UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Period Ended June 30, 2005
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 000-22847
AMEN Properties, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1831588
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 W. Wall Street, Suite 2300
Midland, TX 79701
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(Address of Principal Executive Offices)
(432-684-3821)
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) 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 periods 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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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 practical date: Common Stock, $ .01 Par Value:
2,201,356 shares outstanding as of July 31, 2005.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Explanatory Note
This Amendment No. 1 on Form 10-QSB/A (the "Amendment") amends the Quarterly
Report on Form 10-QSB of Amen Properties, Inc. (the "Company") for the period
ended June 30, 2005 which was filed on August 12, 2005 (the "Original Report").
This Amendment is being filed to include an amendment and restatement of Part II
Item 6 Management's Discussion and Analysis or Plan of Operation, Item 7
Financial Statements, and Item 8a Controls and Procedures. This amendment is
being filed to modify the Company's previously reported financial statements to
show the disposition of the Lubbock Building as a discontinued business
component in the Company's previously issued consolidated financial statements
and in management's discussion and analysis and to clarify management's
evaluation f its controls and procedures.
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheet at June 30, 2005 (Unaudited) 1
Consolidated Statement of Operations--for the three and six months ended
June 30, 2005 and 2004 (Unaudited) 2
Consolidated Statement of Cash Flows-- for the six months ended
June 30, 2005 and 2004 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 21
Item 3. Controls and Procedures 29
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 32
Item 6. Exhibits 32
Signatures 34
Exhibits 35
11. Computation of Earnings Per Share.
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss. 1350.
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (notes A4, D and F) $ 2,989,596
Accounts receivable (notes A7 and A14) 850,282
Other current assets 153,597
Total current assets ----------------- $ 3,993,475
RESTRICTED CERTIFICATE OF DEPOSIT (note G) 2,100,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation of $1,052,270 (notes A8, A9 and I) 8,232,560
ROYALTY INTERESTS, at cost net of accumulated depletion
of $ 19,771 (notes A8, A9 and E) 143,083
LONG-TERM INVESTMENTS (notes A5 and F) 62,350
OTHER ASSETS
Note receivable (note H) 241,555
Deferred costs (note A10) 41,525
Deposits and other assets 706,512
Total other assets ----------------- 989,592
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TOTAL ASSETS $ 15,521,060
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 682,157
Accrued liabilities (note J) 360,291
Current portion of long-term obligations (note M) 250,155
Accrued interest payable 34,634
Deferred revenue 68,683
Total current liabilities ----------------- $ 1,395,920
LONG-TERM OBLIGATIONS, less current portion (note M) 7,347,057
DEFERRED REVENUE 47,833
MINORITY INTEREST (note A12) 289,248
COMMITMENTS AND CONTINGENCIES (note O) -
STOCKHOLDERS' EQUITY (note C)
Convertible preferred stock, $.001 par value, 5,000,000 shares authorized;
80,000 Series "A" shares issued and outstanding, convertible into
a total of 616,447 shares of common stock at the
option of the holders (note A13) 80
80,000 Series "B" shares issued and outstanding, convertible into
a total of 233,317 shares of common stock at the
option of the holders (note A13) 80
125,000 Series "C" shares issued and outstanding, convertible into
a total of 500,000 shares of common stock at the
option of the holders (note A13) 125
Common stock, $.01 par value, 20,000,000 shares authorized;
2,201,356 shares issued and outstanding 22,014
Common stock warrants 127,660
Additional paid-in capital 44,481,382
Accumulated deficit (38,190,339)
Total stockholders' equity ----------------- 6,441,002
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,521,060
=============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months Ended June 30,
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
As Restated As Restated
----------- ----------- ----------- -----------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Operating Revenue
Rental revenue $ 672,137 $ 588,687 $ 1,342,319 $ 1,179,709
Retail electricity revenue 1,125,596 -- 1,436,385 --
----------- ----------- ----------- -----------
Total operating revenue 1,797,733 588,687 2,778,704 1,179,709
----------- ----------- ----------- -----------
Operating Expense
Cost of goods and services 1,143,727 -- 1,423,375 --
Rental property operations 452,447 324,249 858,109 633,372
General and administrative 223,579 120,493 430,565 213,540
Depreciation, amortization and depletion 104,671 74,990 196,506 145,425
----------- ----------- ----------- -----------
Total operating expenses 1,924,424 519,732 2,908,555 992,337
----------- ----------- ----------- -----------
(Loss) income from operations (126,691) 68,955 (129,851) 187,372
----------- ----------- ----------- -----------
Other (expense) income
Interest income 15,693 2,603 27,537 6,054
Interest expense (148,149) (147,183) (262,495) (280,592)
Loss on sale of investments -- -- -- (509)
Other income 43,578 15,594 26,414 32,985
----------- ----------- ----------- -----------
Total other (expense) income (88,878) (128,986) (208,544) (242,062)
----------- ----------- ----------- -----------
(Loss) from continuing operations before income taxes
and minority interest (215,569) (60,031) (338,395) (54,690)
----------- ----------- ----------- -----------
Income taxes (note A10) -- -- -- --
Minority interest 4,231 (28,411) (36,593) (61,918)
----------- ----------- ----------- -----------
Net (loss) from continuing operations (211,338) (88,442) (374,988) (116,608)
Net income from discontinued business component (note K)
-- 117,535 -- 238,307
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (211,338) $ 29,093 $ (374,988) $ 121,699
=========== =========== =========== ===========
Net (loss) income per common share (basic)
Net loss from continuing operation $ (.10) $ (.04) $ (.17) $ (.05)
Net income from discontinued business component -- .05 -- .11
----------- ----------- ----------- -----------
Net (loss) income $ (.10) $ .01 $ (.17) $ .06
=========== =========== =========== ===========
Net (loss) income per common share (diluted)
Net loss from continuing operation $ (.10) $ (.03) $ (.17) $ (.04)
Net income from discontinued business component -- .04 -- .08
----------- ----------- ----------- -----------
Net (loss) income $ (.10) $ .01 $ (.17) $ .04
=========== =========== =========== ===========
Weighted average number of common shares outstanding - basic 2,201,356 2,201,356 2,201,356 2,201,356
=========== =========== =========== ===========
Weighted average number of common shares outstanding - diluted 2,201,356 3,051,120 2,201,356 3,051,120
=========== =========== =========== ===========
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
2
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30,
(Unaudited)
As Restated
2005 2004
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net (loss) income $ (374,988) $ 121,699
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation, amortization and depletion 196,506 145,425
Loss on sale of investments -- 520
Minority interest 36,593 61,918
Changes in operating assets and liabilities:
Accounts receivable (777,547) (12,709)
Deposits and other assets (634,512) (49,691
Deferred costs (76,198) --
Accounts payable 567,053 43,344
Accrued and other liabilities (211,375) (25,111)
Deferred revenue 46,389 (13)
Discontinued business component (note K) -- 98,881
----------- -----------
Net cash (used in) provided by operating activities (1,228,079) 384,263
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (424,348) (29,594)
Sales and maturity of investments -- 50,000
Purchase of royalty interests -- (162,854)
Acquisition of limited partnership interest (note B) -- (208,346)
Repayments of notes receivable 8,000 5,556
Purchases of discontinued business component property and equipment -- (906)
----------- -----------
Net cash used in investing activities (416,348) (346,144)
----------- -----------
Cash flows from financing activities:
Repayments of notes payable (1,513,877) (101,025)
Net proceeds from issuance of preferred stock 2,000,000 --
Minority interest distributions -- (129,905)
----------- -----------
Net cash provided by (used in) financing activities 486,123 (230,930)
----------- -----------
Net decrease in cash and cash equivalents (1,158,304) (192,811)
Cash and cash equivalents at beginning of period 4,147,900 2,741,527
----------- -----------
Cash and cash equivalents at end of period $ 2,989,596 $ 2,548,716
=========== ===========
Non - cash investing and financing activities:
In January 2004, the Company acquired additional interest with a note
payable to the sellers (see note B) -- $ 250,778
=========== ===========
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
3
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
1. Organization
Effective October 2002, AMEN formed NEMA Properties, LLC ("NEMA"), a Nevada
limited liability company; AMEN Minerals, LP ("Minerals"), a Delaware limited
partnership; and AMEN Delaware, LP ("Delaware"), a Delaware limited partnership,
to pursue acquisitions as authorized by stockholders on September 19, 2002. AMEN
Properties, Inc. and Subsidiaries is a self-administered and self-managed
Delaware corporation. Effective July 2004, AMEN Properties, Inc. and
Subsidiaries and affiliates (collectively referred to as the "Company") formed W
Power and Light, LP ("W Power"), a Delaware limited partnership to enter into
the retail electricity market in Texas.
The Company's business purpose is to acquire investments in commercial real
estate, oil and gas royalties, retail electricity operations and stabilized cash
flowing businesses or assets. As of June 30, 2005, the Company, through
Delaware's investment in a limited partnership, has a commercial real estate
portfolio consisting of majority ownership in two office properties located in
Midland, Texas comprising an aggregate of approximately 428,560 square feet of
gross leasable area. The investment was obtained through Delaware's acquisitions
of a partnership interest in TCTB Partners, Ltd. ("TCTB") a Texas limited
partnership, totaling approximately 71.3%. Through its investment in Minerals,
AMEN has acquired an investment interest in an oil and gas royalty trust and
other oil and gas royalties. Through the Company's investment in W Power, Amen
entered the retail electricity market in the state of Texas. The real estate
operations of the Company are primarily conducted through Delaware of which AMEN
is the sole general partner and the retail electricity operations are primarily
conducted through W Power of which Amen is the sole general partner.
