UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2005
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission File No. 000-22847
AMEN Properties, Inc.
(Exact Name of Registrant in Its Charter)
DELAWARE 54-1831588
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
303 West Wall St. Suite 2300
MIDLAND, TX 79701
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(Address of Principal Executive Offices) (Zip Code)
432-684-3821
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Issuer's telephone number, including area code
Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
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Title of each class
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. / /
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB /X/
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes / / No /X/
The issuer's revenues from operations for the twelve months ended December 31,
2005 were $10,180,892.
1
The aggregate market value of common stock held by non-affiliates, based on the
closing price at which the stock was sold at February 15, 2006 was approximately
$12.8 million.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes / / No / /
The total number of shares outstanding of the issuer's common stock as of
February 15, 2006 was 2,206,215.
Transitional Small Business Disclosure Format (Check One): Yes No X
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Documents Incorporated by Reference
Exhibits to certain of the Company's filings are incorporated by reference as
Exhibits to this Report as set forth in Part III, Item 13.
Portions of the Company's definitive proxy statement for its 2006 annual
shareholders meeting to be filed on or before May 17, 2006, is incorporated by
reference in Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Forward-looking Statements
Certain information in this annual report on Form 10-KSB may contain
"forward-looking statements" within the meaning of Section 21e of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues, cash flow or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or services,
any statements regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. In some cases,
"forward-looking statements" can be identified by the use of terminology such as
"may," "will," "expects," "believes," "plans," "anticipates," "estimates,"
"potential," or "continue," or the negative thereof or other comparable
terminology. Although we believe that the expectations reflected in the
"forward-looking statements" are reasonable, we can give no assurance that such
expectations or any of our "forward-looking statements" will prove to be
correct, and actual results could differ materially from those projected or
assumed in our "forward-looking statements." Our financial condition and
results, as well as any other "forward-looking statements," are subject to
inherent risks and uncertainties, including but not limited to those risk
factors summarized in Item 6, "Management's Discussion and Analysis or Plan of
Operation."
Background
The Company was originally incorporated as DIDAX Inc. in January 1997 and
through the end of December 31, 2002 operated under the name Crosswalk.com, Inc.
and consisted primarily of the operation of CROSSWALK.COM(TM) and a direct mail
advertising service. During the last quarter of 2002, the Company sold
substantially all of the assets used, required, useful, or otherwise relating to
the operations of both businesses. The Company then changed its name to Amen
Properties, Inc. (hereinafter referred to as "AMEN" or "the Company") effective
February 3, 2003. Following shareholder approval of a new business plan in 2002,
the Company initially acquired an approximate 64.86% limited partnership
interest in TCTB Partnership Partners, Ltd. ("TCTB") and in early 2004 the
Company acquired an additional 6.485533% interest in TCTB. This additional
interest purchased combined with the initial limited partnership interest
purchased in 2002 gives the Company a total of 71.348013% limited partnership
interest in TCTB. In July of 2004, the Company funded its newly created wholly
owned subsidiary, W Power and Light, L.P. ("W Power"). The creation of W Power
has allowed the Company to enter a new market created when the Texas legislature
adopted the Texas Electric Choice Plan, which significantly changed the
regulatory structure governing electric utilities in the State of Texas.
2
Under the 2002 business plan, we have attempted to grow our business through
selective acquisitions of cash-generating assets focusing on value added plays
in three distinct arenas that have historically generated large amounts of
ordinary income - commercial real estate in secondary stagnant markets,
commercial real estate in out of favor growth markets and in oil and gas
royalties. While we have focused on these areas, we have also considered and
evaluated opportunities to acquire other properties and businesses that have a
consistent and stable cash flow history. During 2004 we extended the 2002
business plan to include our new electricity retail business, W Power, and our
intent is to accumulate these assets to generate income and create shareholder
value.
In initiating the 2002 business plan the Company, in October 2002, formed NEMA
Properties LLC ("NEMA"), a Nevada limited liability company 100% owned by AMEN;
AMEN Delaware LP ("Delaware"), a Delaware limited partnership owned 99% by NEMA
as the sole limited partner and 1% by AMEN, as the sole general partner; and
AMEN Minerals LP ("Minerals"), a Delaware limited partnership, owned 99% by NEMA
as the sole limited partner and 1% by AMEN, as the sole general partner. On July
30, 2004, the Company formed W Power and Light LP ("W Power"), a Delaware
limited partnership owned 99% by NEMA as the sole limited partner and 1% by
AMEN, as the sole general partner. It is the Company's intent for Delaware to
own all our real estate assets, for Minerals to own our oil and gas royalty
investments and W Power to hold our retail electricity provider services. As
used herein, the terms "Company" and "AMEN" and references to "we" and "our"
refer to all of AMEN Properties, Inc., NEMA, Delaware, Minerals, and W Power
unless the context otherwise requires.
The Company makes available, free of charge, its Annual Report on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(a) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after we
electronically file or furnish them to the Securities and Exchange Commission
(the "SEC"). These reports may also be obtained directly from the SEC via an
Internet site (HTTP://WWW.SEC.GOV) and at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The Company will also provide to any person, free of charge, a copy of the
Company's Code of Business Conduct and Ethics upon request made to the Company
at 303 West Wall St., Suite 2300, Midland, Texas 79701, attn: Mr. John M. James.
Status of Business Plan
The Company implemented the 2002 business plan in October 2002 by acquiring an
approximate 64.9% limited partnership interest in TCTB. Effective January 1,
2004, the Company entered into an agreement with certain limited partners of
TCTB in which the Company acquired an additional 6.485533% limited partnership
interest in TCTB. This additional interest purchased combined with the initial
limited partnership interest purchased in 2002 gives the Company a total of
71.348013% limited partnership interest in TCTB. On July 30, 2004, through TCTB,
the Company was able to acquire an additional multi-tenant office in downtown
Midland. This building is synergistic in that it is located across the street
from our other Midland building and will allow the Company to utilize our
current building management team in its operation. As of December 31, 2004 the
assets of TCTB consisted of two secondary office market properties in Midland,
Texas, collectively referred to as "the Properties". (See Item 2 below for
further description of the Properties.)
TCTB is managed and operated by its general partner, TCTB Company, Inc. The
Company does not own any interest in TCTB Company, Inc., which is primarily
owned by the original limited partners of TCTB, but the Company has the
authority to change the general partner of TCTB due to its ownership of
approximately 71.348013% of the LP Interests of TCTB. Both Mr. Eric Oliver and
Mr. Jon Morgan, officers and directors of the Company, own interests in TCTB
Company, Inc., and Mr. Morgan is the president of TCTB Company, Inc.
In July of 2004, the Company funded its newly created wholly owned subsidiary, W
Power. It should be noted that the formation and funding of W Power signifies an
expansion from the Company's prior business focus. This change of focus contains
significantly more risk than the incremental asset based model we were pursuing
that resulted in limited opportunities. Though the Company may consider
opportunities to acquire cash flow generating assets, the Company is currently
focusing its efforts on the retail electricity market in Texas through W Power
as a Retail Electric Provider ("REP") to compete in the Texas market. The
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creation of W Power has allowed the Company to enter a new market created when
the Texas legislature adopted the Texas Electric Choice Plan, which
significantly changed the regulatory structure governing electric utilities in
Texas. In September 2004, the Public Utility Commission of Texas ("PUCT")
awarded W Power a license to begin commercial REP operations in Texas and in
November 2004 W Power received its certification from the Electric Reliability
Council of Texas ("ERCOT"). As a REP, W Power sells electricity and provides the
related billing, customer service, collection and remittance services to
residential, commercial, and industrial customers. W Power offers its customers
low electricity rates, flexible payment and pricing choices, simple offers and
understandable terms and responsive customer service. The Texas regulatory
structure and legislation permits independent REPs (companies unaffiliated with
an incumbent utility in a particualar geographic area), such as W Power, to
procure and sell electricity at unregulated prices and pay the local
transmission and distribution utilities a regulated tariff rate for delivering
electricity to the customers. Though we have not abandoned the 2002 business
model, our focus is to support W Power for the immediate future. Our near-term
objectives are to actively monitor TCTB and continue to build a strong customer
base in W Power.
During 2004, the Company obtained two royalty interests through its wholly owned
subsidiary Amen Minerals, L.P. for a total cost of approximately $162,854. The
Company received approximately $53,095 in gross revenues from these royalties
for the year ending December 31, 2005
Management continues to assess opportunities to add value for our shareholders
whether under the 2002 business plan or extension of the principles of that
plan. We are committed to remaining patient, while maximizing our return on the
TCTB acquisition and the development of W Power. TCTB's performance will depend
on its ability to collect rent from tenants and minimize the cost of ownership
and maintenance. If TCTB's tenants or prospective tenants experience a change in
business conditions or a downturn in their business, it may experience a delay
in lease commencements, or a decline in renewals and lease extensions. Any
failure of tenants to operate under the terms of their lease, make timely rental
payments consistent with lease terms, or remain solvent, could result in the
termination of the tenants' leases and the loss of rental income. We believe
TCTB will work diligently to attract and retain quality tenants in order to
mitigate this risk to the greatest extent possible. W Power's performance will
depend on its ability to attract and maintain a strong customer base, manage
overhead costs, implement efficient controls and procedures, and have sufficient
collateral to meet its credit requirements made by its generators, power
marketers, ERCOT, and other electricity providers. We believe that W Power is
positioned to meet these requirements and is capable of strong growth in the
future, subject to the inherent risks and limitations associated with a start-up
company.
