MDS ENERGY PUBLIC 2013-A LP - FORM 10-Q - May 15, 2014

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EX-32 - EXHIBIT 32 - MDS ENERGY PUBLIC 2013-A LPex32.htm
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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 March 31, 2014
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
 
 
MDS ENERGY PUBLIC 2013 - A LP
(Name of small business issuer in its charter)
 

Delaware
  
90-0852601
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
     
409 Butler Road
    
Suite A
    
Kittanning, PA
  
16201
(Address of principal executive offices)
  
(zip code)
 
Issuer’s telephone number, including area code: (855) 807-0807
 
 
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. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer
o
Accelerated filer
o
       
Non-accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
As of March 31, 2014 this Partnership had 15.5 units of limited partnership interest and 1,493.03 units of additional general partnership interest outstanding.
 
 
 

 

 
MDS ENERGY PUBLIC 2013 – A LP
(A Delaware Limited Partnership)
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
 
Implications of Being an Emerging Growth Company
     
PAGE
         
       
         
 
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9
  
         
 
13
  
         
   
14
  
         
 
14
  
         
 
14
  
 
15
  
         
 
16
  
         
CERTIFICATIONS
      
 
 
 

 

 
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY.
 
The Jumpstart Our Business Startups Act (the “JOBS Act”) became law in April 2012. The Partnership is an “emerging growth Company” as defined in the JOBS Act, and it is eligible for certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that usually apply to public companies.
 
These exemptions include, among others, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, any requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) which require mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor must provide additional information about the audit and the issuer’s financial statements, nor with new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Partnership has not yet decided whether to use any or all of the exemptions.
 
Additionally, under Section 107 of the JOBS Act, an “emerging growth company” is eligible for the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 (the “Act”) to comply with new or revised accounting standards. This means an “emerging growth company” can delay adopting certain accounting standards until those standards otherwise become applicable to private companies. However, the Partnership is electing to “opt out” of that extended transition period, and therefore will comply with new or revised accounting standards on the dates the standards are required for non-emerging growth companies. Section 107 of the JOBS Act provides that the Partnership’s decision to opt out of the extended transition period for compliance with new or revised accounting standards is irrevocable.
 
The Partnership could continue to be an “emerging growth company” until the earliest of:
 
 
(iv)
the last day of the first fiscal year in which it has total annual gross revenue of $1 billion or more;
 
 
(ii)
the last day of the fiscal year following the fifth anniversary of the date of the first sale of its units pursuant to its prospectus and Registration Statement with the SEC;
 
 
(iii)
the date that it becomes a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), which would occur if the market value of its units held by non-affiliates exceeds $700 million, measured as of the last business day of its most recently completed second fiscal quarter; or
 
 
(iv)
the date on which it has, during the preceding three year period, issued more than $1 billion in non-convertible debt.
 
The Partnership anticipates that it will continue to be an emerging growth company until the termination of the five year period described in (ii), above.
 
 
 

 

 
Part I. FINANCIAL INFORMATION
 
Item 1. Financial Statements:

The MDS ENERGY PUBLIC 2013-A LP
  
 
             
   
March 31, 2014 (unaudited)
    
December 31, 2013
  
             
Assets
            
Current Assets
            
Cash and Cash Equivalents
   $ 42     $ 1,312,723  
Total Current Assets
     42       1,312,723  
                 
Drilling advances to Managing General Partner
     9,167,065       15,001,000  
                 
Oil and Gas properties, successful efforts method
     5,958,922       124,987  
Oil and Gas properties - net
     5,958,922       124,987  
                 
Total Assets
   $ 15,126,029     $ 16,438,710  
                 
                 
Liabilities and Partners’ Equity
                
Current liabilities
                
Due to Managing General Partner
   $ 86,987     $ 2,448,088  
Total liabilities
     86,987       2,448,088  
                 
Partners’ Equity
     15,039,042       15,038,885  
Subscription Receivable
     -       (1,048,263 )
Partners’ Equity
     15,039,042       13,990,622  
                 