2. Restatement of Previously Issued Financial Statements
The consolidated financial statements for the three months and six months ended
June 30, 2004 are restated to reflect the reclassification of the operations of
a certain discontinued business component, see Note K.
Effects on the Consolidated Statement of Operations for the three months and six
months ended June 30, 2004:
Three months ended June 30, 2004 As previously
reported As restated
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Revenue $ 1,073,582 $ 588,687
Operating expenses 839,083 519,732
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Income from operations 234,499 68,955
Other income (expense) (128,986) (128,986)
Minority interest (76,420) (28,411)
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Net loss from continuing operations 29,093 (88,442)
Net income from discontinued business component - 117,535
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Net income $ 29,093 $ 29,093
================== ==============
4
Six months ended June 30, 2004 As previously
reported As restated
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Revenue $ 2,147,882 $ 1,179,709
Operating expenses 1,624,886 992,337
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Income from operations 522,996 187,372
Other income (expense) (242,062) (242,062)
Minority interest (159,235) (61,918)
------------------ --------------
Net income (loss) from continuing operations 121,699 (116,608)
Net income from discontinued business component - 238,307
------------------ --------------
Net income $ 121,699 $ 121,699
================== ==============
3. Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its majority-owned/controlled subsidiaries and affiliates. Intercompany balances
and transactions have been eliminated.
Management uses estimates and assumptions in preparing the consolidated
financial statements in accordance with accounting principles generally accepted
in the United States of America. Those estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses in the
consolidated financial statements, and the disclosure of contingent assets and
liabilities. Actual results could differ from these estimates.
4. Cash Equivalents
The Company considers cash on hand, cash on deposit in banks, money market
mutual funds and highly liquid debt instruments purchased with a maturity of
three months or less to be a cash equivalent.
5. Investments
The Company invests in U.S. government bonds and treasury notes, municipal
bonds, certificates of deposit and corporate bonds. Investments with original
maturities greater than three months but less than twelve months from the
balance sheet date are short-term investments. Those investments with original
maturities greater than twelve months from the balance sheet date are long-term
investments.
5
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
The Company's marketable securities are classified as available-for-sale as of
the balance sheet date, and are reported at fair value with unrealized gains and
losses, net of tax, recorded in stockholders' equity. Realized gains or losses
and permanent declines in value, if any, on available-for-sale investments are
reported in other income or expense as incurred.
6. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, investments, accounts
receivable, notes receivable, and accounts payable approximate fair value
because of the relatively short maturity of these instruments. The fair value of
the fixed rate debt, based upon current interest rates for similar debt
instruments with similar payment terms and expected payoff dates, would be
approximately $7,189,979 as of June 30, 2005. Disclosure about fair value of
financial instruments is based on pertinent information available to management
as of June 30, 2005.
7. Accounts Receivable
Management regularly reviews tenant accounts receivable and estimates the
necessary amounts to be recorded as an allowance for uncollectibility. These
reserves are established on a tenant-specific basis and are based upon, among
other factors, the period of time an amount is past due and the financial
condition of the obligor.
Unbilled revenue is accrued based on the estimated amount of unbilled power
delivered to customers using the average customer billing rates. Unbilled
revenue also includes accruals for estimated Transmission and Distribution
Service Provider ("TDSP") charges and monthly service charges applicable to the
estimated usage for the period.
As of June 30, 2005, the Company's billed account receivables did not have
adequate historical data in order to determine an allowance for doubtful
accounts related to the retail electricity billed revenue. Due to this lack of
historical date the Company estimated the allowance for doubtful accounts
related to the retail electricity revenue to be thirty-three percent of accounts
receivable greater than sixty days but less than ninety days and sixty-six
percent of accounts older than ninety days but less than one hundred and twenty
days.
At June 30, 2005, accounts receivable consisted of the following:
Tenant receivables $ 50,093
Billed electricity receivables 112,554
Unbilled electricity receivables 630,993
Other receivables 57,375
Allowance for doubtful accounts (733)
----------------
Accounts receivable, net $ 850,282
8. Depreciation, Amortization and Depletion
Property, plant and equipment are stated at cost. Depreciation is determined
using the straight-line method over the estimated useful lives ranging from
three to forty years. Leasehold improvements are amortized over the shorter of
the life of the asset or the remaining lease term. Intangible assets are
amortized over the useful lives of five to ten years using the straight-line
method. Costs for the repair and maintenance of property and equipment are
expensed as incurred. Royalty acquisitions are stated at cost. Depletion is
determined using the units-of-production method based on the estimated oil and
gas reserves.
6
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
9. Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value of
its long-lived assets and identifiable intangibles by monitoring and evaluating
changes in circumstances that may indicate that the carrying amount of the asset
may not be recoverable. Examples of events or changes in circumstances that
indicate that the recoverability of the carrying amount of an asset should be
assessed include but are not limited to the following: a significant decrease in
the market value of an asset, a significant change in the extent or matter in
which an asset is used or a significant physical change in an asset, a
significant adverse change in legal factors or in the business climate that
could affect the value of an asset or an adverse action or assessment by a
regulator, an accumulation of costs significantly in excess of the amount
originally expected to acquire or construct an asset, and/or a current period
operating or cash flow loss combined with a history of operating or cash flow
losses or a projection or forecast that demonstrates continuing losses
associated with an asset used for the purpose of producing revenue. The Company
considers historical performance and anticipated future results in its
evaluation of potential impairment. Accordingly, when indicators or impairments
are present, the Company evaluates the carrying value of these assets in
reaction to the operating performance of the business and future discounted and
nondiscounted cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of expected future cash flows are
less than the assets' carrying value.
10. Deferred Costs
Deferred costs primarily consist of deferred financing costs. Deferred financing
costs are amortized as interest expense over the life of the related debt.
11. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
12. Minority Interest
Minority interest represents the interest of unit holders of TCTB, other than
the Company, in the net earnings and net equity of TCTB. The unit holder
minority interest is adjusted at the end of each period to reflect the ownership
at that time. The unit holder minority interest in TCTB was approximately 28.7%
at June 30, 2005 and 2004.
13. Contingently Convertible Securities
The Company has outstanding Series A Preferred Stock ("Series A"), Series B
Preferred Stock ("Series B") and Series C Preferred Stock ("Series C") whose
terms enable the holder, under certain conditions, to convert such securities
into 1,349,764 shares of the Company's Common Stock as shown in the following
table.
7
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Number of Purchase Number of Common
Series Shares Price Conversion Rate Shares
---------- ---------- --------------- ------------------ ------------------
A 80,000 $ 2,000,000 $ 3.2444 616,447
B 50,000 500,000 3.2444 154,111
B 10,000 100,000 3.424 29,206
B 20,000 200,000 4.000 50,000
C 125,000 2,000,000 4.000 500,000
Conversion of Series A, Series B and Series C is at the option of the holder
thereof, at any time and from time to time, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the original
Series A, Series B and Series C issue price by the conversion price in effect at
the time of conversion. The contingently convertible securities have not been
included in the calculation of diluted earnings per share where their effect is
antidilutive.
14. Revenue and Cost Recognition
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are recognized on a straight-line basis over the terms of the respective
leases. As of June 30, 2005, there were no deferred tenant receivables.
The Company records electricity sales under the accrual method and these
revenues are recognized upon delivery of electricity to the customers' meters.
Electric services not billed by month-end are accrued based upon estimated
deliveries to customers as tracked and recorded by the Electric Reliability
Council of Texas ("ERCOT") multiplied by the Company's average billing rate per
kilowatt hour ("kwh") in effect at the time.
The flow technique of revenue calculation relies upon ERCOT settlement
statements to determine the estimated revenue for a given month. Supply
delivered to our customers for the month, measured on a daily basis, provides
the basis for revenues. ERCOT provides net electricity delivered data in three
frames. Initial daily settlements become available approximately 17 days after
the day being settled. Approximately 45 days after the day being settled, a
resettlement is provided to adjust the initial settlement to the actual supply
delivered based on subsequent comparison of prior forecasts to actual meter
reads processed. A final resettlement is provided approximately 180 days after
power is delivered, marking the last routine settlement adjustment to the power
deliveries for that day.
Sales represent the total proceeds from energy sales, including pass through
charges from the TDSPs billed to the customer at cost. Cost of goods and
services ("COGS") include electric power purchased, sales commissions, and pass
through charges from the TDSPs in the areas serviced by the Company. TDSP
charges are costs for metering services and maintenance of the electric grid.
TDSP charges are determined by regulated tariffs established by the Public
Utility Commission of Texas ("PUCT").
8
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Bilateral wholesale costs are incurred through contractual arrangements with
wholesale power suppliers for firm delivery of power at a fixed volume and fixed
price. The Company is typically invoiced for these wholesale volumes at the end
of each calendar month for the volumes purchased for delivery during the month,
with payment due 10 to 20 days after the end of the month.