We are also sensitive to the fact that we operate in a restrictive paradigm that
does not allow access to traditional equity sources without compromising our net
operating loss ("NOL") balances. We hope we can continue to preserve our NOL,
but certain issues outside our control may occur which could jeopardize this
position. If a larger deal that would require an expansion of our equity base
presents itself, we would welcome sacrificing our NOL if the value added
exceeded the present value we have assigned to the NOL. If our capital does
become limited, we intend to make acquisitions through limited partnerships in a
structure whereby AMEN would be the general partner/manager, while property
asset specific equity providers would be the limited partners. However, we do
not currently have any agreements or arrangements relating to such financing and
no assurances can be made that such financing will be available on terms
acceptable to us.
Impact of Government Regulation and Environmental Laws
Under various environmental laws, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances, including asbestos-containing materials that are located on
or under the property. Specific asbestos remediation took place in the Bank of
America Tower (as defined herein) prior to the Company's ownership.
Environmental laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of those substances. In connection
with our ownership and operation of properties, we may be liable for these
costs, which could be substantial. Also, our ability to arrange for financing
secured by that real property might be adversely affected because of the
presence of hazardous or toxic substances or the failure to properly remediate
any contamination. In addition, we may be subject to claims by third parties
based on damages and costs resulting from environmental contamination at or
emanating from our properties.
4
In addition, under the Americans with Disabilities Act ("ADA"), all public
accommodations are required to meet certain federal requirements related to
physical access and use by disabled persons. While we believe that the
Properties comply in all material respects with these physical requirements or
would be eligible for applicable exemptions from material requirements because
of adaptive assistance provided, a determination that we are not in compliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants. Any required modifications to comply with the ADA would most
likely result in unplanned cash expenditures that could impact our ability to
meet our financial objectives.
In relation to the Company entering the retail electricity market in Texas, the
State of Texas began deregulation of the wholesale electricity market in 1995
with Senate Bill 373. This enabled independent power generators to establish
operations in Texas alongside those of the regulated utilities and gain access
to the transmission capabilities of the electricity power grid. This foundation,
coupled with the passing of Senate Bill 7 in 1999, has enabled an integrated
marketplace linking generators, energy delivery companies, retail electric
providers, and an independent grid operator, ERCOT, to offer choices to end-use
electricity customers. There are currently five major markets open to
competition as defined by ERCOT based on service areas in Texas covered by
formerly integrated utilities.
Effective January 1, 2002, retail customers of independent operating utilities
in the ERCOT region of Texas were allowed to choose a REP. A REP serves end-use
customers by purchasing its electricity from competing power producers in the
wholesale market, receiving delivery services from the regulated transmission
and distribution service providers (formerly the integrated utilities) and
performing basic customer service functions including billing, collections and
handling customer service requests.
As part of the Texas Senate Bill 7, the formerly integrated utilities were
essentially split apart into three businesses: 1) unregulated wholesale
businesses for power generation, 2) regulated transmission and distribution
service providers ("TDSPs") and 3) unregulated REPs. The REPs that were formed
by the formerly integrated utilities are referred to as "Affiliated REPs". These
Affiliated REPs are subject to restrictions on their ability to compete on price
in their own markets (the areas previously serviced by the integrated utility)
to foster competition through price discounts from competitors. The two largest
Affiliated REPs in Texas are TXU Energy and Reliant Energy, serving Dallas/Fort
Worth and Houston areas, respectively. The other Affiliated REPs include First
Choice an affiliate of Texas New Mexico Power, American Electric Power/Central
Power and Light, and American Electric Power/West Texas Utilities.
Effective January 1, 2002, all customers previously with the integrated utility,
whose electricity demand was under a megawatt (most small commercial and
residential customers), were transferred to Affiliated REPs to be served on a
month-to-month rate, known as the "Price-To-Beat" until such time that these
customers choose to be served by an independent REP. The "Price-To-Beat" rate,
set by the PUCT, was to serve as the benchmark, allowing independent REPs such
as W Power the flexibility to set their own prices to customers in each market.
The "Price-To-Beat" rule requires the Affiliated REPs to charge a regulated,
fixed rate in their respective incumbent markets until certain conditions are
met. For small commercial consumers, Affiliated REPs were required to only
charge the "Price-To-Beat" rate until either 40% of the load in their incumbent
market has been lost to other REPs or until January 1, 2005. All of the
affiliated REPs met the 40% threshold for small commercial consumers prior to
January 1, 2005. For both small commercial consumers and residential consumers,
Affiliated REPs are restricted from charging a rate that is higher than the
"Price-To-Beat" in their incumbent market until after January 1, 2007, without
the approval of the PUCT.
Three critical elements that we believe are essential to have a successful
retail electricity market are present in Texas. First, the wholesale energy
market is competitive, thereby enabling retailers to purchase supply at
competitive prices using bilateral agreements. Second, a common framework for
operating throughout Texas has been established to enable retailers to
effectuate switching, billing, service orders and other necessary transactions
with ERCOT (as a clearinghouse) and with the transmission and distribution
service providers. Third, a regulatory framework has been established that
encourages competition by enabling the Affiliated REP to adjust the
"Price-To-Beat" based on the movement in natural gas or purchased power prices.
This unique "Price-To-Beat" mechanism ensures that the retail margins in the
market can be preserved if commodity costs increase.
5
With regard to investments in oil and gas royalties, the production,
transportation and sale of natural gas from underlying properties are subject to
federal and state governmental regulation, including regulation and tariffs
charged by pipelines, taxes, the prevention of waste, the conservation of gas,
pollution controls and various other matters. The Federal Government and each
state have governmental power to impose measures that could increase the cost of
oil and gas properties. The Federal Energy Regulatory Commission ("FERC") has
jurisdiction with respect to various aspects of gas operations including the
marketing and production of gas. The Natural Gas Act and the Natural Gas Policy
Act (collectively, the "Acts") mandate federal regulation of the interstate
transportation of gas. Numerous concerns regarding the interpretation and
implementation of several provisions of the Acts have led to lawsuits and
administrative proceedings to challenge the validity of the Acts. The FERC is
also considering various policies and proposals that may affect the marketing of
gas under new and existing contracts. Accordingly, we are unable to predict the
impact of any such governmental regulation.
In the past, Congress has been very active in the area of gas regulation. Due to
legislative action, previously applicable incremental pricing requirements and
gas use restraints have been repealed. However, it is not feasible to predict
with certainty, what proposals, if any, might actually be enacted by Congress or
other legislative bodies and what effect, if any, such proposals might have on
the oil and gas properties that may be considered for acquisition.
Operations
Our management consists of Eric Oliver, Chairman of the Board and Chief
Executive Officer, Jon Morgan, President and Chief Operating Officer and John M.
James, Chief Financial Officer and Corporate Secretary. Currently, John M. James
is the only full time employee at the corporate level of AMEN Properties, Inc.
TCTB has five full time employees who assist in the day-to-day operations of the
Properties and W Power currently has five full time employees.
The Properties are operated by an in-house management team which oversees all
operations of both the Bank of America Tower and the Century Plaza Tower. TCTB
currently has a team of four maintenance workers, who assist and oversee in the
Properties repairs and daily maintenance. TCTB employs a property manager who is
responsible for the accounting functions of TCTB, letting of space and
corresponding with the tenants and the building maintenance crew for any tenant
complaints. Due to the close proximity of the Properties to one another
management has been able to utilize the in-house maintenance crew and the
property manager in each of the Properties.
On January 4, 2005, 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 minority owners.
In accordance with an Agreement to Distribute Assets, effective December 31,
2004, the Lubbock office building (the "Lubbock Property") was distributed to
the TCTB partners according to their partnership sharing ratios. The Lubbock
Property distribution to the TCTB minority interest partners resulted in an
approximate $979,000 reduction in the Company's property, plant and equipment
and a corresponding reduction in minority interest. The Lubbock Property was
subject to a lien securing the TCTB's Note (as defined herein) The Bank agreed
to release its lien on the Lubbock Property in exchange for a $2,100,000
restricted certificate of deposit pledged by TCTB to the Bank as additional
collateral.
Immediately following the distribution of the Lubbock Property, the Company and
the selling minority interest partners agreed to sell their undivided interest
6
in the Lubbock Property for a negotiated purchase price of $4,568,614, in
accordance with a Purchase Agreement, to 1500 Broadway Partners, Ltd., a limited
partnership, in which certain TCTB limited partners (non-selling minority
interest partners) are partners and are tenants in one of TCTB's Midland office
buildings. The Company received net proceeds of $3,924,141 for its undivided
interest in the Lubbock Property that resulted in a gain of $905,118.