Total liabilities and partners’ equity
   $ 15,126,029     $ 16,438,710  
 
The accompanying notes are an integral part of these unaudited financial statements
 
1
 

 


 
The MDS ENERGY PUBLIC 2013-A LP
  
(unaudited)
  
                         
   
Investor
Partners
    
Managing
General Partner
    
Subscription
Receivable
    
Total
  
Balance at December 31, 2013
   $  14,927,939     $ 110,946     $ (1,048,263 )   $ 13,990,622  
                                 
Collection of Subscription Receivable
                     1,048,263       1,048,263  
Net Income
     132       25               157  
                                 
Balance at March 31, 2014
   $ 14,928,071     $ 110,971     $ -     $ 15,039,042  
   
The accompanying notes are an integral part of these unaudited financial statements
  
 
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The MDS ENERGY PUBLIC 2013-A LP
  
(unaudited)
  
             
   
For the Quarter Ended March 31,
2014
    
For the Quarter Ended March 31,
2013
  
             
Other income (expense)
            
Other income (expense) - net
   $ 157     $ -  
                 
Net Income (loss)
   $ 157     $ -  
   
The accompanying notes are an integral part of these unaudited financial statements
  
 
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The MDS ENERGY PUBLIC 2013-A LP
  
(unaudited)
  
             
   
For the Quarter Ended
March 31, 2014
    
For the Quarter Ended
March 31, 2013
  
Cash flows from operating activities
            
             
Net income (loss)
   $ 157    
 
  
               
Adjustments to reconcile net income (loss) to cash used in operations 
     -       -  
      157       -  
                 
Cash flows from investing activities
                
Drilling Advances paid to the Managing General Partner
     5,833,935          
Oil and Gas Properties
     (5,833,935 )        
Net cash used for investing activities
     0     -  
                 
Cash flows from financing activities
                
Collection of Subscription Receivable
     1,048,263       100  
Advances from the Managing General Partner     (2,361,101 )      
Net cash (used) provided by financing activities
     (1,312,838 )     100  
                 
Net change in cash and cash equivalents
     (1,312,681 )     100  
Cash and cash equivalents at beginning of year
     1,312,723          
                 
Cash and cash equivalents at end of year
   $ 42     $ 100  
   
The accompanying notes are an integral part of these unaudited financial statements
  
 
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MDS ENERGY PUBLIC 2013-A LP
 
NOTES TO CONDENSED BALANCE SHEETS
MARCH 31, 2014 and DECEMBER 31, 2013 (unaudited)
 
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
 
On May 3, 2012 (date of inception), MDS Energy Public 2013-A LP (Partnership), a Delaware limited partnership, was formed for the purpose of drilling developmental natural gas wells. The Partnership has a maximum 50-year term, although the Partnership intends to terminate when all of the wells invested in by the Partnership become uneconomical to continue to operate, which may be approximately 15 years or longer. The Partnership was formed by MDS Energy Development, LLC (MDS), a related party, as the MGP and M/D Gas, Inc. (M/D), a related party. In accordance with the terms of the limited partnership agreement, the Managing General Partner (MGP) is authorized to manage all activities of the Partnership and initiates and completes substantially all transactions.
 
On May 2, 2013, the Partnership’s registration statement on Form S-1 (File No. 333-181993, 333-181993-01, 333-181993-02 and 333-181993-03) was declared effective for the Partnership’s public offering pursuant to which the Partnership has begun soliciting potential investors on a “best efforts” basis. As of December 31, 2013, the Partnership sold 1,508.53 units and received gross proceeds of $15,001,000 which were paid to the MGP acting as operator and general drilling contractor under the Partnership’s drilling and operating agreement. The MGP contributed leases, tangible equipment, and paid all syndication and offering costs, excluding sales commissions for a total capital contribution of approximately $1,325,067. The proceeds from the offering will be used to cover intangible drilling costs and equipment associated with the drilling of developmental natural gas wells in the Marcellus Shale formation in Pennsylvania.
 