Balancing/ancillary costs are based on the aggregate customer load and are
determined by ERCOT through a multiple step settlement process. Balancing
costs/revenues are related to the differential between supply provided by the
Company through its bilateral wholesale supply and the supply required to serve
the Company's customer load. The Company endeavors to minimize the amount of
balancing/ancillary costs through its load forecasting and forward purchasing
programs.
15. Earnings Per Share
There were no preferred stock dividends for the periods ended June 30, 2005 or
2004. The effects of Series A, Series B and Series C convertible Preferred Stock
is not included in the computation of diluted earnings per share for any periods
in which their effect is antidilutive.
16. Environmental
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws regulate asbestos in buildings that require the
Company to remove or mitigate the environmental effects of the disposal of the
asbestos at the buildings.
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Costs are expensed when they relate to an existing
condition caused by past operations and will not contribute to current or future
revenue generation. Liabilities related to environmental assessments and/or
remedial efforts are accrued when property or services are provided or can be
reasonably estimated.
17. New Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board (FASB) issued a
revised Interpretation No. 46, Consolidation of Variable Interest Entities,
replacing the original Interpretation issued in January 2003. The revised
Interpretation provides guidance on when certain entities should be consolidated
or the interests in those entities should be disclosed by enterprises that do
not control them through majority voting interest. Under the revised
Interpretation, entities are required to be consolidated by enterprises that
lack majority voting interest when equity investors of those entities have
insignificant capital at risk or they lack voting rights, the obligation to
absorb expected losses, or the right to receive expected returns. Entities
identified with these characteristics are called variable interest entities and
the interests that enterprises have in these entities are called variable
interests. These interests can derive from certain guarantees, leases, loans or
other arrangements that result in risks and rewards that are disproportionate to
the voting interests in the entities. The provisions of the revised
Interpretation must be immediately applied for variable interest entities
created after January 31, 2003 and for variable interests in entities commonly
referred to as "special purpose entities." For all other variable interest
entities, implementation is required by March 31, 2004.
9
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
In July 2003, the FASB issued SFAS No. 149, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149 amends and clarifies SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149
improves financial reporting of derivatives by requiring contracts with
comparable characteristics be accounted for similarly. This Statement also
incorporates clarifications of the definition of a derivative. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003. Management
will consider the impact of this Statement on its financial statements for
future periods.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
requires that an issuer classify a financial instrument that is within its scope
as a liability. Many of those instruments were previously classified as equity
such as common or preferred shares that are mandatorily redeemable-that embody
an unconditional obligation requiring the issuer to redeem the shares by
transferring its assets at a specified date or upon an event that is certain to
occur. The provisions of this Statement shall be effective for the first fiscal
period beginning after December 15, 2004.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs. SFAS No. 151
amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted material (spoilage). This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition, the
Statement requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of this Statement are effective for inventory costs incurred during
fiscal years beginning after June 15, 2005, with early application encouraged.
In December 2004, the FASB issued Statement No. 123 (revised), Accounting for
Stock-Based Compensation. This Statement eliminates the alternative to use
Accounting Principles Board (APB) Opinion No. 25's intrinsic value method of
accounting. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
instruments. An entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant date fair value
of those instruments, except in certain circumstances. The provisions of this
interpretation become effective as of the beginning of the first annual
reporting period that begins after December 15, 2005.
In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions. This Statement amends SFAS No. 66 and SFAS No. 67 to
state the guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing transactions.
The accounting for those operations and costs is subject to the guidance in
Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005.
10
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets.
This Statement amends APB Opinion No. 29, to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. The provisions of this Statement shall be effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005.
In May 2004, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. This Statement replaces APB Opinion 20 and FASB Statement No.3 and
changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. The provisions of
this Statement shall be effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.
Management does not believe the new pronouncements will have a material impact
on its financial statements.
18. Reclassifications
Certain reclassifications of prior period amounts have been made to conform to
the 2005 presentation.
NOTE B - BUSINESS COMBINATIONS
In January 2004, the Company purchased an additional 6.485% limited partnership
interest in TCTB by issuing debt of $250,778 (see note M) and a cash payment of
$208,346. The allocation of the purchase price resulted in the Company recording
an increase in property, plant and equipment of $269,843 and reducing the
minority interest investment by $189,281.
NOTE C - ISSUANCE OF SERIES C PREFERRED STOCK
On February 3, 2005, the Company finalized an agreement involving a private
placement under Regulation D for the new Series C Preferred Stock and common
stock purchase warrants (the "Warrants") to accredited investors (the "Purchase
Agreement"). The Company closed the sale and issuance of 125,000 Series C
Preferred Stock and 250,000 Warrants pursuant to the Purchase Agreement, as
amended by the Second Amendment (the "Amended Purchase Agreement"), on March 1,
2005. The purchase price consisted of a total of $2 million in cash and limited
guaranties from the investors in favor of Western National Bank covering the
credit facility described in Note L. No underwriting discounts or commissions
were paid in connection with this issuance. Certain facts related to the
exemption from registration of the issuance of the securities under securities
law are set forth in the Amended Purchase Agreement as representations of the
investors, including without limitation their investment intent, their status as
accredited investors, the information provided to them, the restricted nature of
the securities, and similar matters.
11
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
The Series C ranks equally to the Company's outstanding Series A and the
outstanding Series B and prior to the Common Stock, par value $.01 per share, of
the Company (the "Common Stock") upon liquidation of the Company. The Series A,
Series B, Series C and the Common Stock are equal as to the payment of
dividends. Each share of Series C is convertible into four shares of Common
Stock, for a total of 500,000 shares, subject to adjustment pursuant to
anti-dilution provisions. The Warrants are exercisable into a total of 250,000
shares of Common Stock at an initial exercise price of $4.00 (also subject to
adjustment pursuant to anti-dilution provisions), and expire three years from
the date of issuance.
NOTE D - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at three financial institutions, which at
times may exceed federally insured limits. At June 30, 2005, the Company had
approximately $2,566,361 of uninsured cash and cash equivalents. The Company has
not experienced any losses in such accounts and believes that it is not exposed
to any significant credit risks on such accounts.
The Company's revenues are derived principally from uncollateralized rents from
tenants and retail power customers. The concentration of credit risk in two
industries affects its overall exposure to credit risk because tenants/customers
may be similarly affected by changes in economic and other conditions.
NOTE E - ROYALTY INTERESTS
In 2004, the Company, through its wholly-owned subsidiary Amen Minerals, LP,
completed the acquisition of two separate royalty interests, one in the state of
Texas and one in the state of Oklahoma. The total consideration paid by the
Company for the royalty interests was $162,854. Under accounting principles
generally accepted in the United States of America, revenues and expenses are
recognized on an accrual basis. Royalty income is generally received one to two
months following the month of production and the Company used estimates to
accrue royalty income for the quarters ended June 30, 2005 and 2004.
NOTE F - CASH, CASH EQUIVALENTS AND INVESTMENTS
At June 30, 2005, the Company's cash and cash equivalents consist of cash in
banks of approximately $2,989,596.
12
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Securities available-for-sale in the accompanying consolidated balance sheet at
June 30, 2005 total $62,350. The aggregate market value, cost basis, and
unrealized gains and losses of securities available-for-sale, by major security
type as of June 30, 2005 are as follows:
Gross
Market Cost Unrealized
Value Basis Losses
As of June 30, 2005: --------------- ------------- -------------
Other securities $ 62,350 $ 62,350 $ -
=============== ============= ==============
NOTE G - RESTRICTED CERTIFICATE OF DEPOSIT
The Company holds a $2,100,000 certificate of deposit with a financial
institution which bears interest of 1.98% and matures on December 28, 2005. The
certificate of deposit collateralizes the term note with a financial institution
(see note M) and is restricted. The certificate of deposit is recorded at cost,
which approximates market value. The certificate is non-negotiable and
non-transferable, and may incur substantial penalties for withdrawal prior to
maturity.
NOTE H - NOTE RECEIVABLE
On December 13, 2002, the Company received a note receivable in the amount of
$275,000, with an annual interest rate of 6.00%, from a third-party for the sale
of substantially all assets associated with a direct mail advertising service.
The note receivable is due in quarterly installments, beginning April 10, 2003,
equal to 20% of the gross profit from operations for the prior calendar quarter
period, with all remaining unpaid principal and interest due on January 10,
2010. As of June 30, 2005, the outstanding principal balance on the note
receivable was $241,555. Because the current maturities are not reasonably
estimable at June 30, 2005, the entire principal balance is reported as
non-current.
NOTE I - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, consisted of the following at June 30, 2005:
Buildings $ 8,447,862
Furniture, fixtures and equipment 114,190
Tenant improvements 563,781
Land 158,997
----------------
9,284,830
Less: accumulated depreciation (1,052,270)
----------------
$ 8,232,560
================
Depreciation expense for six months ended June 30, 2005 and 2004 was $196,506,
and $217,501, respectively.