The Company used $1,681,346 of the net proceeds to reduce the principal amount
of certain debt by $1,394,544 and to pay accrued interest of $286,802. The
remaining proceeds were used for start-up working capital purposes for W Power.
W Power provides electricity and energy services to retail and wholesale
customers in the State of Texas. W Power provides energy products and services
to approximately 2,000 retail electricity customers ranging from residential and
small business customers to large commercial, industrial and
governmental/institutional customers. As of December 31, 2005 W Power flowed
approximately 71,228 MWhrs of electricity to its retail customers. Our business
operations consist primarily of providing retail electricity to retail customers
and providing wholesale energy as a qualified scheduling entity ("QSE") or power
marketer to competitive retail electricity providers.
Retail Electricity
W Power is responsible for its customer's account initiation and termination as
well as energy supply management, scheduling, billing/remittance processing, and
customer service. ERCOT oversees all aspects of the Texas power grid, and all
retail electric providers must be certified by ERCOT to operate in the Texas
markets. ERCOT was founded in 1970 to oversee the Texas power grid and under
deregulation ERCOT serves as the Independent System Operator of the power grid
in Texas and enables retail providers, generators, transmission and distribution
service providers, and ultimately customers, to operate in a deregulated
marketplace in Texas. ERCOT is continuously performing five major processes to
support the retail provider:
o Customer Registration
o Market Operations
o Power Operations
o Load Profiling, Date Acquisition and Aggregation
o Settlements, Billing and Financial Transfer
ERCOT is responsible for establishing and managing market operating procedures
and protocols, and developing and managing electronic transactions by and
between the power generators, the retail electric providers, and the
transmission and distribution company. These transactions include customer
switching and registration, meter reading, regulated tariff delivery, invoicing,
and financial market settlement.
W Power performs all customer registration, switching, and termination of
service directly with ERCOT, facilitated by a third-party electronic data
interchange provider who insures the electronic transactions are compliant with
then-current ERCOT protocols. W Power uses proprietary software developed and
owned by a third-party provider to initiate ERCOT electronic transactions,
capture data sent directly or indirectly by ERCOT or the delivery companies,
initiate billing, track and manage receivables, and provide general customer
information system functions for managerial reporting and decision making.
Our customer service function is performed internally with customer service
representatives able to provide service via the telephone, fax and email. W
Power performs all steps of monthly customer billing and remittance.
Wholesale Energy
W Power is a registered Power Marketer in Texas. A power marketer is an entity
that owns electric energy in Texas for the purpose of selling the electric
energy at wholesale prices but does not own generation, transmission, or
distribution facilities and does not have a certificated service area. W Power,
as a power marketer and an ERCOT QSE, acquires wholesale electric energy for
resale to itself and other REPs in the Texas market. W Power buys 100% of its
7
energy for its retail operations from its wholesale operations. W Power's
wholesale energy operations group is currently selling wholesale electricity to
another retailer other than its own. This arrangement is not currently in a
contractual agreement, but rather a daily transaction subject to W Power being
prepaid prior to assignment of the purchased electricity.
Marketing and Sales
The majority of energy sold by W Power is to customers acquired through outside
sales channels of electric aggregators and brokers. These channels provide a
cost-effective means of customer acquisition in the commercial markets. These
outside sales channels typically have an exclusive agreement with an end-use
customer to assist with the selection of a REP. W Power competes aggressively to
attract quality customers through these channels. To date, W Power has relied on
outside sales channels, word-of-mouth marketing, and limited press coverage to
attract new customer inquiries. During 2005, W Power began a series of marketing
activities including direct mailing, focused customer telemarketing and cold
calling.
Electricity Supply
W Power is certified by ERCOT to engage in both retail and wholesale marketing
activities. We serve as our own QSE which involves the procurement, scheduling,
and financial settlement of energy for our retail customer portfolio. Currently,
W Power anticipates purchasing power from any and all wholesale power generation
companies based on competitive purchase price offerings. Scheduling and market
settlements are facilitated through ERCOT, while bilateral energy purchases and
payments are negotiated in the open market. W Power may enter into forward
transactions for the delivery of fixed energy volumes for a specified term, and
possibly, use shorter term (typically month-ahead) swaps in which W Power
purchases natural gas and delivers it to an electricity producer or marketer in
exchange for electricity when it believes that market conditions are
appropriate. These gas-for-power swaps may reduce the working capital and
collateral requirements to the benefit of W Power.
We forecast our energy demand and purchase electricity through an experienced
team of in-house professionals. The energy consumption forecast for our customer
portfolio is based on historical load data, anticipated weather conditions,
customer acquisition and attrition rates, and ERCOT projected load profile
models. We continuously monitor and update our supply positions based on our
retail demand forecasts and market conditions. Our objective is to maintain a
balanced supply/demand book to limit commodity price risk exposure. W Power does
not plan to engage in speculative trading.
Competition
The Company's commercial real estate business competes with a number of other
companies in providing leases to prospective tenants and in re-letting space to
current tenants upon expiration of their respective leases. If our tenants
decide not to renew or extend their leases upon expiration, we may not be able
to re-let the space. Even if the tenants do renew or we can re-let the space,
the terms of renewal or re-letting, including the cost of required renovations,
may be less favorable than current lease terms or than expectations for the
space. We may be unable to promptly renew the leases or re-let this space, or
the rental rates upon renewal or re-letting may be significantly lower than
expected rates.
For the Company's retail electric provider, W Power, the competitors broadly
fall in two categories. The first category consists of the Affiliated REPs who
are the incumbent suppliers to their respective "Price-To-Beat" customers
(residential and small commercial) in specific geographic locations. As noted
above in Item 1 under "Impact of Government Regulation and Environmental Laws",
the ability for the Affiliated REPs to compete on price in their incumbent
markets is dictated by specific rules. However, in all cases, the Affiliated
REPs enjoy the highest levels of brand recognition and familiarity, requiring
competitive REPs, including W Power, to convince customers to switch their
service away from the Affiliated REPs. The affiliated REPs include: TXU Energy,
Reliant Energy, First Choice Power, WTU Retail Energy, and CPL Retail Energy.
The latter two Affiliated REPs are owned by Direct Energy, a unit of Centrica
PLC. Outside of their incumbent markets, these Affiliated REPs compete in the
same regulatory environment as does W Power.
8
The second category of competitors are independent REPs and include but are not
limited to, Green Mountain Energy, Cirro Energy, Strategic Energy, Constellation
Energy, Tractebel Energy Services, and Utility Choice. Some of the REPs choose
to compete only in the small commercial segment, while others compete in the
residential, small commercial, and industrial segments. The sizes of these REPs
vary as do their approaches to the market.
While the Affiliated REPs have substantial size, substantial resources, and are
adept at guiding the regulatory process in their favor, we believe that the
independent REPs provide the greatest competitive threat to W Power. Retail
profit margins in the Texas market have declined as wholesale prices of energy
have climbed. Price competition in certain market segments have increased due to
a number of new REPs, such as W Power, entering the market. In select cases we
believe there are REPs selling below the prevailing market cost in order to
acquire certain customers.
Christian Statement of Faith; the Company's Policy
Article XIII of our Bylaws provides that AMEN Properties, Inc. is a "religious
corporation." Our policy is generally to include among our officers and
directors unconditionally, and among our employees where a bona fide occupation
qualification exists, only persons who, upon request, subscribe to the Company's
Christian Statement of Faith as follows:
1. We believe that there is one God, eternally existing in three persons:
the Father, the Son, and the Holy Spirit.
2. We believe that the Bible is God's written revelation to man and that
it is verbally inspired, authoritative, and without error in the
original manuscripts.
3. We believe in the deity of Jesus Christ, His virgin birth, sinless
life, miracles, and death on the cross to provide for our redemption,
bodily resurrection and ascension into heaven, present ministry of
intercession for us, and His return to earth in power and glory.
4. We believe in the personality and deity of the Holy Spirit, that He
performs the miracle of the new birth in an unbeliever and indwells
believers, enabling them to live a godly life.
5. We believe that man was created in the image of God, but because of
sin, was alienated from God. That alienation can be removed only by
accepting through faith, God's gift of salvation which was made
possible by Christ's death.
In order to implement the Christian Statement of Faith, we intend generally to
act in accordance with the following policy, as stated in our Bylaws: "The
Corporation shall:
1. Actively seek to market the services of the Corporation to those
persons, entities, and agencies, which are actively involved in
propagating a pattern of beliefs and actions consistent with the
tenets of the Statement of Faith. Nothing herein shall be construed to
prohibit marketing such services to other persons, entities, or
agencies except as specifically set forth in the prohibitions or
corporate action set forth below.
2. To the extent permitted by law, expend from the revenues of the
Corporation such sums as are deemed prudent by the Board of Directors
to support, encourage, or sustain persons or entities which in the
judgment of the Board of Directors are expected to make significant
efforts to propagate the Gospel of Jesus Christ in any manner not in
conflict with the Statement of Faith. Such expenditures may be made
without regard to the tax status or nonprofit status of the recipient.