General partner units will be automatically converted by the Partnership to limited partners units upon the drilling and completion of all of the Partnership’s wells. A well is deemed to be completed when production equipment is installed, even though the well may not yet be connected to a pipeline for production of oil or natural gas.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
A summary of significant accounting policies consistently applied by management in the preparation of the accompanying balance sheets follows:
 
Use of Estimates - The preparation of the balance sheet in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the balance sheet and accompanying notes. Actual results could differ from those estimates. Estimates that are particularly significant to the balance sheet include estimates of natural gas revenue, natural gas reserves and future cash flows from natural gas properties.
 
Cash Equivalents-The carrying amounts of the Partnership’s cash equivalents approximate fair values because of the short maturities of these instruments. The Partnership maintains cash deposits that might at times exceed federally insured amounts. The Partnership considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents.
 
Prepaid Drilling Programs - The Partnership has invested cash received in the offering with a related party that will be utilized in the future drilling efforts related to the exploration and production of natural gas and oil.
 
Leased Property - Leased property was contributed by the MGP, and will be utilized in the drilling efforts of the Partnership and are included in oil and gas properties on the balance sheet.
 
Organizational and Offering Costs - The MGP has paid all organizational and offering expenses, excluding sales commissions. $1,200,080 in these costs have been incurred. The organizational and offering costs paid by the MGP were the MGPs capital contributions.  The MGP incurred and contributed the maximum, 8% of the  subscription proceeds, to the Partnership.
 
Oil and Gas Properties - The Partnership uses the successful efforts method of accounting for gas producing activities. Costs to acquire mineral interests in gas properties and to drill and equip wells are capitalized. Depreciation and depletion are computed on a field-by-field basis by the unit-of-production method based on periodic estimates of oil and gas reserves. Undeveloped leaseholds and proved properties will be assessed periodically or whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. Proved properties will be assessed based on estimates of future cash flows. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties will be expensed.
 
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Impairment of Long-Lived Assets- Impairment of long-lived assets is recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying value. There was no impairment as of March 31, 2014 or December 31, 2013.  The Partnership has not begun to accrue for any future asset retirement obligation and will do so upon completion of the wells.  In addition, the Partnership Agreement provides for the withholding of $200 per well per month from distributions, to fund this future obligation, after the well has been productive for 1 year.
 
Proceeds from the Sale of Wells/Leases- If the partner’s  capital accounts are adjusted to reflect the simulated depletion of a natural gas or oil property of the Partnership, then the portion of the total amount realized by the Partnership on the taxable disposition of the property that represents recovery of its simulated tax basis in the property shall be allocated to the parties in the same proportion as the aggregate adjusted tax basis of the property was allocated to the partner’s or their predecessors in interest. If thepartner’s capital accounts are adjusted to reflect the actual depletion of a natural gas or oil property of the Partnership, then the portion of the total amount realized by the Partnership on the taxable disposition of the property the equals the partner’s aggregate remaining adjusted tax basis in the property shall be allocated to the partner’s in the proportion to their respective remaining adjusted tax basis in the property. The amount equal to the difference, if any, between the fair market value of the lease at the time it was contributed to the Partnership and its simulated or actual adjusted tax basis at the time shall be allocated to the MGP. Any excess shall be credited generally in accordance with the sharing ratio utilized for the allocation of production revenues.
 
Production Revenues - The MGP and the investors in the Partnership will share in all of the Partnership’s production revenues in the same percentage as their respective capital contribution bears to the Partnership’s total net capital contributions, except that the MGP will receive an additional 8% of the Partnership’s production revenues.
 
Asset Retirement Obligations - The Partnership recognizes an estimated liability for the plugging and abandonment of its gas wells and related facilities (see Note 7). The Partnership recognizes a liability for its future asset retirement obligations in the current period if a reasonable estimate of the fair value of that liability can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.
 