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at June 30, 2005:
Accrued property taxes $ 92,672
Accrued TDSP Charges 155,020
Other accrued liabilities 112,599
----------------
$ 360,291
================
13
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
NOTE K - DISCONTINUED BUSINESS COMPONENT
On January 4, 2004, the Company announced that, effective December 31, 2004 the
TCTB partners agreed to distribute its Lubbock, Texas office building to the
TCTB partners and simultaneously sell their interest in the asset to an entity
partially owned by certain TCTB Partners. Accordingly, as discussed in note A2,
the operations of the Lubbock, Texas office building are reported as a
discontinued business component.
In accordance with an Agreement to Distribute Assets, effective December 31,
2003, the Lubbock office building (the `Property") was distributed to the TCTB
partners according to their partnership sharing ratios. The Property and two
other Midland, Texas office properties owned by TCTB were subject to a lien
securing TCTB's note payable to Wells Fargo Bank Texas, N.A., (see note M). The
Bank agreed to release its lien on the Property in exchange for a $2,100,000
restricted certificate of deposit, (see note G), pledged by TCTB to the Bank as
additional collateral. Immediately following the Property distribution, the
Company and the selling minority interest partners agreed to see their undivided
interest in the Property in accordance with a Purchase Agreement, to 1500
Broadway Partners, Ltd., a limited partnership, in which certain TCTB limited
partners are partners and are tenants in one of TCTB's Midland office buildings.
NOTE L - OPERATING SEGMENTS
On July 30, 2004, the Company formed and initiated the development of W Power. W
Power was established to enter into the retail electricity market in Texas. The
formation of W Power resulted in the diversification of the Company's business
activities into two reportable segments: real estate operations and a retail
electricity provider (REP). The real estate operations consist of two office
properties located in Midland, Texas and comprise an aggregate of approximately
428,560 square feet of gross leaseable area. The REP segment will sell
electricity and provide the related billing, customer service, collection and
remittance services to both residential and commercial customers.
Each segment's accounting policies are the same as those described in the
summary of significant accounting policies and the following tables reflect
totals for the three and six months ended June 30, 2005 and 2004, respectively.
Three months ended June 30, 2005:
CONTINUING DISCONTINUED INTERCOMPANY
REAL ESTATE REAL ESTATE OTHER AND TRANSACTION CONSOLIDATED
REP OPERATIONS COMPONENT CORPORATE ELIMINATIONS TOTAL
------------ ------------ ---------------- ------------ ------------ -------------
Revenues from external
customers $ 1,125,596 $ 672,137 $ -- -- $ -- $ 1,797,733
============ ============ ================ ============ ============ =============
Revenues from other
operating segments $ 177,295 $ 4,987 $ -- -- $ (182,282) $ --
============ ============ ================ ============ ============ =============
Depreciation, amortization
and depletion $ 1,778 $ 75,777 $ -- 27,116 $ -- $ 104,671
============ ============ ================ ============ ============ =============
Interest expense $ 11,667 $ 168,477 $ -- 8,918 $ (40,913) $ 148,149
============ ============ ================ ============ ============ =============
Segment net
income (loss) $ (179,610) $ (14,766) $ -- (45,302) $ 28,340 $ (211,338)
============ ============ ================ ============ ============ =============
Segment assets $ 1,664,153 $ 7,420,442 $ -- 6,828,318 $ (391,853) $ 15,521,060
============ ============ ================ ============ ============ =============
Expenditures for
segment assets $ 8,369 $ 51,959 $ -- 2,891 $ -- $ 63,219
============ ============ ================ ============ ============ =============
14
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Three months ended June 30, 2004:
CONTINUING DISCONTINUED INTERCOMPANY
REAL ESTATE REAL ESTATE OTHER AND TRANSACTION CONSOLIDATED
REP OPERATIONS COMPONENT CORPORATE ELIMINATIONS TOTAL
------------ ------------ ---------------- ------------ ------------ -------------
Revenues from external
customers $ -- $ 588,687 484,895 $ -- $ -- $ 1,073,582
============ ============ ================ ============ ============ ============
Revenues from other
operating segments $ -- $ -- -- $ -- $ -- $ --
============ ============ ================ ============ ============ ============
Depreciation, amortization
and depletion $ -- $ 45,183 36,058 $ 29,807 $ -- $ 111,048
============ ============ ================ ============ ============ ============
Interest expense $ -- $ 115,190 -- $ 31,993 $ -- $ 147,183
============ ============ ================ ============ ============ ============
Segment net income (loss) $ -- $ 149,185 117,534 $ (237,626) $ -- $ 29,093
============ ============ ================ ============ ============ ============
Segment assets $ -- $ 5,950,827 4,263,063 $ 5,080,170 (166,870) $15,127,190
============ ============ ================ ============ ============ ============
Expenditures for
segment assets $ -- $ 3,994 -- $ 1,452 $ -- $ 5,446
============ ============ ================ ============ ============ ============
Six months ended June 30, 2005:
CONTINUING DISCONTINUED INTERCOMPANY
REAL ESTATE REAL ESTATE OTHER AND TRANSACTION CONSOLIDATED
REP OPERATIONS COMPONENT CORPORATE ELIMINATIONS TOTAL
------------ ------------ ---------------- ------------ ------------- -------------
Revenues from external
customers $ 1,436,385 $ 1,342,319 $ -- $ -- $ -- $ 2,778,704
============ ============ ================ ============ ============ ============
Revenues from other
operating segments $ 272,826 $ 13,300 $ -- $ -- $ (286,126) $ --
============ ============ ================ ============ ============ ============
Depreciation, amortization
and depletion $ 3,300 $ 138,762 $ -- $ 54,444 $ -- $ 196,506
============ ============ ================ ============ ============ ============
Interest expense $ 22,895 $ 222,571 $ -- $ 91,184 $ (74,155) $ 262,495
============ ============ ================ ============ ============ ============
Segment net income (loss) $ (264,627) $ 127,715 $ -- $ (215,232) $ (22,844) $ (374,988)
============ ============ ================ ============ ============ ============
Segment assets $ 1,664,153 $ 7,420,442 $ -- $ 6,828,318 $ (391,853) $ 15,521,060
============ ============ ================ ============ ============ ============
Expenditures for
segment assets $ 15,495 $ 403,371 $ -- $ 5,482 $ -- $ 424,348
============ ============ ================ ============ ============ ============
15
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Six months ended June 30, 2004:
CONTINUING DISCONTINUED INTERCOMPANY
REAL ESTATE REAL ESTATE OTHER AND TRANSACTION CONSOLIDATED
REP OPERATIONS COMPONENT CORPORATE ELIMINATIONS TOTAL
------------ ------------ ---------------- ------------ ------------ -------------
Revenues from
external customers $ -- $ 1,179,709 968,173 $ -- $ -- $ 2,147,882
============ ============ ================ ============ ============ ============
Revenues from other
operating segments $ -- $ -- -- $ -- $ -- $ --
============ ============ ================ ============ ============ ============
Depreciation, amortization
and depletion $ -- $ 90,067 72,076 $ 55,358 $ -- $ 217,501
============ ============ ================ ============ ============ ============
Interest expense $ -- $ 229,978 -- $ 50,6013 $ -- $ 280,591
============ ============ ================ ============ ============ ============
Segment net income (loss) $ -- $ 317,450 238,307 $ (434,058) $ -- $ 121,699
============ ============ ================ ============ ============ ============
Segment assets $ -- $ 5,950,827 4,263,063 $ 5,080,170 $ (166,870) $15,127,190
============ ============ ================ ============ ============ ============
Expenditures
for segment assets $ -- $ 26,681 906 $ 2,913 $ -- $ 30,500
============ ============ ================ ============ ============ ============
NOTE M - LONG-TERM OBLIGATIONS
On June 5, 2002, TCTB entered into a loan agreement (the "TCTB Note") with Wells
Fargo Bank Texas, N.A. ("Wells Fargo") for a term note of $6,800,000. The term
note bears interest at a fixed rate per annum of 7.23%. TCTB is making monthly
payments of principal and interest in the amount of $53,663 for the term note
until maturity of the note on May 31, 2009. The loan agreement is secured by
substantially all of the assets of TCTB. The loan agreement restricts cash
distributions to TCTB's owners. TCTB shall not declare or pay any distributions
in excess of tax liability due annually (but in any event, no more than 40% of
net income), either in cash or any property to any owners. The loan agreement
also contains other customary conditions and events of default, the failure to
comply with, or occurrence of, would prevent any further borrowings and would
generally require the repayment of any outstanding borrowings along with accrued
interest under the loan agreement. Such events of default include (a)
non-payment of loan agreement debt and interest thereon, (b) non-compliance with
the terms of the credit agreement covenants, (c) cross-default with other debt
in certain circumstances, (d) bankruptcy and (c) a final judgment or order for
the payment of money in excess of $100,000. Effective December 31, 2004, TCTB
partners agreed to distribute its Lubbock, Texas office building to the TCTB
partners and simultaneously sell their interest in the asset to an entity
partially owned by certain TCTB minority owners. The Lubbock building was
subject to a lien securing TCTB's note payable to Wells Fargo. In connection
with the sale, Wells Fargo agreed to release its lien on the Lubbock building in
exchange for a $2,100,000 restricted certificate of deposit (see note G) pledged
by TCTB to the Bank as additional collateral.