It is expected that the expenditures paid out under the provisions of
this paragraph shall approximate ten percent (10%) of the amount that
would otherwise be the net profits of the Corporation for the
accounting period.
The Corporation shall not:
1. Take any position publicly or privately that denies or conflicts with
the tenets of the Statement of Faith.
2. Elect, qualify or permit to serve in office as a director or officer
to the Corporation any person who has not without reservation
subscribed to the Statement of Faith as being true, accurate and
correct or who having so subscribed has either publicly or privately
recanted from a particular of the Statement of Faith or who has
9
publicly made statements or taken actions without repentance which the
Board of Directors finds to be in clear conflict with the Statement of
Faith.
3. Hire or continue to employ any employee in any position in which, in
the sole discretion of the Corporation, subscription to the Statement
of Faith is a bona-fide occupational qualification reasonably
necessary to the normal operations of the Corporation's activities,
where such employee refuses, upon request, to subscribe to the
Statement of Faith or having so subscribed has either publicly or
privately recanted from any particular of the Statement of Faith or
has publicly made statements or taken actions without repentance which
the Board of Directors finds to be in clear conflict with the
Statement of Faith. Because the Scriptures teach that bad company
corrupts good morals and that a little leaven affects the whole lump,
it is important to the Corporation's purposes that it be protected
from the influence of persons not in agreement with the Statement of
Faith at every level of employment.
4. Permit any party to utilize the name, goodwill, trade marks, or trade
names of the Corporation in any course of action or dealings which the
Corporation itself is herein prohibited from taking."
"In addition to any other appropriate legend, prior to its issuance each and
every share certificate to be issued by this Corporation shall be inscribed with
a legend that states:
`This Corporation is a religious corporation. All shares of this
Corporation are subject to the terms as set forth in the BYLAWS of the
corporation which restricts the amendment or deletion of that section
of the BYLAWS which prescribes a corporate Statement of Faith in the
LORD JESUS CHRIST and directs or prohibits certain corporate actions
on the basis of the Statement of Faith.'"
The Bylaws also state:
"No amendment to this Article XIII and no other superseding or
conflicting provision of these BYLAWS, the ARTICLES OF INCORPORATION,
or any shareholder agreement shall be adopted unless the result of the
count of votes approving the amendment is 90% affirmative without
dissension and a minimum of two-thirds of the shares outstanding are
represented and voting. Such vote must be made at an actual special
meeting of the shareholders called by written notice delivered to each
shareholder not less than 10 nor more than 60 days prior to the date
of the meeting. Time is of the essence as to this notice provision and
no extension of the time of the meeting or adjournment of the meeting
to a date outside the notice period shall be permitted except upon the
affirmative vote of not less than 70 percent of the shares then issued
and outstanding."
ITEM 2. DESCRIPTION OF PROPERTIES
Real Estate Investment Policy
While we have not abandoned our 2002 business plan, in the near term we intend
to prioritize our focus on W Power and its capital needs. We will continue to
entertain possible acquisitions of cash-generating assets focusing on value
added plays whether they are commercial real estate or oil and gas royalties. We
will also consider and evaluate opportunities to acquire other properties and
businesses that have a consistent and stable cash flow history.
Opportunities in these areas will be based on our evaluations and a system
whereby we formulate a cash flow series with at least 10 possible outcomes. We
will then assign probability percentages to each of the outcomes. Based on the
assigned probabilities, we will arrive at estimated weighted return of total
capital.
These estimated returns should meet the following four criteria to warrant
additional due diligence:
1. Return on Total Capital (ROTC) of not less than 15% for the project
2. ROTC of at least 12% at the end of Year 1
3. Less than 10% assigned probability for an outcome ROTC of less than 5%
4. At least a 20% cumulative probability for an outcome ROTC of more than
20%
10
The last two parameters serve to focus our attention on opportunities we can
model with limited risk, but significant upside potential. By using leverage on
these minimum rates of return, we will attempt to choose opportunities that
attain our necessary return on equity targets.
Description of Real Estate and Operating Data
The Properties are owned by TCTB and managed and operated by TCTB Company, Inc.,
as general partner of TCTB. AMEN initially acquired 64.9% of the limited
partnership interest of TCTB in 2002 and an additional 6.485% effective January
1, 2004. The Properties consist of commercial real estate in Midland, Texas. The
twenty-four-story Midland property ("Bank of America Tower"), where the
Company's headquarters are located, was completed in 1977 and encompasses
329,178 rentable square feet and is approximately 84% occupied. It also includes
a 17-lane drive through bank and a 900 space-parking garage. The average lease
term is 4 years and the major tenant is Bank of America. There are a total of
three tenants in the Bank of America Tower who account for ten percent or more
of the rentable space, consisting of the bank, Pioneer Natural Resources, Inc.,
a public oil and gas company, and a privately held oil and gas company. The
general provisions of the leases require TCTB to provide each tenant useable
office space for a monthly fee and to provide the maintenance, utilities,
janitorial and security expenses. Additionally, the lease agreement allows for
the determination of the incremental increases of the building operations to be
passed through to the tenants. The average annual net rental per occupied square
foot was $7.83 for the year ended December 31, 2005. Century Plaza Tower was
purchased on July 30, 2004 by TCTB at a negotiated price of $436,500 ($311,434
net to the Company's interest). Century Plaza Tower was built in 1979 and
renovated in 1990. It is a twelve story high rise with 99,422 rentable square
feet and is approximately 43% occupied. The majority of the tenants are on a
month to month lease and the Century Plaza Tower currently has one major tenant
occupying approximately 10% of the occupied rentable square feet. The average
annual net rental per occupied square foot was $5.52 for the year ended December
31, 2005. The newly created wholly owned subsidiary of the Company, W Power,
occupies the first floor of Century Plaza Tower. A limited investment in capital
improvements on the Midland buildings in 2006 is estimated to be approximately
$300,000 ($214,044 net to AMEN's interest) and these expenditures are expected
to be mainly associated with tenant improvements and/or build outs. The Bank of
America Tower is held for income generating capabilities and it is the intention
of management that the Century Plaza Tower will be primarily used for the growth
of the Company's wholly owned subsidiary W Power and Light, LP. In May of 2002,
the Bank of America Tower under went an appraisal performed by the Real Estate
Research Corporation. In that appraisal, the Bank of America Tower was indicated
to be in average condition. It is management's opinion that the Century Plaza
Tower is also in average condition. The typical tenants, other than the Bank of
America, are independent oil and gas producers and financial service providers.
The following table sets forth certain information concerning lease expirations,
excluding month to month leases and assuming no renewals for each Property:
Bank of America Tower
Percentage
Number of of Total Percentage of
Lease Leases Square Feet Annualized Square Feet Total Annualized
Expiration Expiring Expiring Gross Base Rent Expiring Gross Base Rent
------------------------------------------------------------------------------------------------
2006 17 81,882 $ 1,785,727 35.8% 39.9%
2007 11 64,564 1,433,563 28.2% 32.0%
2008 7 22,551 625,453 9.9% 14.0%
2009 4 16,869 544,308 7.4% 12.2%
2010 13 42,699 85,318 18.7% 1.9%
2011 - - - - -
2012 - - - - -
2013 - - - - -
2014 - - - - -
2015 - - - - -
------------------------------------------------------------------------------------
Total 52 228,565 $ 4,474,369 100.0% 100.0%
====================================================================================
11
Century Plaza Tower
Percentage
Number of of Total Percentage of
Lease Leases Square Feet Annualized Square Feet Total Annualized
Expiration Expiring Expiring Gross Base Rent Expiring Gross Base Rent
------------------------------------------------------------------------------------------------
2005 2 2,165 $ 56,175 23.1% 75.3%
2006 5 7,212 18,402 76.9% 24.7%
2007 - - - - -
2008 - - - - -
2009 - - - - -
2010 - - - - -
2011 - - - - -
2012 - - - - -
2013 - - - - -
2014 - - - - -
------------------------------------------------------------------------------------
Total 7 9,377 $ 74,577 100.0% 100.0%
====================================================================================
The federal tax basis for the two properties is $5,894,391. Of this amount,
$4,063,742 is related to the buildings that will be depreciated, for tax
purposes, over 39 years using the straight-line method; $803,901 has been
allocated to the parking garages that will be depreciated, for tax purposes,
using the 150% declining balance method over 15 years; $104,138 has been
allocated to partitions and flooring which will be depreciated, for tax
purposes, using the 200% declining balance over 5 years; $236,893 has been
allocated to building improvements and will be depreciated, for tax purposes,
using the 200% declining balance over 7 and 5 years; $575,268 has been allocated
to tenant improvements and will depreciated, for tax purposes, using the 200%
declining balance over the life of the lease or over 39 years using the
straight-line method; and $110,449 has been allocated to land that will not be
depreciated.