Income Taxes - Since the taxable income or loss of the Partnership is reported in the separate tax returns of the individual partners, no provision has been made for income taxes by the Partnership. Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard. The Partnership did not have any unrecognized tax benefits, and there was no effect on its financial condition or results of operations as a result of implementing this standard. When necessary, the Partnership would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense. The Partnership will file a U.S. federal income tax return, but income will be passed through to the partners.
 
Transfers and Presentments - There is no established public trading market for the Partnership’s units and the Partnership does not anticipate that a market for the Partnership’s units will develop. The Partnership’s units may be transferred only in accordance with the provisions of the Partnership Agreement which require:
 
 
●
the MGP may require an opinion of counsel that registration under applicable federal and state law is not required;
 
●
the transfer not result in materially adverse tax consequences to the Partnership; and ;
 
●
the transfer must not contravene any terms of the Partnership Agreement.
 
An assignee of a unit may become a substituted partner only upon meeting the following conditions:
 
 
●
the assignor gives the assignee the right;
 
●
the assignee pays to the Partnership all costs and expenses incurred in connection with the substitution; and
 
●
the assignee executes and delivers the instruments, which the MGP requires to effect the substitution and to confirm his or her agreement to be bound by the terms of the Partnership Agreement.
 
A substitute partner is entitled to all of the rights of full ownership of the assigned units, including the right to vote.
 
Investor Partners may request that the MGP repurchase their units at any time beginning with the fifth anniversary after December 31, 2013 provided that certain conditions are met. The repurchase price is set at the greater of the partner’s share of (i) predominantly 70% of the Partnerships present worth of future net revenues from the proved reserves as determined under the last reserve report and is reduced by an amount equal to all of the Partnership’s debts or (ii) an amount equal to three times the total amount of distributions paid by the Partnership to the participant during the previous twelve months. The MGP is also permitted to adjust the purchase price under certain conditions for changes occurring after the date of the presentment request. Repurchase requests are fulfilled by the MGP on a first-come, first-served basis and may not exceed 5% of the total units outstanding. The MGP may suspend the presentment feature at any time if it determines that it does not have sufficient cash flow or it is unable to borrow funds on terms it deems reasonable.
 
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Subsequent Events - Subsequent events are defined as events or transactions that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. Management has considered for disclosure any material subsequent events through the date the financial statements were issued and concluded that no subsequent events, other than those already disclosed within the notes to the financial statements, have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements.
 
NOTE 3 - PARTICIPATION IN COSTS AND REVENUES
 
The following table sets forth how the Partnership’s costs and revenues will be charged and credited between the MGP and investors in the Partnership, after deducting from the Partnership’s gross revenues the landowner royalties and any other lease burdens. Some of the line items in the table do not have percentages stated, because the percentages will be determined either by the actual costs incurred by the Partnership to drill and complete its wells or by the final amount of the MGP’s capital contribution to the Partnership, which will not be known until after all of the Partnership’s wells have been drilled and completed.
 
Managing General
            
     
Partner
      
Units Issued
by the
Partnership
  
                 
Partnership costs:
                
Dealer-Manager fee and organization and offering costs, except sales commissions
     100 %     0 %
Sales Commissions (1)
     0 %     100 %
Lease costs
     100 %     0 %
Intangible drilling costs (2)
     0 %     100 %
Equipment costs (3)
     0 %     100 %
Operating, administrative, direct and all other costs
       (4)       (4)
Partnership revenues:
                
Interest income on subscription proceeds (5)
     0 %     100 %
Equipment proceeds (3)
     0 %     100 %
All other revenues including production revenues and other interest income
       (5)(6)(7)       (5)(6)(7)
 
 
1.
The subscription proceeds were used to pay 100% of the sales commissions as discussed in the “Plan Distribution”.
 
2.
The subscription proceeds were used to pay 100% of the intangible drilling costs incurred by the Partnership in drilling and completing its wells.
 
