptions, which are expensed when incurred. During 1999, the LLC
paid WELLC $16,978 in management fees.
Note 3 - Cash Flows
During 1998, the LLC acquired working interests in oil and gas wells
that were still in process at the end of the period. Accounts payable
includes $136,092 of these acquisition costs.
The LLC received capital contributions totaling $713,055 during 1999
and incurred syndication costs related to those contributions totaling
$79,226, of which $23,715 are accrued at September 30, 1999.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
notes thereto.
Nine Months ended September 30, 1999
Financial Condition
Liquidity and Capital Resources
As an 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 did not engage in operations during the three months ended September
30, 1999, and, therefore, did not realize any net cash flows from operating
activities during that period. The registrant's cash flows during the period
resulted from the net inflow of capital from the sale of interests in the
registrant to investors and payments by the registrant related to (i) turnkey
drilling and development arrangements made to an affiliate of the Manager, and
(ii) costs to unaffiliated parties related to the offering and sale of interests
in the registrant in a public offering. The registrant's sole present source of
liquidity is the proceeds of the sale of interests in the registrant. The
registrant will in the future generate liquidity from operations after it begins
to realize proceeds from the sale of natural gas production from wells in which
it owns a fractional working interest. 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.
The registrant realized gross proceeds from the sale of interests totaling
$713,055 in the period, of which $470,759 was paid to unaffiliated parties in
respect of wells in progress in which the registrant holds a fractional working
interest and $84,086 was paid to unaffiliated parties in respect of syndication
and offering costs for the offering and sale of interests.
The registrant has not entered into any new material commitments for capital
expenditures in excess of those which were funded during the period. The
registrant will undertake additional commitments for capital expenditures only
for new turnkey arrangements in respect of natural gas well development and
drilling activities and only then when it has received additional capital
contributions from investors from which to fund such commitments. The registrant
does not expect that it will undertake any capital commitments in excess of
capital contributions received in the foreseeable future. The availability of
capital resources and liquidity for the registrant is and will likely remain
closely tied to the level of prices for natural gas deliveries and price levels
generally, and the actual and perceived trends in changes thereof.
Results of Operations
The registrant is engaged in the development and operation of natural gas wells
and the sale of
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natural gas production therefrom. During the three months ended September 30,
1999, the registrant entered into an agreement to acquire interests in natural
gas well development projects on a turnkey basis with an affiliate of the
Manager and made payments totaling $606,851 thereunder. The development of the
projects subject to such turnkey arrangements is proceeding under the
supervision of an operator which is not affiliated with the Manager or the
registrant, but has not yet been completed. Consequently, the registrant did not
realize any revenues from operations in the three months ended September 30,
1999. The registrant did incur operating expenses during the period, primarily
management fees and professional expenses related to its organization, offering
of interests and management of its turnkey drilling activities. 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, and the actual and
perceived trends in changes thereof. However, the levels of operating expense
related to production of natural gas from wells in which the registrant owns a
fractional working 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.
ITEM 3. 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 alternative fuels, the availability of and
proximity to pipelines, and changes in existing federal regulation 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 make it particularly difficult to estimate future
prices of gas, and any assumptions about future prices may prove incorrect.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOLVERINE ENERGY 1998-1999 DEVELOPMENT PROGRAM
By: /s/ George H. Arbaugh
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Title: Chairman, President and Chief Executive Officer
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Date: March 14, 2000
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In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ George H. Arbaugh
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Name: George H. Arbaugh
-----------------------------------------------
Title: Chairman, President and Chief Executive Officer
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Date: March 14, 2000
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