The Bank of America Tower is financed by a loan from Wells Fargo Bank (the "TCTB
Note"), originally a $6.8 million non-recourse note bearing annual interest of
7.23% with a 20-year amortization that contains a balloon payment on May 31,
2009 of $5,088,098, assuming no prepayment, and is secured by a $2,100,000
certificate of deposit and the Bank of America Tower. The current balance of the
note is $5,905,034. TCTB is making monthly payments of principal and interest in
the amount of $53,663 for the term note until the maturity date. 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.
Additionally, the TCTB Note contains a prepayment penalty ranging from 1% to 3%
of the outstanding balance.
The Properties are subject to an annual realty tax rate of approximately
3.19105%. For the year ending December 31, 2005 the annual realty tax was
$171,894 and $14,094 for the Bank of America Tower and the Century Plaza Tower,
respectively.
12
As stated above, we recognize that we compete with many companies in providing
leases to prospective tenants and in re-letting space to current tenants upon
expiration of their respective leases. If our tenants decide not to renew or
extend their leases upon expiration, we may not be able to re-let the space.
Because of competitive offerings, even if the tenants do renew or we can re-let
the space, the terms of renewal or re-letting, including the cost of required
renovations, may be less favorable than current lease terms or than expectations
for the space.
In the opinion of management, the Properties are properly insured from loss
related to comprehensive liability, fire, extended coverage, and rental loss.
Though we believe to the best of our ability that policy specifications and
insured limits of these policies are adequate and appropriate, there may be
however, certain types of losses, including lease and other contract claims,
acts of war, acts of terror and acts of God that generally may not be insured.
Should an uninsured loss or a loss in excess of insured limits occur, we could
lose all or a portion of the capital we have invested in the Properties, as well
as anticipated future revenue. If that happened, we might nevertheless remain
obligated for any mortgage debt or other financial obligations related to the
Properties. Though we believe that we maintain insurance policies with carriers
with sufficient assets and capital to cover all insured perils, there may be
however, failures or receiverships of carriers providing insurance on the
Properties. If this occurs, we could be essentially without coverage for perils
and losses.
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.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the fiscal year ended December 31, 2005.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
From January 1 to December 31, 2005, AMEN Properties, Inc.'s common stock traded
on the NASDAQ Small Cap Market(SM) ("NASDAQ Small Cap") under the symbol "AMEN".
The following table sets forth the ranges of high and low sales prices of our
common stock for each quarter within the last two fiscal years as reported on
the NASDAQ Small Cap.
High Low
-------- --------
First Quarter 2004: $ 3.50 $ 1.50
Second Quarter 2004: $ 3.05 $ 2.01
Third Quarter 2004: $ 3.05 $ 1.85
Fourth Quarter 2004: $ 4.88 $ 2.54
13
First Quarter 2005: $ 7.49 $ 3.91
Second Quarter 2005: $ 6.59 $ 3.97
Third Quarter 2005: $ 8.04 $ 5.64
Fourth Quarter 2005: $ 6.75 $ 5.50
January 1, 2006 through March 15, 2006 $ 6.11 $ 5.29
At March 15, 2006, the closing price for our common stock, as reported by NASDAQ
Small Cap, was $5.55 per share. There are approximately 149 holders of record of
our common stock, as of March 15, 2006. A number of such holders of record are
brokers and other institutions holding shares of common stock in "street name"
for more than one beneficial owner. The Company's transfer agent and registrar
is the American Stock Transfer and Trust Company. We have not paid and do not
currently intend to pay cash dividends on our common stock in the foreseeable
future. Under the terms of the loan agreement between the Company and Western
National Bank, the Company is required to obtain consent in writing from Western
National Bank before the Company shall declare or pay any dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table is provided in compliance with Item 201(d) of Regulation
S-B:
----------------------------------------------------------------------------------------------------
Plan category Number of Weighted-average Number of securities remaining
securities to exercise price of available for future issuance under
be issued outstanding equity compensation plans (excluding
upon options, warrants securities reflected in column (a))
exercise of and rights
outstanding
options,
warrants and
rights
----------------------------------------------------------------------------------------------------
(a) (b) (c)
----------------------------------------------------------------------------------------------------
Equity compensation 313,443
plans approved by 433,603 $14.06
security holders
----------------------------------------------------------------------------------------------------
Equity compensation
plans not approved None None None
security holders
----------------------------------------------------------------------------------------------------
Total 433,603 $14.06 313,443
----------------------------------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Company's audited consolidated financial statements and related footnotes
presented in Item 7.
Overview
14
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
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
- Impairments,
- Acquisition of operating properties,
- Revenue Recognition,
- Gain recognition on sale of real estate assets,
- Consolidation of variable interest entities,
- Allowance for doubtful accounts and
- Stock Options
Impairments
Real estate and leasehold improvements are classified as long-lived assets held
for sale or long-lived assets to be held and used. In accordance with SFAS No.
144, we record assets held for sale at the lower of carrying value or sales
price less costs to sell. For assets classified as held and used, these assets
are tested for recoverability when events or changes in circumstances indicate
that the estimated carrying amount may not be recoverable. An impairment loss is
recognized when expected undiscounted future cash flows from a Property is less
than the carrying value of the Property. Our estimates of cash flows of the
Properties requires us to make assumptions related to future rental rates,
occupancies, operating expenses, the ability of our tenants to perform pursuant
to their lease obligations and proceeds to be generated from the eventual sale
of our Properties. Any changes in estimated future cash flows due to changes in
our plans or views of market and economic conditions could result in recognition
of additional impairment losses.
If events or circumstances indicate that the fair value of an investment
accounted for using the equity method has declined below its carrying value and
15
we consider the decline to be "other than temporary," the investment is written
down to fair value and an impairment loss is recognized. The evaluation of
impairment for an investment would be based on a number of factors, including
financial condition and operating results for the investment, inability to
remain in compliance with provisions of any related debt agreements, and
recognition of impairments by other investors. Impairment recognition would
negatively impact the recorded value of our investment and reduce net income.
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.
Should a tenant terminate its lease, the unamortized portion of the in-place
16
lease value and the customer relationship value and above-market and
below-market lease values would be charged to expense.
Revenue 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.
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").
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.
Gain Recognition On Sale of Real Estate Assets
We perform evaluations of each real estate sale to determine if full gain
recognition is appropriate in accordance with SFAS No. 66, "Accounting for Sales
of Real Estate". The application of SFAS No. 66 can be complex and requires us
to make assumptions including an assessment of whether the risks and rewards of
ownership have been transferred, the extent of the purchaser's investment in the
property being sold, whether our receivables, if any, related to the sale are
collectible and are subject to subordination, and the degree of our continuing
involvement with the real estate asset after the sale. If full gain recognition
is not appropriate, we account for the sale under an appropriate deferral
method.
Consolidation of Variable Interest Entities
We perform evaluations of each of our investment partnerships, real estate
partnerships and joint ventures to determine if the associated entities
constitute a Variable Interest Entity, or VIE, as defined under Interpretations
46 and 46R, "Consolidation of Variable Interest Entities," or FIN 46 and 46R,
respectively. In general, a VIE is an entity that has (i) an insufficient amount
of equity for the entity to carry on its principal operations, without
additional subordinated financial support from other parties, (ii) a group of
equity owners that are unable to make decisions about the entity's activities,
17
or (iii) equity that does not absorb the entity's losses or receive the benefits
of the entity. If any one of these characteristics is present, the entity is
subject to FIN 46R's variable interests consolidation model.
Quantifying the variability of VIEs is complex and subjective, requiring
consideration and estimates of a significant number of possible future outcomes
as well as the probability of each outcome occurring. The results of each
possible outcome are allocated to the parties holding interests in the VIE and,
based on the allocation, a calculation is performed to determine which party, if
any, has a majority of the potential negative outcomes (expected losses) or a
majority of the potential positive outcomes (expected residual returns). That
party, if any, is the VIE's primary beneficiary and is required to consolidate
the VIE. Calculating expected losses and expected residual returns requires
modeling potential future results of the entity, assigning probabilities to each
potential outcome, and allocating those potential outcomes to the VIE's interest
holders. If our estimates of possible outcomes and probabilities are incorrect,
it could result in the inappropriate consolidation or deconsolidation of the
VIE.
For entities that do not constitute VIEs, we consider other GAAP, as required,
determining (i) consolidation of the entity if our ownership interests comprise
a majority of its outstanding voting stock or otherwise control the entity, or
(ii) application of the equity method of accounting if we do not have direct or
indirect control of the entity, with the initial investment carried at costs and
subsequently adjusted for our share of net income or less and cash contributions
and distributions to and from these entities.
Allowance for Doubtful Accounts
Our accounts receivable balance is reduced by an allowance for amounts that may
become uncollectible in the future. Our receivable balance is composed primarily
of rents and operating cost recoveries due from its tenants and billed and
unbilled customer retail electricity usage flowed for a given period. The
allowance for doubtful accounts is reviewed at least quarterly for adequacy by
reviewing such factors as the credit quality of our tenants and customers, any
delinquency in payment, historical trends and current economic conditions. If
the assumptions regarding our ability to collect accounts receivable prove
incorrect, we could experience write-offs in excess of the allowance for
doubtful accounts, which would result in a decrease in net income. As of
December 31, 2005, the W Power'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 data 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. Accounts receivable greater than one hundred and twenty days are forwarded
to a third party collection agency.