16
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Delaware entered into nine promissory notes (the "Delaware Notes"), certain of
which are with related parties, in an aggregate amount of $2,789,087, to
purchase the 64.9% ownership interest in TCTB. The notes are due in annual
payments of principal and interest beginning April 1, 2005 with a final maturity
of May 31, 2009. The interest rate is currently 4.9% and is adjusted each
October 1 to equal the Wall Street Journal Prime Lending Rate (4.75% at October
31, 2004) plus .15%. The annual payments are equal to a set percentage, ranging
from 1% to 16% of the future net operating loss benefit of the Company. The net
operating loss benefits are calculated as the dollar value of the federal income
tax benefit to the Company of the net operating loss calculated in accordance
with the Internal Revenue Code, for the calendar year preceding the date of each
annual payment. Due to the distribution and sale of the Lubbock building on
December 31, 2004, the Company elected to forgo the payment as described above
and paid one half of the principal balance along with the entire accrued
interest balance during January 2005.
Delaware entered into a promissory note (the "Hexagon Note") in January 2004 in
the amount of $250,778 to purchase an additional 6.485% ownership interest in
TCTB (note B). The note is due in quarterly installments of principal and
interest beginning on March 1, 2004 with a final maturity of January 1, 2010.
The term note bears interest at a fixed rate per annum of 5%.
On February 28, 2005 the Company entered into a loan agreement (the "WNB Note")
with Western National Bank, Midland, Texas. The Note is a certain Revolving Line
of Credit in an amount of $5,000,000. Under the Note, the Bank may, but is not
obligated to advance more than $2,500,000. Borrowings under the Note are subject
to a borrowing base equal to the lesser amount of: (a) $5,000,000 or (b)
seventy-five percent (75%) of the eligible customer receivables of the Company
and its subsidiary W Power. The Note bears a variable interest rate equal to the
Prime Rate, defined as the prime rate in the money rate table of The Wall Street
Journal, a Dow Jones publication, as of each business day (6.25% at June 30,
2005). Interest is computed on the unpaid principal balance of the Note and is
due and payable as it accrues monthly, commencing March 31, 2005, and thereafter
on the last day of each and every succeeding month until maturity, March 31,
2008, when the entire amount of the Note, principal and accrued, unpaid
interest, shall be due and payable. The Note is secured by a security agreement
to all of the accounts receivable of W Power. In addition, the Note is
guaranteed by certain accredited investors which guarantees are partially
secured by letters of credit. The loan agreement also contains other customary
conditions and events of default, the failure to comply with, or occurrence of,
would prevent any further borrowings and would generally require the repayment
of any outstanding borrowings along with accrued interest under the loan
agreement. The proceeds from the Note are intended to be used to fund potential
capital requirements in order to facilitate the growth of the Company's retail
electric provider subsidiary, W Power, and for general corporate purposes.
17
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Long-term debt as of June 30, 2005:
Long-term Current
Portion Portion Total
----------------- ------------ -------------
TCTB Note $ 5,797,231 $ 210,528 $ 6,007,759
Delaware Notes 1,394,543 -- 1,394,543
Hexagon Note 155,283 39,627 194,910
WNB Note -- -- --
----------------- ------------ -------------
Total $ 7,347,057 $ 250,155 $ 7,597,212
================= ============ =============
Maturities of long-term debt at June 30, 2005 are as follows:
2005 $ 250,155
2006 268,136
2007 286,311
2008 5,374,160
2009 1,418,450
---------------
Total 7,597,212
Less current portion 250,155
---------------
Long-term portion $ 7,347,057
===============
NOTE N - RELATED PARTY TRANSACTIONS
At June 30, 2005 and 2004, related parties leased from TCTB, office space of
approximately 32,000 and 29,000 square feet, respectively. TCTB received rental
income from these related parties of approximately $72,521 and $65,361 during
the three months then ended, respectively, and $147,800 and $132,617 during the
six months then ended, respectively.
Prior to Amen Properties, Inc. acquiring a limited partnership interest in TCTB,
TCTB had entered into an agreement with Priority Power Management, Ltd to
provide aggregation and consulting services in the management of TCTB's
electricity use and costs. This agreement expired on December 31, 2004. The
Company's Chief Operating Officer has an indirect 18% ownership in Priority
Power Management, Ltd. During January 2005, TCTB began purchasing electricity
through W Power.
During 2004, the Company, through its subsidiary Minerals, purchased a
percentage of two certain royalty interests with certain individuals and related
parties acquiring the remaining percentages. Effective April 1, 2004, the
Company purchased a 25% interest in a Texas oil and gas royalty for a purchase
price of $102,519 along with the Chief Operating Officer directly acquiring a
10.625% interest and the Chief Executive Officer indirectly acquiring 22.5%
interest. Effective April 2, 2004, the Company purchased a 20% interest in an
Oklahoma oil and gas royalty for a purchase price of $60,335 along with the
Chief Operating Officer directly acquiring a 8.5% interest and the Chief
Executive Officer acquiring an indirect 20% interest (see note E).
18
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
The Company closed the sale and issuance of 125,000 shares of Series C Preferred
Stock and 250,000 Warrants (see note C) pursuant to a Purchase Agreement, as
amended by the Second Amendment on March 1, 2005 between the Company and certain
accredited investors, including the Company's President and Chief Operating
Officer, Jon M. Morgan, the Company's Chief Executive Officer, Eric Oliver and
Bruce Edgington, one of the Company's Directors.
The following table reflects the Series C issuance to the Company's Officers and
Directors.
Number of Common Stock Preferred C
Preferred C Stock Voting Purchase
Shares Equivalent Equivalent Price
--------------- ----------------- ---------------- -------------
Eric Oliver 14,063 56,252 52,877 $ 225,008
Jon M. Morgan 14,062 56,248 52,873 224,992
Bruce Edgington 3,125 12,500 11,750 50,000
--------------- ----------------- ---------------- -------------
Total 31,250 125,000 117,500 $ 500,000
=============== ================= ================ =============
The following table reflects the issuance of Warrants to the Company's Officers
and Directors.
Number of Common Stock
Warrants Equivalent
--------------- -----------------
Eric Oliver 28,126 28,126
Jon M. Morgan 28,124 28,124
Bruce Edgington 6,250 6,250
--------------- -----------------
Total 62,500 62,500
=============== =================
NOTE O - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to claims and lawsuits which arise primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position of the Company.
19
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
June 30, 2005
(Unaudited)
Power Purchase Contracts
Certain contracts to purchase electricity provide for capacity payments to
ensure availability and provide for adjustments based on the actual power taken
under the contracts. Expected annual future capacity payments under existing
agreements at June 30, 2005, are estimated as follows:
2005 $ 1,761,119
2006 965,474
2007 684,604
2008 148,960
2009 -
----------------
Total $ 3,560,157
================
20
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements for the three and six
month periods ended June 30, 2005 and 2004, and related footnotes presented in
Item 1 and the Company's December 31, 2004 Form 10-KSBA, as amended.
Overview
AMEN Properties, Inc., (the "Company") is a real estate and energy company
engaged in owning and managing real estate, oil and gas royalties, and energy
related business properties. The Company is a holding company and conducts its
operations through Amen Delaware, LP ("Delaware"); Amen Minerals, LP
("Minerals") and W Power and Light, LP ("W Power"), each being a wholly owned
subsidiary of the Company. The Company owns its present real estate holdings
through Delaware. Delaware owns an approximate 71.35% limited interest in TCTB
Partners, Ltd., which currently owns two commercial office buildings in Midland,
TX. The Company's present oil and gas royalty holdings are through Minerals,
which owns two oil and gas royalty properties, one in Nowata County, Oklahoma
and the other in Hemphill County, Texas. In July 2004, the Company entered the
retail electricity market as a retail electric provider serving both retail and
wholesale customers within the state of Texas through W Power.
Application of Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and
contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an ongoing basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities where that
information is available from other sources. Certain estimates are particularly
sensitive due to their significance to the financial statements. Actual results
may differ significantly from management's estimates.
We believe that the most significant accounting policies that involve the use of
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
- Acquisition of operating properties,
- Revenue and cost recognition,
- Allowance for doubtful accounts
21
Acquisition of Operating Properties
We allocate the purchase price of acquired properties to tangible and identified
intangible assets acquired based on their fair values in accordance with SFAS
No. 141, "Business Combinations." We initially record the allocation based on a
preliminary purchase price allocation with adjustments recorded within one year
of the acquisition.
In making estimates of fair value for purposes of allocating purchase price,
management utilizes sources, including, but not limited to, independent value
consulting services, independent appraisals that may be obtained in connection
with financing the respective property, and other market data. Management also
considers information obtained about each property as a result of its
pre-acquisition due diligence, marketing and leasing activities in estimating
the fair value of the tangible and intangible assets acquired.
The aggregate value of the tangible assets acquired is measured based on the sum
of (i) the value of the property and (ii) the present value of the amortized
in-place tenant improvement allowances over the remaining term of each lease.
Management's estimates of the value of the property are made using models
similar to those used by independent appraisers. Factors considered by
management in its analysis include an estimate of carrying costs such as real
estate taxes, insurance, and other operating expenses and estimates of lost
rentals during the expected lease-up period assuming current market conditions.