3.
The subscription proceeds of investors in the Partnership were used to pay 100% of the equipment costs incurred by the Partnership in drilling and completing its wells. Equipment proceeds, if any and depreciation will also be allocated 100% to investors in the Partnership.
 
4.
These costs, which will also include plugging and abandonment costs of the wells after the wells have been drilled, produced and depleted, will be charged to the parties in the same ratio as the related production revenues being credited.
 
5.
The subscription proceeds earned interest until the escrow account was broken. This interest was credited to the investors’ account. All other interest income, including interest earned on the deposit of operating revenues, will be credited as natural gas production revenues are credited.
 
6.
The MGP and the investors will share in all of the Partnership’s other revenues in the same percentage that their respective capital contributions bear to the Partnership’s total capital contributions, except that the MGP will receive an additional 8% of the Partnership’s revenues.
 
7.
If a portion of the MGP’s Partnership net production revenue is subordinated, then the actual allocation of Partnership net production revenues between the MGP and the investors will vary from the allocation described in (6) above.
 
NOTE 4 – PARTNERS CAPITAL
 
MDS incurred organization and offering costs of $1,200,080. Offering costs were accounted for as a reduction in the capital contributions as of December 31, 2013. Organizational expenses were expensed by the Partnership. Additionally, MDS contributed leased property valued at $124,987 that was included as a contribution of partners’ capital. MDS is responsible for lease costs and 100% of the organization and offering costs, except sales commissions. Offering and organizational costs incurred by MDS will be recorded as a reduction of capital contributions equal to the costs incurred by MDS through the completion of the Partnership offering, not to exceed 8% of Partnership subscription proceeds.
 
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A unit in the Partnership represents the individual interest of an investor partner in the Partnership. Transfers and assignments of units are restricted.
Furthermore, beginning five years after the offering terminates, investor partners may request that MDS repurchase units provided certain conditions are met.
 
The Partnership Agreement provides that MDS shall review the accounts of the Partnership at least monthly to determine whether cash distributions are appropriate and the amount to be distributed, if any.
 
The Partnership Agreement provides for the enhancement of investor cash distributions if the Partnership does not meet a performance standard defined in the agreement during the first 8 years of operations beginning the earlier of the first full year of operation after all wells begin production or 12 months after the final closing of the Partnership. In general, if the cumulative distributions to the investors is less than 10% of their subscriptions for years 1 through 5 and 7.5% of their subscriptions for years 6 through 8, MDS will subordinate up to 60% of its share, as MGP, of Partnership net production revenues.
 
Subsequent to December 31, 2013, the Partnership received approximately $1,048,000 of cash deposits for subscriptions receivable as of December 31, 2013. Cash on hand at December 31, 2013 was approximately $1,313,000. The MGP advanced to the Partnership approximately $2,361,000 at December 31, 2013, so that the Partnership could pay drilling advances to the drilling contractor. The advance of $2,361,000 was repaid by January 27, 2014.
 
NOTE 5 - RELATED-PARTY ACTIVITIES
 
MDS, through entities under common ownership, will perform drilling, gathering, transportation, well services and gas marketing for the Partnership and will be paid at competitive rates for these services. The MGP will also receive a fully accountable reimbursement for actual administrative costs.   During the quarter ended March 31, 2014, the M G P was paid $961,929 to administer the partial drilling of fourteen wells.
 
NOTE 6 - COMMITMENTS AND CONTINGENCIES
 
Environmental
 
Due to the nature of the natural gas industry, the Partnership is exposed to environmental risks through the services provided to it by affiliated companies.
 
The affiliated companies have various policies and procedures to avoid environmental contamination and mitigate the risks from environmental contamination. The affiliated companies conduct periodic reviews to identify changes in their environmental risk profile. Liabilities are accrued when environmental assessments and/or clean-ups are probable and the costs can be reasonably estimated. The MGP is not aware of any environmental claims existing as of March 31, 2014. However, there can be no assurance that current regulatory requirements will not change or unknown past noncompliance with environmental laws will not be discovered on the affiliated companies’ properties.
 