Stock Options
The Company accounts for its options granted to employees in accordance with APB
25 and SFAS 148. Stock-based awards to non-employees are accounted for under the
provisions of SFAS 123 based on their fair value as determined by the
Black-Scholes option-pricing model. Had compensation expense been determined
based on the fair value of the options at the grant dates consistent with the
method of accounting under SFAS 123, the Company's net income and net income per
share for the years ended December 31, 2005 and 2004 would have been decreased
by approximately $151,000 and $22,000, respectively. See Footnote S to the
Company's Consolidated Financial Statements included herein.
Results of Operations Full Year 2005 Compared to Full Year 2004
W Power did not attain its market share benchmark as previously expected by
management. This was due to W Power intentionally limiting its acquisition of
customers during 2005. Unforeseen levels of wholesale electricity and natural
gas price escalation and volatility created a marketplace which made customer
acquisition both difficult and unprofitable for W Power. A number of events
contributed to the price volatility. These include an extended period of
above-average summer and fall temperatures, record-breaking electricity demand
and consumption across Texas, a shortage of electric generating capacity, two
18
significant hurricanes which disrupted natural gas production and
transportation, and a series of geopolitical events affecting energy markets.
While some of these events were extraordinary, we are concerned that a longer
lasting structural change in the Texas wholesale electricity market may have
occurred due to reduced generating capacity reserve margins. If so, W Power will
continue to see high price volatility in this market even with sharp declines in
natural gas prices. W Power may have difficulty in maintaining gross profit
margins sufficient to offset the increased price volatility. However, given the
fact that W Power faced significant market conditions mentioned above during its
first year of operations, W Power was able to show positive earnings for the
month of December 2005. We believe W Power will need to continue its
conservative growth strategy and focus on growing its customer base in a
deliberate manner with segments where relatively larger gross margins are
available, rather than top line revenue and market share.
W Power will also be challenged by higher commodity energy prices which increase
the amount of capital requirements to hedge forward its electricity requirements
using the Company's available cash and credit facilities. Additionally,
contracting with customers for longer terms at current prices increase the risk
associated with bad debt, particularly if prices were to decline sharply.
We continue to believe the largest risks facing W Power are managing its growth
wisely and maintaining sufficient credit availability to support that growth.
Even with continued deliberate limiting of its growth, the Company's business
model leads management to expect earnings from operations, before income tax,
depreciation and amortization, to be positive for 2006.
Overview
--------
For the year ended December 31, 2005, the Company showed a net loss of $704,562
or $.32 per share as compared to net income of $801,255, or $.36 per share for
the same period ended December 31, 2004, for a change of approximately
$1,506,000. This change is primarily due to the Company's distribution and
simultaneous sale of its undivided interest in the Lubbock building on December
31, 2004. This transaction resulted in a gain of approximately $905,100 and a
reclassification of approximately $394,000 from operating income to income from
a discontinued business component for the year ending December 31, 2004. The
remaining portion of the net loss is related to the Company entering into the
retail electricity market in Texas through its newly formed wholly owned
subsidiary W Power. W Power began commercial operations on January 1, 2005 and
showed a net loss of approximately $351,000 for the year ending December 31,
2005.
Revenues
--------
The Company's consolidated revenues were $10,180,892 for the period ending
December 31, 2005, compared to $2,461,629 for the period ending December 31,
2004. This significant increase was due primarily to W Power's start of
commercial operations on January 1, 2005. For the period ending December 31,
2005, W Power had total revenues of approximately $7,172,000.
The Company's rental revenue from TCTB increased for the period ending December
31, 2005 over the same period ending December 31, 2004 by approximately $
547,000. The increase is mainly due to the Company reporting a full year of
rental revenue for a twelve floor multi-tenant office building in Midland, Texas
acquired on July 30, 2004. Additionally, during the third quarter of 2005
management of TCTB began to pass through the incremental increase of building
operating expenses for the Bank of America Tower. This pass through of expenses
resulted in an increase of revenue of approximately $302,000. Further discussion
of the Company's real estate properties can be found in Item 2.
Operating expenses
------------------
Total operating expenses for the period ending December 31, 2005 and 2004 were
$10,182,561 and $2,342,083, respectively. The increase of approximately
$7,841,000 in operating expense is mainly related to W Power's cost of goods and
services, mainly the purchase of wholesale electricity, of approximately
$6,924,000 and an increase in general and administrative costs of approximately
$434,000, mainly associated with W Power. Additionally, the Company experienced
an increase in the building operating expenses due to the Company reporting a
full year of building operations for a twelve floor multi-tenant office building
in Midland, Texas acquired on July 30, 2004 and an increase of the building
utilities due to the rising costs of energy.
19
W Power's cost of goods and services were approximately $6,924,000 or 96.5% of
retail electricity sales for the period ended December 31, 2005. W Power's gross
profit was approximately $248,000 or 3.5% of retail electricity sales for the
period ending December 31, 2005. Due to W Power not being in operations during
the period ended December 31, 2004 comparative information is not available.
Rental property operations and depreciation expense experienced an increase of
approximately $552,000 and $87,000, respectively, for the year ended December
31, 2005 as compared to the year ended December 31, 2004. The increase in the
property operations is attributable to the Company experiencing an increase of
approximately 189% in utility expense due to the rising cost of energy during
the year ended December 31, 2005. The increase in depreciation of approximately
$87,000 is due to a full year of depreciation expense for the twelve floor
multi-tenant office building in Midland, Texas acquired on July 30, 2004 and the
Company incurring approximately $420,000 in additional depreciable capital
improvements during the year ended December 31, 2005, primarily tenant
improvements.
For the year ended December 31, 2005 general and administrative costs increased
approximately $434,000 as compared to the year ended December 31, 2004. This
increase is primarily associated with payroll and data processing expense
associated with W Power due to W Power beginning operations on January 1, 2005.
Other (expense) income
----------------------
For the year ended December 31, 2005 as compared to the year ended December 31,
2004 the Company incurred an increase of approximately $(111,000) in other
(expense) income. The increase is mainly related to the Company impairing a note
receivable for approximately $186,000. During the fourth quarter of 2005 the
Company entered into an agreement for a proposed settlement offer by Blue Hill
Media, Inc. on a certain note receivable. The agreement resulted in the Company
impairing the note receivable and subsequently receiving $50,000 in February
2006 for the cancellation of the note. Additionally, the Company received
$59,000 more in interest income for the year ending December 31, 2005 as
compared to the same period ending December 31, 2004. This increase in interest
income is mainly due to the interest income the Company received on the
$2,100,000 certificate of deposit with 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 (see item 2 above and note F and note K to the Financial
Statements contained in Item 7 for further discussion).
Minority interest
-----------------
Minority interest expense for the year ended December 31, 2005 and 2004 was
$91,341 and $117,331, respectively, and reflects the minority interest owners of
TCTB. The decrease in minority interest is related to a decrease in income at
TCTB.
Discontinued Operations
-----------------------
Discontinued operations are related to the Company selling its undivided
interest in the Lubbock commercial real estate building that was distributed to
the TCTB Partners according to the partnership sharing ratios. The distribution
and sale of the Company's undivided interest in the Lubbock building resulted in
a gain of approximately $905,100 and a reclassification of approximately
$394,000 in operating income as income from a discontinued business component
for the year ending December 31, 2004.
Liquidity and Capital Resources
Operating activities
--------------------
During the years ended December 31, 2005 and 2004, net cash (used in) provided
by operating activities was $(459,984) and $707,638, respectively. The net
decrease of approximately $1,168,000 provided by operating activities is mainly
associated with the gain on the sale of the Lubbock building during 2004 of
approximately $905,000. Additionally, during the year the year ended December
31, 2005, the Company paid the balance, approximately $286,800, of the accrued
interest on the nine promissory notes, certain of which are with related
parties, entered into by Delaware in October 2002 to purchase the original 64.9%
ownership interest in TCTB.
20
Investing activities
--------------------
Net cash (used in) provided by investing activities was $(1,971,773) and
$938,241 for the years ended December 31, 2005 and 2004, respectively, for a net
change of approximately $2,910,000. The change in net cash (used in) provided by
investing activities is mainly due to the proceeds from the sale of Lubbock
building of approximately $3,924,000 during 2004. The remaining difference is
attributable to the cash outlays by W Power for the required collateral deposits
with W Power's wholesale electricity providers and ERCOT. Additionally, TCTB had
cash outlays of approximately $420,000 on remodeling lease space for new and or
renewing tenants as compared to approximately $125,000 for the year ended
December 31, 3004.