The value of the property is then allocated among building, land, site
improvements, and equipment. The value of tenant improvements is separately
estimated due to the different depreciable lives.
The aggregate value of intangible assets acquired is measured based on the
difference between (i) the purchase price and (ii) the value of the tangible
assets acquired as defined above. This value is then allocated among
above-market and below-market in-place lease values, costs to execute similar
leases (including leasing commissions, legal expenses and other related
expenses), in-place lease values and customer relationship values.
Above-market and below-market in-place lease values for acquired properties are
calculated based on the present value (using a market interest rate which
reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease for above-market leases and the initial term plus the term of
the below-market fixed rate renewal option, if any, for below-market leases. We
perform this analysis on a lease by lease basis. The capitalized above-market
lease values are amortized as a reduction to rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial term
plus the term of the below-market fixed rate renewal option, if any, of the
respective leases.
Management estimates costs to execute leases similar to those acquired at the
property at acquisition based on current market conditions. These costs are
recorded based on the present value of the amortized in-place leasing costs on a
lease by lease basis over the remaining term of each lease.
The in-place lease values and customer relationship values are based on
management's evaluation of the specific characteristics of each customer's lease
and our overall relationship with that respective customer. Characteristics
considered by management in allocating these values include the nature and
extent of our existing business relationships with the customer, growth
prospects for developing new business with the customer, the customer's credit
quality, and the expectation of lease renewals, among other factors. The
in-place lease value and customer relationship value are both amortized to
expense over the initial term of the respective leases and projected renewal
periods, but in no event does the amortization period for the intangible assets
exceed the remaining depreciable life of the building.
22
Should a tenant terminate its lease, the unamortized portion of the in-place
lease value and the customer relationship value and above-market and
below-market lease values would be charged to expense.
Revenue and Cost Recognition
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are recognized on a straight-line basis over the terms of the respective
leases. As of June 30, 2005 there were no such deferred tenant receivables.
The Company records electricity sales under the accrual method and these
revenues are recognized upon delivery of electricity to the customers' meters.
Electric services not billed by month-end are accrued based upon estimated
deliveries to customers as tracked and recorded by the Electric Reliability
Council of Texas ("ERCOT") multiplied by the Company's average billing rate per
kilowatt hour ("kwh") in effect at the time.
The flow technique of revenue calculation relies upon ERCOT settlement
statements to determine the estimated revenue for a given month. Supply
delivered to our customers for the month, measured on a daily basis, provides
the basis for revenues. ERCOT provides net electricity delivered data in three
frames. Initial daily settlements become available approximately 17 days after
the day being settled. Approximately 45 days after the day being settled, a
resettlement is provided to adjust the initial settlement to the actual supply
delivered based on subsequent comparison of prior forecasts to actual meter
reads processed. A final resettlement is provided approximately 180 days after
power is delivered, marking the last routine settlement adjustment to the power
deliveries for that day.
Because flow data for resettlements and final resettlements are not available in
sufficient time to be booked to the appropriate period, the effect of such
resettlements are booked in the month in which the cost of goods sold ("COGS")
effect of those resettlements are realized.
Sales represent the total proceeds from energy sales, including pass through
charges from the TDSPs billed to the customer at cost. COGS include electric
power purchased, sales commissions, and pass through charges from the TDSPs in
the areas serviced by the Company. TDSP charges are costs for metering services
and maintenance of the electric grid. TDSP charges are determined by regulated
tariffs established by the Public Utility Commission of Texas ("PUCT").
Allowance for Doubtful Accounts
Management regularly reviews tenant accounts receivable and estimates the
necessary amounts to be recorded as an allowance for uncollectibility. These
reserves are established on a tenant-specific basis and are based upon, among
other factors, the period of time an amount is past due and the financial
condition of the obligor.
23
At the end of each quarter, revenue is accrued to unbilled receivables based on
the estimated amount of power delivered to customers using the flow technique.
Unbilled revenue also includes accruals for estimated Transmission and
Distribution Service Provider ("TDSP") charges and monthly service charges
applicable to the estimated usage for the period.
All charges that were physically billed to customers in the calendar month are
recorded from the unbilled account to the customer receivables account. Accounts
receivables are customer obligations billed at the conclusion of a month's
electricity usage and due within 15 days of the date of the invoice. Balances
past due are subject to a late fee that is assessed on the succeeding month's
billing.
The large number of customers and significant volume of transactions create a
challenge to manage receivables as well as to estimate the account balances that
ultimately will not be paid by the customers ("bad debt write-offs). The Company
uses a variety of tools to estimate and provide an accurate and adequate
allowance for doubtful accounts reserve; the allowance for doubtful accounts is
expensed each month as a percentage of revenue based on the historical bad debt
write-off trends that will result from that month's gross revenues.
Results of Operations
Overview
For the six months ended June 30, 2005, the Company generated a net loss of
$374,988 or a net loss $.17 per share as compared to net income of $121,699, or
net income of $.06 per share for the same period ended June 30, 2004, for a net
decrease of $496,687. This decrease is mainly due to the Company's newly
created, wholly owned subsidiary W Power and the sale of the Company's undivided
interest in a commercial real estate property in Lubbock, Texas on December 31,
2004. For the six months ended June 30, 2005, the operations of W Power incurred
a net operating loss of approximately $265,000. This loss is mainly due to W
Power's general and administrative costs and a decrease in W Power's gross
profit margin due to an increase of balancing costs that are based on the
aggregate customer load and are determined by ERCOT through a multiple step
settlement process. Balancing costs/revenues are related to the differential
between the supply provided by the company through its bilateral wholesale
supply and the supply required to serve the Company's customer load. The sale of
the Company's undivided interest in a commercial real estate property in
Lubbock, Texas on December 31, 2004, reduced the Company's income from its
limited partnership interest in TCTB for the six months ended June 30, 2005 as
compared to June 30, 2004 by approximately $238,000 (approximately $170,000, net
to the Company's interest in TCTB of 71.348%). During the six months ending June
30, 2005, the Company, through its investments in Minerals showed an increase of
approximately $21,000 in royalty income over the same period ended June 30,
2004. Additionally, the Company has been working on an appropriate method in
which to compensate the Board of Directors. At the end of 2004, the Company made
an accrual to compensate the Board with the issuance of restricted stock in the
amount of approximately $33,000. The Board has elected to forego the restricted
stock compensation for 2004 and intends on compensating the Board with the
issuance of stock options.
24
Restatement of Previously Issued Financial Statement Information
During the third quarter of 2005, the Company received a letter from the
Securities and Exchange Commission, dated August 31, 2005, concerning the
Company's previous reporting of the December 31, 2004 distribution and sale of
the Company's Lubbock, Texas real estate property. As a result, the Company has
restated its Consolidated Financial Statements for the three months ended March
31, 2005 to reflect the reclassification of the operations of the Lubbock, Texas
real estate property as a discontinued business component, see Notes A2 and K to
the Consolidated Financial Statements included herein. The restatement did not
change the Company's previously reported loss for the period ending June 30,
2005. The following analysis reflects the restated June 30, 2005 operating
results.
Revenues
For the three months ended June 30, 2005
For the three months ended June 30, 2005, the Company experienced an increase in
rental revenue of approximately $83,000 as compared to the same period ended
June 30, 2004. The increase is mainly due to the Company's purchase on July 30,
2004 of a twelve floor multi-tenant office building in down town Midland, Texas
through its 71.348013% limited partnership interest in TCTB. Due to W Power not
being in operations during the three months ended June 30, 2004, comparative
information for retail electricity revenue is not available. For the three
months ended June 30, 2005, as compared the three months ended March 31, 2005,
retail electricity revenue increased approximately $815,000. This increase is
mainly due to W Power acquiring approximately 1,000 new meters during the middle
of May 2005.
For the six months ended June 30, 2005
For the six months ended June 30, 2005, the Company experienced an increase in
rental revenue of approximately $162,600 as compared to the same period ending
June 30, 2004. The increase is mainly due to the Company's purchase on July 30,
2004 of a twelve floor multi-tenant office building in down town Midland, Texas
through its 71.348013% limited partnership interest in TCTB. Due to W Power not
being in operations during the six months ended June 30, 2004, comparative
information is not available for retail electricity revenue.
Operating expenses
For the three months ended June 30, 2005
Total operating expenses for the quarters ended June 30, 2005 and 2004 were
$1,924,424 and $519,732 respectively. The increase of approximately $1,405,000
in operating expense is mainly related to W Power's purchase of wholesale
electricity of approximately $1,144,000. The remaining increase of operating
expenses is related to the increase in general and administrative costs
associated with W Power and an increase in rental property operations associated
with the newly acquired twelve floor multi-tenant office building in downtown
Midland, Texas.