Legal
 
Neither the Partnership nor the MGP are party to any pending legal proceeding that the MGP believes would have a materially adverse effect on this Partnership’s business, financial condition, results of operations or liquidity.
 
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The following discussion and analysis should be read together with the Partnership’s unaudited condensed balance sheets and related notes thereto set forth in this Quarterly Report on Form 10-Q. Please also refer to the Partnership’s prospectus dated May 2, 2013 for further details regarding the matters discussed below.
 
Forward-Looking Statements
 
When used in this Form 10-Q, the words “believes”, “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. These risks and uncertainties could cause actual results to differ materially from the results stated or implied in this document. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements, as a result of a variety of risks and uncertainties, including those described under “Cautionary Statements Regarding Forward Looking Statements” and “Risk Factors” of the prospectus dated May 2, 2013.
 
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Partnership undertakes no obligation to publicly release the results of any revisions to forward-looking statements which the Partnership  may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
 
Overview
 
Business of the Partnership, the Managing General Partner and Certain Relationships
 
The Partnership will drill primarily development wells which means a well drilled within the proved area of a natural gas or oil reservoir to the depth of a stratigraphic horizon known to be productive. Only vertical natural gas wells in the Marcellus Shale primary area in western Pennsylvania will be drilled, which may produce a small amount of oil. The Partnership Agreement  governs the rights and obligations of the partners. The investment return will depend solely on the operations and success or lack of success of the partnership.
 
The Partnership has been formed as a limited partnership under the Delaware Revised Uniform Limited Partnership Act.  As of December31, 2013, 1,508.53 units had been sold for an aggregate price of $15,001,000
 
The MGP of the Partnership is MDS Energy Development, LLC (“MDS”), a Pennsylvania limited liability company. The MGP’s affiliates, MDS Energy, Ltd. and M/D Gas, Inc., have previously sponsored and serve as MGP of seven private drilling partnerships, in the aggregate. Also, MDS sponsored its first private drilling partnership in 2012 and it may sponsor additional private drilling partnerships.
 
First Class Energy, LLC will provide the necessary services to drill the wells on behalf of the MGP, which will also serve as the Partnership’s general drilling contractor and operator (“driller/operator”) and who will supervise the drilling, completing and operating (administrative, gathering, transportation, well services) of the wells to be drilled by the partnership and will be paid at competitive rates for these services. The gas marketing will be handled by an affiliated company, Snyder Brothers, Inc. The personnel of the driller/operator’s affiliates’ (MDS Energy, Ltd. and First Class Energy LLC) manage and operate the MGP’s business. These affiliates have limited information with respect to the ultimate recoverable reserves and production decline rates of vertical wells drilled in the Marcellus Shale primary area. The MGP and its affiliates will receive substantial fees and profits in connection with the Partnership’s business.
 
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Governance
 
The Partnership has no executive officers and currently does not have any directors. Because the Partnership itself does not employ any persons, the MGP has determined that the Partnership will rely on a Code of Business Conduct and Ethics adopted by MDS that applies to the executive officers, employees and other persons performing services for the MGP.
 
Conflicts of Interest
 
Conflicts of interest are inherent in natural gas and oil partnerships involving non-industry investors because the transactions are entered into without arms’ length negotiation. The interests of the investors and those of the MGP and its affiliates may be inconsistent in some respects, and the MGP’s actions may not be the most advantageous to investors.
 
The MGP does not directly employ any of the persons responsible for its management or operation. Rather, the personnel of MDS Energy, Ltd. and First Class Energy LLC manage and operate the MGP’s business, and they will also spend a substantial amount of time managing their own businesses and affairs as well as the business and affairs of the MGP’s other affiliates, which creates a conflict regarding the allocation of their time between the MGP’s business and affairs and their other business interests. In this regard, each partnership’s policies and procedures for reviewing, approving or ratifying related party transactions with the MGP are set forth in the partnership agreement. The partnership is developing an additional independent review process.
 