Financing activities
--------------------
Net cash provided by (used in) financing activities was $388,285 and $(239,506)
for the years ended December 31, 2005 and 2004, respectively, for a net change
of approximately $ 628,000. During the period ended December 31, 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. Additionally, the Company received $2,000,000 from the issuance of
the Company's Series C Preferred Stock on March 1, 2005 (see note R to the
Financial Statements contained in Item 7 for further discussion). During the
period ended December 31, 2005, TCTB did not make any distributions to the
minority interest owners.
Net operating loss
------------------
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $30 million. This NOL is primarily 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 to $5 million
and has been diligent in its efforts to ensure its preservation for eventual
use. The Company was able to offset the prior two years, 2003 and 2004's,
taxable income against the NOL and the current year taxable loss has been added
to the Company's NOL carry forward. The Company believes that the utilization,
without limitation, of the Company's NOL will be determined by the ability of
management to limit the issue of new equity due to IRC Section 382 restrictions.
However, if an opportunity presents itself that would be more valuable to the
shareholders than the approximate $2.5 to $5 million present value we have
assigned the NOL we will strongly consider pursuing the deal and would consider
issuing equity to do so.
Working capital
---------------
At December 31, 2005, the Company had working capital and investments of
$1,696,674 comprised of cash of $2,104,428, accounts receivable of $1,300,545,
other current assets of $248,239, less current liabilities of $1,956,538. On
February 28, 2005, the Company entered into a loan agreement with Western
National Bank, Midland, Texas. The loan agreement is a Revolving Line of Credit
in an amount of $5,000,000. Under the loan agreement the Bank may, but is not
obligated to, advance more than $2,500,000 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
loan agreement is secured by a security agreement covering all of the accounts
receivable of W Power. In addition, the loan agreement is guaranteed by
purchasers of the Company's Series C Preferred Stock on March 1, 2005 whose
guarantees are partially secured by letters of credit. As of March 28, 2005 the
Company has not utilized the loan agreement with Western National Bank and
believes that its utilization plus cash flow from operations will be sufficient
to meet the Company's anticipated needs over the next twelve months. See the
discussion below in 2006 Outlook for further detail of expected cash flow. There
can be no assurance that current working capital arrangements will be sufficient
to meet the Company's needs or that additional financing will be available to
the Company or that such financing will be available with acceptable terms.
2006 OUTLOOK
The following information is presented based upon the Company's knowledge of our
current real estate operations and pro forma projections for W Power. This
information is not presented in accordance with generally accepted accounting
principles, which require us to fully consolidate TCTB, showing 100% of its
21
revenues and expenses and subtracting the minority interest in TCTB. Instead,
the following reflects information net to AMEN's interest. The net effect to
AMEN, however, should be approximately the same.
Anticipated operations for W Power - The Company's projections for W Power in
2006 anticipate capital requirements of approximately $3,000,000 to finance
electricity procurement, business development activities, and capital
requirements. The Company's business model leads management to expect earnings
from operations, before income tax, depreciation and amortization, to be
positive for 2006. The Company believes that it has positioned itself to meet
the expected capital requirements of W Power with (1) available borrowings under
the working capital-type loan agreement with Western National Bank, Midland,
Texas established in 2005, and (2) existing cash available in the Treasury.
Under the loan agreement, the Bank may, but is not obligated, to advance more
than $2,500,000. Borrowings under the loan agreement are subject to a borrowing
base equal to the lesser amount of $5,000,000 or seventy-five (75%) of the
eligible customer receivables of the Company and its subsidiary W Power. W
Power's projected accounts receivable balances for 2006 will allow the Company
to increase the borrowing base as provided by the loan agreement with Western
National Bank. The Company believes its sources of funding will be adequate to
meet W Power's 2006 needs so long as commodity prices remain at or below their
current price levels, W Power exercises a controlled growth strategy, and the
existing retail and wholesale customer bases remain largely unchanged. However,
if new circumstances or unforeseen events occur the Company may not be able to
meet its capital requirements from its current sources.
W Power anticipates gross billings during 2006 for both retail and wholesale
electricity of approximately $12,000,000. Cash expenditures for general and
administrative costs related to W Power operations are estimated to be $750,000.
Regulated tariff charges for delivery of the retail electricity are estimated to
be $1,000,000 and commodity and ancillary costs associated with procurement of
wholesale energy are expected to be about $10,000,000. If electricity prices
steeply decline W Power could accelerate its growth, while a steady increase in
prices could contribute to W Power deliberately constraining its growth further.
Current real estate operations - Based primarily upon historical performance of
the Bank of America Tower in Midland Texas, the Company anticipates TCTB
operating results in 2006 to produce approximately $386,000 in positive cash
flow from operations, net to AMEN's 71.348% ownership. As discussed above,
generally accepted accounting principles require us to fully consolidate TCTB,
showing 100% of its revenues and expenses and subtracting the minority interest
in TCTB. Instead, the following reflects information net to the Company's
interest of 71.348%. The net effect to the Company, however, should be
approximately the same. TCTB's cash flow is generated from tenant leases and the
expected gross receipts for 2006 are expected to be approximately $2,260,000.
TCTB's real estate operating expenses and general and administrative costs are
expected to be $1,219,000, current annual interest expense related to the Wells
Fargo Note approximates $315,000 and property taxes are anticipated to be
$126,000. TCTB estimates spending approximately $214,000 in capital improvements
on the Midland buildings in 2006, and these expenditures are expected to be
mainly associated with tenant improvements and/or build outs. TCTB is expected
to produce approximately $386,000 in positive cash flow.
Regarding anticipated cash outflows in 2006 for the corporate expenses, we are
estimating total cost to maintain our public company status to be approximately
$250,000 annually, which includes NASDAQ fees, audit fees, legal expenses,
public filing fees, directors and officers insurance and costs related to the
annual shareholders meeting. Because the majority of our officers have agreed
not to take a salary, our corporate general and administrative cash outlays are
expected to be $125,000. This amount is mainly cash outlays for salary and
benefits for our Chief Financial Officer.
Forward Looking Statements
Certain information in this section may contain "forward-looking statements"
within the meaning of Section 21e of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including, but
not limited to, any projections of earnings, revenues or other financial items,
any statements of the plans and objectives of management for future operations,
any statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, "forward-looking
statements" can be identified by the use of terminology such as "may," "will,"
"expects," "believes," "plans," "anticipates," "estimates," "potential," or
22
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in its forward-looking
statements are reasonable, it can give no assurance that such expectations or
any of its "forward-looking statements" will prove to be correct, and actual
results could differ materially from those projected or assumed in the Company's
"forward-looking statements." Our financial condition and results, as well as
any other "forward-looking statements," are subject to inherent risks and
uncertainties, including but not limited to those risk factors summarized below.
Risk Factors
Lack of Operating History
In recent years, the Company has substantially changed its business plan. As a
result, the Company's operating history under its current business plan is
limited. In addition, one of the Company's subsidiaries is a recent start-up
electricity retail business. Such limited operating history of the Company and
its subsidiaries may not provide sufficient information for Purchasers to base
an evaluation of likely performance.
Dependence On Key Personnel
The Company depends to a large extent on the services of its executive officers
and the officers and managers of its subsidiaries. Particularly, the Company's
newest subsidiary, an electricity retail business, is heavily dependent upon the
knowledge and expertise of the President of the subsidiary. The loss of the
services of any of those persons could have a material adverse effect on the
Company and its subsidiaries.
Competition
The Company and its subsidiaries encounter substantial competition in acquiring
rental property and oil and gas royalties, leasing rental space, and securing
trained personnel. Most competitors have substantially larger financial
resources, staffs and facilities than the Company and its subsidiaries, and the
Company and its subsidiaries may be at a significant disadvantage in many
competitive situations. See also "Reliance Upon New Business -- the Retail
Electricity Market is Highly Competitive."
Adverse Market Conditions
The economic performance and value of the Company's properties are subject to
all of the risks associated with owning and operating real estate, including
o changes in the national, regional and local economic climate
o the attractiveness of our properties to tenants
o the ability of tenants to pay rent
o competition from other available properties
o changes in market rental rates
o the need to periodically pay for costs to repair, renovate and
re-let space
o changes in operating costs, including costs for maintenance,
insurance and real estate taxes
o changes in laws and governmental regulations, including those
governing usage, zoning, the environment and taxes
Failure By Tenants To Make Rental Payments
The performance of the Company's real estate investments will depend on our
ability to collect rent from tenants. At any time our tenants may experience a
change in business conditions or a downturn in their business that may
significantly weaken their financial condition. As a result, our tenants may
delay a number of lease commencements, decline to extend or renew a number of
leases upon expiration, fail to make rental payments when due under a number of
leases, close a number of offices or declare bankruptcy. Any of these actions
could result in the termination of the tenants' leases and the loss of rental
income.
23
Acquisitions of Properties May Not Yield Expected Returns
Newly acquired properties may fail to perform as expected. Management may
underestimate the costs necessary to bring acquired properties up to standards
established for their intended market position. In addition, we may not achieve
expected cost savings and planned operating efficiencies. Acquired properties
may not perform as well as we anticipate due to various factors, including
changes in macro-economic conditions and the demand for office space or oil and
gas royalties. As the Company grows, we have to invest further in overhead to
assimilate and manage a portfolio of potentially unrelated properties.