W Power's cost of goods and services were $1,143,727 or approximately 102% of
retail sales for the period ending June 30, 2005. This decrease in gross profits
is mainly due to rapid increases in the costs of wholesale power and ERCOT
balancing energy. Balancing costs/revenues are related to the difference between
the energy provided by the company through its bilateral wholesale contracts and
the energy required to serve the Company's aggregate customer load, as
determined by ERCOT through a multiple step settlement process. The balancing
market is a real-time spot market operated by ERCOT in order to match aggregate
customer load to system generation. For the quarter, W Power purchased
approximately 8% of its energy volume from the balancing market. Currently, W
Power plans to increase the amount of energy purchased through the balancing
market due to expensive summer wholesale generation prices which, due to the
current intra-day balancing market price volatility, results in significant
added expense to W Power's balancing energy costs even if W Power has purchased
a net of zero energy from the balancing market for a particular day or month. W
Power will require both customer growth and possibly a dynamic bilateral supply
agreement in order to decrease the amount of wholesale electricity purchased
from the balancing market as a percentage of its total power purchases. Due to W
Power not being in operations during the three months ended June 30, 2004,
comparative information is not available.
25
Rental property operations and depreciation expense increased approximately
$128,000 and $30,000, respectively, for the three months ended June 30, 2005 as
compared to June 30, 2004. The increase for property operations is attributable
to the newly acquired twelve floor multi-tenant office building in down town
Midland, Texas coupled with an increase in utility expense due to the rising
costs of energy. The increase in depreciation expense is also attributable to
the newly acquired twelve floor multi-tenant office building in down town
Midland, Texas and by additional depreciation associated with buildout cost
incurred by TCTB during the first quarter of 2005.
For the three months ended June 30, 2005 as compared to the same period ending
June 30, 2004, general and administrative costs increased approximately
$103,000. This increase is mainly due to W Power beginning operations in January
2005.
For the six months ended June 30, 2005
Total operating expense for the six months ended June 30, 2005 as compared to
same period ended June 30, 2004 increased approximately $1,916,000. This
increase is mainly related to W Power's purchase of wholesale electricity of
approximately $1,423,000. The remaining increase of approximately $493,000 in
operating expenses is related to the increase general and administrative costs
associated with W Power and an increase in rental property operations associated
with the newly acquired twelve floor multi-tenant office building in downtown
Midland, Texas.
W Power's cost of goods and services were $1,423,375 or approximately 99% of
retail electricity sales for the six months ended June 30, 2005. W Power's gross
profit was approximately $13,000 or approximately 1% of retail electricity sales
for the six months ending June 30, 2005. Due to W Power not being in operations
during the six months ended June 30, 2004, comparative information is not
available. Due to the increase in the balancing costs/revenues that are related
to the differential between the supply provided by the company through its
bilateral wholesale supply and the supply required to serve the Company's
customer load during the three months ended June 30, 2005, W Power experienced a
decline in its gross profit of approximately 90% during the three months ended
June 30, 2005.
Rental property operations and depreciation expense increased approximately
$225,000 and $51,000 respectively, for the six months ended June 30, 2005 as
compared to six months ended June 30, 2004. The increase for property operations
is attributable to the newly acquired twelve floor multi-tenant office building
in downtown Midland, Texas coupled with an increase in utility expense due to
the rising costs of energy. The increase in depreciation expense is also
attributable to the newly acquired twelve floor multi-tenant office building in
down town Midland, Texas and by additional depreciation associated with buildout
cost incurred by TCTB during the first quarter of 2005
26
For the six months ended June 30, 2005 as compared to the same period ending
June 30, 2004, general and administrative costs increased approximately
$217,000. This increase is mainly due to W Power beginning operations in January
2005.
Other (expense) income
For the three months ended June 30, 2005
For the three months ended June 30, 2005, the Company experienced an increase of
approximately $13,000 in interest income as compared to the three months ended
June 30, 2004. This increase in mainly due to the interest income the Company
received on the $2,100,000 certificated of deposit with the Wells Fargo, Bank,
N.A. This certificate of deposit is pledged by TCTB to the Bank as additional
collateral for the Bank's agreement to release its lien on the commercial real
estate building in Lubbock, Texas in order for TCTB to distribute and sell the
Lubbock building on December 31, 2004.
For the three months ended June 30, 2005 and 2004, the Company incurred a net
change in other expense of approximately $28,000. This change is mainly related
to the Company's Board foregoing the 2004 restricted stock compensation accrued
on December 31, 2004 in the amount of approximately $33,000. The Board intends
to begin using the issuance of stock options as compensation for the Board of
Directors.
For the six months ended June 30, 2005
For the six months ended June 30, 2005, as compared to the same period ended
June 30, 2004, the Company experienced an increase of approximately $21,500 in
interest income. This increase is mainly due to the interest income the Company
received on the $2,100,000 certificate of deposit with Wells Fargo, Bank N.A.
For the six months ended June 30, 2005 and 2004, the Company experienced a net
decrease in other income of approximately $6,500. The decrease in mainly
associated with the Company expensing all legal expenses related to the issuance
of the Company's Series C Preferred Stock during the first quarter of 2005 which
is partially offset with the Company's Board foregoing the 2004 restricted stock
compensation accrued on December 31, 2004 in the amount of approximately
$33,000. The Board intends to begin using the issuance of stock options as
compensation for the Board of Directors.
27
Minority interest
For the three months ended June 30, 2005
Minority interest income (expense) for the three months ended June 30, 2005 and
2004 was $4,231 and $(28,411), respectively, and reflects the minority interest
owners share of net income (expense) of TCTB. The decrease in minority interest
is related to the Company's purchase of an additional 6.485533% interest in TCTB
effective January 1, 2004, and the decrease in income at TCTB due to the sale of
the commercial real estate building in Lubbock, Texas on December 31, 2004.
For the six months ended June 30, 2005
For the six months ended June 30, 2005 minority interest expense decreased
approximately $25,000. This decrease in minority interest expense is mainly due
to a decrease in income from TCTB associated with the sale of the commercial
real estate building in Lubbock, Texas on December 31, 2004.
Liquidity and capital resources
Though we have not abandoned the 2002 business model, our focus is to support W
Power for the immediate future. Our immediate objectives are to actively monitor
TCTB, assess opportunities as they present themselves, and support W Power in
building a strong customer base.
As a retail electric provider, W Power will have to focus on its credit needs
over the next 12 to 18 months and the need to reduce its balancing costs. As
with any exponential growth business model, W Power is also attempting to manage
its growth prudently. We must also continue incremental development of our
computing systems and business processes to minimize the time and effort
associated with performing certain core retail electric provider business
activities such as pricing, contracting, scheduling, and billing. With
efficiency in these processes, strong internal controls and procedures, and
sufficient credit, W Power will accelerate its acquisition of customers through
aggressive marketing and sales efforts later this year. We think maintaining
sufficient credit availability and managing gross profit margins in a
hyper-growth business model are the two biggest risks facing W Power. W Power
hopes to achieve break even by the fourth quarter of this year. We are confident
W Power can attain its market share benchmarks during 2005.
Though we think 2005 will be a banner year in regards to building intrinsic
value with the development of the brand and customer base of W Power, we are not
as optimistic with regards to projected earnings. With the absence of our
Lubbock building and with the majority of the year dedicated to establishing W
Power, we anticipate negative to neutral earnings this year in our quest to
finalize this start up phase.
During the six months ended June 30, 2005 and 2004, net cash (used in) provided
by operating activities was $(1,228,079) and $384,263, respectively. The net
decrease of approximately $1,612,342 used in operating activities is related to
several items. During the six months ended June 30, 2005, the Company paid the
balance, approximately $286,800, of accrued interest on the nine promissory
notes, certain of which are related parties, entered into by Delaware in October
2002 to purchase the original 64.9% ownership in TCTB. During the six months
ended June 30, 2005, the Company incurred additional cash outlays of
approximately $634,500 for the required collateral deposits with W Power's
wholesale electricity providers and ERCOT. The remaining decrease in net cash
provided by operating activities is due to the operating expenses associated
with W Power and a decline in net operating cash provided by the Company's
limited partnership interest in TCTB due to the sale of the commercial real
estate building in Lubbock, Texas on December 31, 2004.
28
Net cash used in investing activities was $416,348 and $346,144 for the six
months ended June 30, 2005 and 2004, respectively. For the six months ending
June 30, 2005, the Company used approximately $424,000 on remodeling lease space
for new tenants which was approximately $394,000 more than the six months ended
June 30, 2004. During the six months ending June 30, 2005, the Company did not
purchase or sell any investments.
Net cash provided by (used in) financing activities was $486,123 and $(230,930)
for the six months ended June 30, 2005 and 2004, respectively, for a net change
of approximately $717,000. During the six months ended June 30, 2005, the
Company paid approximately $1,395,000 representing one half of the outstanding
principal balance on the nine promissory notes entered into by Delaware in
October 2002, to purchase the original 64.9% limited interest in TCTB.
Additionally, the Company received $2,000,000 from the issuance of the Company's
Series C Preferred Stock on March 1, 2005. During the six months ended June 30,
2004, minority interest distributions were $129,905 and were related to the
minority interest owners in TCTB. For the six months ended June 30, 2005,
minority interest owners in TCTB did not receive a distribution
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $29 million. This NOL is related to the Company's operations prior to
the Company presenting the 2002 business plan to shareholders. Management
believes the present value of this NOL is between $2.5 and $5 million and has
been diligent in its efforts to ensure its preservation and utilization.