Liquidity and Capital Resources
 
Status of the Sale of the Limited Partner Units
 
As of December 31, 2013, 1,508.53 units have been sold for an aggregate purchase price of $15,001,000 of which $13,952,737 was received as of December 31, 2103.  The remaining units purchase price of $1,048,263 was received in the first quarter 2014.
 
Funding of the Proposed Activities
 
The Partnership will depend on the proceeds of the offering and the MGP’s capital contribution to carry out its proposed activities. The MGP paid all of the Partnership’s organization and offering costs (excluding sales commissions) and it contributed all of the leases (but the MGP retained the other lease rights) for each well to be drilled by the Partnership up to 8% of the Partnership’s subscription proceeds.
 
The MGP believes that the Partnership’s liquidity requirements will be satisfied from the proceeds of the offering and the MGP’s capital contributions without additional funds being required for operating costs before the Partnership begins receiving production revenues from its wells.
 
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If the Partnership requires additional funds for cost overruns or additional development or remedial work after a well begins producing, then these funds may be provided by:
 
 
●
subscription proceeds, if available, which will result in the Partnership either drilling fewer wells or acquiring a lesser working interest in one or more wells;
 
 
●
borrowings from the MGP, its affiliates, or third-parties if available on terms deemed reasonable by the MGP; or
 
 
●
retaining Partnership revenues.
 
The amount that may be borrowed by the Partnership from the MGP, its affiliates and third-parties may not at any time exceed 5% of the Partnership’s subscription proceeds and must be without recourse the other investors. Notwithstanding, this limitation will not affect the Partnership’s ability to enter into agreements and financial instruments relating to hedging up to 50% of the Partnership’s natural gas and oil production and pledging up to 100% of the Partnership’s assets and reserves in connection therewith. The Partnership’s repayment of any borrowings would be from its production revenues and would reduce or delay any cash distributions.
 
Participation in Costs and Revenues and Distributions
 
Please refer to Note 3 – Partcivipation in Costs and Revenues for the details of how the Partnership’s costs and revenues will be charged and credited between the MGP and the investors in the Partnership after deducting from the Partnership’s gross revenues the landowner royalties and any other lease burdens. Some of the percentages will be determined either by the actual costs incurred by the Partnership to drill and complete its wells or by the final amount of the MGP’s capital contribution to the Partnership, which will not be known until after all of the Partnership’s wells have been drilled and completed.
 
Availability of Financing to the Managing General Partner and associated entities
 
In January 2013, certain of the wholly-owned companies included in MDS Associated Companies, Inc., an affiliate of the MGP, agreed to revise their existing line of credit with PNC Bank, National Association, to increase the principal amount available from $1 million to $3 million and extend the expiration date to January 10, 2014. In 2013, the principal amount available under the line of credit was increased from $3 million to $5 million and the expiration date was extended to June 30, 2014.  The amount outstanding under this line of credit as of  March 31, 2014   was $3,700,000.  The line of credit is secured by all of the assets of the borrowers, including the MGP’s, except fixtures used in connection with wells and the production and transportation of natural gas and oil from the wells. The obligations of the borrowers under these facilities have been guaranteed by Michael D. Snyder.
 
In addition, MDS Energy, Ltd., an affiliate of the MGP, is a borrower under three financing arrangements (unsecured line of credit, unsecured term note and an unsecured demand note) with David E. Snyder, the father of Michael D. Snyder. As of March 31, 2014 the aggregate principal amount outstanding under these financing arrangements is $3,100,000, which may increase or decrease in the future. The unsecured line credit is for $5,000,000 and borrowings bear interest at the prime lending rate less 1.25%. The outstanding balance is $1,525,000 and is payable on demand. The unsecured term note bears interest at the prime lending rate less 1.75% and the outstanding balance is $125,000 and is payable in monthly installments of $75,000 plus interest. The unsecured demand note bears interest at the Federal Fund target Rate plus 1% with a 2.5% floor and the outstanding balance is $1,450,000 and is payable on demand with interest payable quarterly. The financing arrangements are subordinated to MDS Energy, Ltd.’s obligations to PNC Bank, National Association, under the lines of credit described in the preceding paragraph.
 
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Critical Accounting Policies
 
The discussion and analysis of the Partnership’s financial condition is based upon the Partnership’s condensed balance sheets, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The Partnership will base its estimates on historical experience and on various other assumptions that it believe reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Partnership will evaluate its estimates on an on-going basis.
 
Actual results may differ from these estimates under different assumptions or conditions. A discussion of significant accounting policies the Partnership has adopted and followed in the preparation of its financial statements is included within “Notes to Financial Statements” in Part I, Item 1, “Financial Statements” in this quarterly report and in its Form 10-K dated March 17, 2014.
 
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Evaluation of Disclosure Controls and Procedures
 
The MGP on behalf of the Partnership, with the participation of the MGP’s management, including the Chief Executive Officer and President and the Chief Financial Officer, evaluated the effectiveness of the Partnership’s disclosure controls and procedures as of March 31, 2014. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Partnership’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
 
Under the supervision of our Chief Executive Officer and President, and Chief Financial Officer, the MGP has carried out an evaluation of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the MGP’s management, including the Chief Executive Officer and President and the Chief Financial Officer concluded that, at March 31, 2014, thie Partnership’s disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in the Partnership’s internal control over financial reporting for the Partnership during the three months ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
 
As an emerging growth company, the Partnership is exempt from the requirement to obtain an attestation report from the Partnership’s independent registered public accounting firm on the assessment of the Partnership’s internal controls pursuant to the Sarbanes-Oxley Act of 2002 until 2018, or such time that the Partnership no longer qualifies as an emerging growth company in accordance with the Jumpstart Our Business Startups Act of 2012.
 
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PART II OTHER INFORMATION
   
ITEM 1.
 
The MGP is not aware of any legal proceedings filed against the Partnership.
 
Affiliates of the MGP are party to various routine legal proceedings arising in the ordinary course of their collective business. The MGP’s management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the MGP’s or Partnership’s financial condition or results of operations.
 
 
Not applicable.
 
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ITEM 6.
 
EXHIBIT INDEX
 
       
Incorporated by Reference
      
Exhibit No.
  
Description
  
Form
  
SEC File
Number
  
Exhibit
  
Filing
Date
  
Filed Herewith
  
                           
4.2
  
Certificate of Limited Partnership for MDS Energy Public 2013-A LP
  
10-Q
  
333-181993-02
  
4.2
  
6/10/2013
      
                           
31.1
  
Rule 13(a)-14(a) Certification of Principal Executive Officer.
                  
Filed herewith
  
                           
31.2
  
Rule 13(a)-14(a) Certification of Principal Financial Officer.
                  
Filed herewith
  
                           
32
  
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
                  
Filed herewith
  
                           
101.INS
  
XBRL Instance document
                  
Filed herewith
  
                           
101.SCH
  
XBRL Taxonomy Extension Schema Document
                  
Filed herewith
  
                           
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
                  
Filed herewith
  
                           
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
                  
Filed herewith
  
                           
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
                  
Filed herewith
  
                           
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
                  
Filed herewith
  
                           
Incorporate all by reference into the document rather than attach
              
 
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SIGNATURES
 
Pursuant to the requirements of the Securities of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  MDS ENERGY PUBLIC 2013 - A LP
 
By:
  
 
MDS Energy Development, LLC, Managing General Partner
     
Date: May 15, 2014
By:
/s/ Michael D. Snyder
   
Michael D. Snyder, Chief Executive Officer and President
 
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.
     
Date: May 15, 2014
By:
/s/ Anthony J. Crisafio
   
Anthony J. Crisafio, Interim Part-Time Chief Financial Officer
 
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MDS ENERGY PUBLIC 2013-A LP Reports