ITEM 3. Controls and Procedures
The Company has carried out an evaluation under the supervision of management,
including the Chairman and Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
Chairman and Chief Executive Officer and Chief Financial Officer have concluded
that, as of June 30, 2005, the Company's disclosure controls and procedures were
effective to ensure that information required to be disclosed by the Company in
the reports filed or submitted by it under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and include disclosure
controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is assembled and reported to the
Company's management, including the Chairman and Chief Executive Officer and the
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures. Based on that evaluation, the Company's Chairman and Chief
Executive Officer and Chief Financial Officer have concluded that, and have
reported to the Audit Committee of the Company's Board of Directors that,
management has identified certain deficiencies in the disclosure controls and
procedures. The deficiencies noted were (a) a lack of documented control
procedures (b) the lack of segregation of duties and (c) insufficient
supervision of the Company's accounting personnel. The Company believes such
deficiencies were primarily attributable to the transition the Company went
through during the end of 2002 and 2003, changes in personnel within the
accounting department and the Company currently having one full time employee at
the corporate level. Management believes that the deficiencies noted above do
not materially interfere with the Company's timely disclosure of information
required to be disclosed by the Company in reports filed or submitted under the
Exchange Act 1934, as amended, because accounting personnel and a member of
management have first-hand knowledge of the daily transactions of the Company
and that first-hand knowledge enables such personnel to accumulate and
communicate such information to the Company's management, including its
principal executive and principal financial officers as appropriate to allow
timely decisions regarding disclosure. Therefore, the Company believes that its
disclosure controls and procedures are sufficient to provide reasonable
assurance that the information required to be disclosed by the Company in
reports filed or submitted by it under the Securities Exchange Act of 1934, as
amended is recorded, processed, summarized and reported with in the time period
specified in the rules and forms of the SEC, notwithstanding the deficiencies
noted above.
29
There have not been any changes in the Company's disclosure controls and
procedures during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's
disclosure controls and procedures over financial reporting.
As described in notes A2 and K to the Company's Consolidated Financial
Statements included in this report, the Company restated it's previously issued
Consolidated Financial Statements for the year ended December 31, 2004, to
reflect the reclassification of the operations of a discontinued business
component related to its real estate operations. Previously, management of the
Company did not consider its Lubbock, Texas real estate operations to be clearly
distinguishable from the remainder of its real estate operations as defined by
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" or as an asset group as defined in SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". Management of the Company
believes that such a determination requires substantial judgment based on
interpretations of various accounting standards. In response to a letter from
the Securities and Exchange Commission, dated August 31, 2005, concerning our
reporting of the discontinued Lubbock, Texas operations in our previously issued
Form 10-QSB for the three months and six months ended June 30, 2005, the Company
has restated its previously issued Consolidated Financial Statements to
reclassify the discontinued Lubbock, Texas operations as a discontinued business
component. The reclassification had no effect on the Company's previously
reported total assets, working capital, stockholders' equity, net income (loss),
and net cash flow (used in) provided by operating activities, investing
activities or financing activities.
The Company's management and Audit Committee have discussed the restatement
issue with Johnson, Miller & Co., its independent registered public accounting
firm. After reviewing the restatement issue, the Company's management and Audit
Committee believes that, although the restatement may be considered to be a
deficiency in the Company's disclosure process, the circumstances leading to the
restatement of the discontinued business component are isolated and rare and do
not constitute a continuing deficiency in the Company's disclosure controls and
procedures. Accordingly, management of the Company does not plan to implement
any further changes in its disclosure controls and procedures with respect to
the restatement of the discontinued business component.
30
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Information related to this Item has been previously included in Current Reports
on Form 8-K filed during the period covered by this Report.
ITEM 3. Defaults Upon Senior Securities
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 26, 2005, the Company held its annual meeting of shareholders. At the
meeting, the following proposals were voted upon by the Company's shareholders.
At the record date, March 15, 2005, there were 2,201,356 shares of common stock
isuued; 616,447 common equivalent of Preferred A with a voting equivalent of
333,333 common shares; 233,317 common equivalent of Preferred B with a voting
equivalent of 233,317; and 440,271 common equivalent of Preferred C with a
voting equivalent of 440,271. A total of 3,208,278 voting shares and 2,996,401
(93.39%) of the shares, which represents the necessary quorum, voted on the
proposals.
Proposal I: To elect the following nominees as directors:
It was proposed that six members be elected at the meeting to the Board of
Directors.
------------------------------------- -------------- ------------- --------------- -------------- -----------
Percentage Against Percentage
of Votes of Votes
Proposal I For Cast Against Cast Abstain
------------------------------------- -------------- ------------- --------------- -------------- -----------
Eric Oliver 2,982,088 99.52% 14,313 .48% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Jon M. Morgan 2,982,088 99.52% 14,313 .48% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Bruce E. Edgington 2,982,088 99.52% 14,313 .48% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Earl E. Gjelde 2,982,088 99.52% 14,313 .48% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Donald M. Blake Jr. 2,982,088 99.52% 14,313 .48% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
G. Randy Nicholson 2,982,088 99.52% 14,313 .48% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Proposal II: Approval of the issuance and sale of the Series C Preferred Stock
and Common Stock Warrants by the Company and the potential issuance of shares or
common stock upon conversion or exercise of such securities.
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Total Percentage
Voting of Votes Abstain
Shares For Cast Against Percentage of Votes Cast
------------------------ ------------ -------------- ------------- --------------- -------------- -------------
Proposal II 1,453,254 1,436,519 98.85% 14,333 .99% 2,402
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Proposal III: Amendment to the Certificate of Incorporation effecting the
Certificate of Designation of Series and Determination of Rights and Preferences
of the Series A Preferred Stock of Amen Properties, Inc.
31
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Total Percentage Percentage
Voting of Votes of Votes
Shares For Cast Against Cast Abstain
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Proposal III 3,208,278 1,874,973 58.44% 15,436 .48% 3,116
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Proposal IV: Amendment to the Certificate of Incorporation effecting the
Certificate of Designation of Series and Determination of rights and Preferences
of the Series B Convertible Preferred Stock of Amen Properties, Inc.
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Total Percentage
Voting of Votes Abstain
Shares For Cast Against Percentage of Votes Cast
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Proposal IV 3,208,278 1,874,448 58.43% 16,061 .5% 3,016
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
ITEM 5. Other Information
None to report.
ITEM 6. Exhibits
(a) EXHIBITS:
Exhibit
Number Description
--------- ------------
3.1 Certificate of Designation of Series and Determination of Rights and
Preferences of Series C Convertible Preferred Stock of Amen
Properties, Inc. (Incorporated by reference to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
March 4, 2005).
4.1 Form of Warrant Certificate dated March 1, 2005 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Secrurities and Exchange Commission on March 4, 2005).
10.1 Consent, Waiver and Amendment of the holders of Series A Preferred
Stock dated January 2005 (identical copy executed by each holder)
(Incorporated by reference to the Company's Report on Form 10-KSB
filed with the Securities and Exchange Commission on March 31,
2005).
10.2 Consent, Waiver and Amendment of the holders of Series B Preferred
Stock dated January 2005 (identical copy executed by each holder)
(Incorporated by reference to the Company's Report on Form 10-KSB
filed with the Securities and Exchange Commission on March 31,
2005).
10.3 Securities Purchase Agreement between the Company and certain
investors dated January 18, 2005, as amended by a First Amendment
dated January 28, 2005 and a Second Amendment dated February 28,
2005 (Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on March 4, 2005)
32
Exhibit
Number Description
--------- ------------
10.4 Loan Agreement Between Amen Properties, Inc. and Western National
Bank (Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on March 4, 2005).
10.5 Western National Bank Revolving Line of Credit Note (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005).
11 Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss.
1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss.
1350.
33
SIGNATURES
In accordance with the requirements of Securities Act of 1934, AMEN Properties,
Inc., the registrant, has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMEN Properties, Inc.
December 19, 2005 By: /s/ Eric Oliver
--------------------------------------------
Eric Oliver
Chairman and Chief Executive Officer
December 19, 2005 By: /s/ John M. James
--------------------------------------------
John M. James
Chief Financial Officer and Secretary
34
Exhibit
Number Description
--------- ------------
3.1 Certificate of Designation of Series and Determination of Rights and
Preferences of Series C Convertible Preferred Stock of Amen
Properties, Inc. (Incorporated by reference to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
March 4, 2005).
4.1 Form of Warrant Certificate dated March 1, 2005 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Secrurities and Exchange Commission on March 4, 2005).
10.1 Consent, Waiver and Amendment of the holders of Series A Preferred
Stock dated January 2005 (identical copy executed by each holder)
(Incorporated by reference to the Company's Report on Form 10-KSB
filed with the Securities and Exchange Commission on March 31,
2005).
10.2 Consent, Waiver and Amendment of the holders of Series B Preferred
Stock dated January 2005 (identical copy executed by each holder)
(Incorporated by reference to the Company's Report on Form 10-KSB
filed with the Securities and Exchange Commission on March 31,
2005).
10.3 Securities Purchase Agreement between the Company and certain
investors dated January 18, 2005, as amended by a First Amendment
dated January 28, 2005 and a Second Amendment dated February 28,
2005 (Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on March 4, 2005)
10.4 Loan Agreement Between Amen Properties, Inc. and Western National
Bank (Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on March 4, 2005).
10.5 Western National Bank Revolving Line of Credit Note (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005).
11 Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss.
1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss.
1350.
35