We may face significant competition for acquisitions of properties, which may
increase the costs of acquisitions. We may compete for acquisitions of, and
investments in, properties with an indeterminate number of investors, including
investors with access to significant capital such as domestic and foreign
corporations and financial institutions, publicly traded and privately held
REITs, private institutional investment funds, investment banking firms, life
insurance companies and pension funds. This competition may increase prices for
the types of properties in which we invest. In addition, the cost and
availability of capital necessary to increase our asset base and revenue
generating capability is difficult to predict and in and of itself may be a
barrier to pursuing future acquisitions.
The Company's Asset Investments Are Illiquid
Real estate property investments and oil and gas royalties generally cannot be
disposed of quickly. The Company's recent start-up electricity retail business
is also illiquid. Therefore, we may not be able to vary our mix of assets or
achieve potentially required liquidity in response to economic or other
conditions promptly or on favorable terms.
Some Potential Losses May Not Be Covered By Insurance
The Company carries insurance on our properties that we consider appropriate and
consistent with industry practices. Though we plan to assure to the best of our
ability that policy specifications and insured limits of these policies are
adequate and appropriate, there may be however, certain types of losses,
including lease and other contract claims, acts of war, acts of terror and acts
of God that generally may not be insured. Should an uninsured loss or a loss in
excess of insured limits occur, we could lose all or a portion of the capital we
have invested in a property, as well as the anticipated future revenue from the
property. If that happened, we might nevertheless remain obligated for any
mortgage debt or other financial obligations related to the property. Though we
plan to maintain insurance policies with carriers with sufficient assets and
capital to cover all insured perils, there may be however, failures or
receiverships of carriers providing insurance to the Company. If this occurs,
the Company could be essentially without coverage for perils and losses.
Ability To Service Long-term Debt
Certain of the Company's activities are subject to risks normally associated
with debt financing. The timing and amount of cash flows could be insufficient
to meet required payments of principal and interest. We may not be able to
refinance acquired debt, which in virtually all cases requires substantial
principal payments at maturity, and, even if we can, refinancing might not be
available on favorable terms. If principal payments due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions,
including new equity capital, cash flow may not be sufficient in all years to
repay all maturing debt. Prevailing interest rates or other factors at the time
of refinancing, including the possible reluctance of lenders to make commercial
real estate loans, may result in higher interest rates and increased interest
expenses.
Potential Environmental Liabilities
Under various environmental laws, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances, including asbestos-containing materials that are located on
or under the property. Specific asbestos remediation has taken place in certain
of our rental buildings. Environmental laws often impose liability whether the
owner or operator knew of, or was responsible for, the presence of those
substances. In connection with our ownership and operation of properties, we may
be liable for these costs, which could be substantial. Also, our ability to
arrange for financing secured by that real property might be adversely affected
because of the presence of hazardous or toxic substances or the failure to
24
properly remediate any contamination. In addition, we may be subject to claims
by third parties based on damages and costs resulting from environmental
contamination at or emanating from our properties.
Non-Compliance With The Americans With Disabilities Act ("ADA")
Under the ADA, all public accommodations are required to meet certain federal
requirements related to physical access and use by disabled persons. While we
believe our properties comply in all material respects with these physical
requirements or would be eligible for applicable exemptions from material
requirements because of adaptive assistance provided, a determination that we
are not in compliance with the ADA could result in the imposition of fines or an
award of damages to private litigants. If we were required to make modifications
to comply with the ADA, our ability to meet financial obligations could be
adversely affected.
Potential Adverse Effects On Our Net Operating Loss ("NOL")
There are significant limitations of utilization of the NOL under applicable tax
law as it relates to a change in ownership among five-percent (5%) owners
exceeding fifty percent (50%), and a business continuity test. If we are unable
to meet these standards, utilization of the NOL could be limited or reduced to
zero.
Volatility Of Oil And Gas Prices
Anticipated results from our oil and gas royalty investments are substantially
dependent on prices of oil and gas. Prices for oil and gas are subject to large
fluctuations in response to relative minor changes in the supply of, and demand
for, oil and gas, market uncertainty and a variety of additional factors beyond
our control. These factors include weather conditions, the economy, actions of
the government regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial extended decline in the
price of oil and gas could have an adverse impact on our revenue generating
capability.
Uncertainty Of Estimated Oil And Gas Reserves
Estimates of economically recoverable oil and gas reserves are based upon a
number of variable factors and assumptions, which are speculative and not under
our control. Actual production and reserve data used to value future
acquisitions will be estimates only and will be subject to uncertainties.
Estimated quantities of oil and natural gas may differ considerably from amounts
actually recovered and thus future cash flows could be impaired or accelerated
beyond management's expectations.
Availability of Capital Resources
Currently, the Company's capital resources are expected to be limited to the
proceeds obtained through the private placement under Regulation D of the
Company's Series C Preferred Stock, borrowings under its credit facility with
Western National Bank and the net income from operations of the Company and its
Subsidiaries. In the event our current capital resources are insufficient to
fund our operations and capital expenditures, the Company may be forced to seek
other sources of financing, including without limitation, incurrence of debt and
issuances of additional equity securities. There can be no assurance that such
financing will be available on terms acceptable to the Company or on any terms.
If additional financing is not available, it will have a material adverse effect
on our operations.
Reliance Upon New Business
The Company recently formed a new Subsidiary, W Power and Light, LP, to commence
operations in the electricity retail business. In addition to the general risks
discussed above, this new business is subject to additional risks including
those discussed below.
The Retail Electricity Market is Highly Competitive.
25
The market for retail electricity customers is very competitive. In certain
markets, our principal competitors include the local regulated electric utility
or its non-regulated affiliate. In other markets, we face competition from
independent electric providers, independent power producers and wholesale power
providers. In most cases, our competitors have the advantage of long-standing
relationships with customers, longer operating histories and/or larger and
better capital resources. As a result, it may not be profitable for us to enter
into some markets and our ability to increase market share may be hindered.
In general, we compete on the basis of price, our commercial and marketing
skills relative to other market participants, service and our financial
position. Other factors affecting our competitive position include our ability
to obtain electricity for resale and related transportation/transmission
services. Since many of our energy customers, suppliers and transporters require
financial guarantees and other assurances regarding contract performance, our
access to letters of credit, surety bonds and other forms of credit support is
another factor affecting our ability to compete in the market.
Our Business Is Subject To Market Risks.
Unlike a traditional regulated electric utility, we are not guaranteed a rate of
return on our capital investments. Our results of operations, financial
condition and cash flows depend, in large part, upon prevailing market prices
for wholesale and retail electricity in our markets and the impact of regulatory
decisions on prices charged to our customers. Market prices may fluctuate
substantially over relatively short periods of time, potentially adversely
affecting our business. Changes in market prices for electricity may result from
the following factors among others:
o weather conditions;
o seasonality;
o demand for energy commodities;
o general economic conditions;
o forced or unscheduled interruptions in electricity
available;
o disruption of electricity transmission or transportation,
infrastructure or other constraints or inefficiencies;
o financial position of market participants;
o changes in market liquidity;
o natural disasters, wars, embargoes, acts of terrorism and
other catastrophic events; and
o governmental regulation and legislation.
Dependence Upon Third Party Providers.
The Company does not own any generating resources to supply electricity for our
retail business in this market. As a result, we must purchase all of the
generation capacity necessary to supply our retail energy business from third
parties. In addition, we depend on power transmission and distribution
facilities owned and operated by utilities and others to deliver energy products
to our customers. If transmission or distribution is inadequate or disrupted,
our ability to sell and deliver our products may be hindered. Any infrastructure
failure that interrupts or impairs delivery of electricity could have an adverse
effect on our business.
We are dependent on the transmission and distribution utilities for reading our
customers' energy meters. We also rely on the local transmission and
distribution utility or, in some cases, the independent system operator, to
provide us with our customers' information regarding energy usage; and we may be
limited in our ability to confirm the accuracy of the information. If we receive
incorrect or untimely information from the transmission and distribution
utilities, we could have difficulty properly billing our customers and
collecting amounts owed to us. Failure to receive correct and timely information
could have an adverse effect on our business.
Concentration Of Credit Risk
The Company's revenues are derived principally from uncollateralized customer
electricity billings and rents from tenants. The concentration of credit risk in
a limited number of industries may affect its overall exposure to credit risk
because customers and tenants may be similarly affected by changes in economic
and other conditions.
26
Regulation of Electricity Retail Business.
The Company's electricity retail business operates in a regulatory environment
that is undergoing significant changes as a result of varying restructuring
initiatives at both the state and federal levels. We cannot predict the future
direction of these initiatives or the ultimate effect that this changing
regulatory environment will have on our business. Moreover, existing regulations
may be revised or reinterpreted and new laws and regulations may be adopted or
become applicable to our facilities or our commercial activities. Such future
changes in laws and regulations may have an adverse effect on our business.
Regulators, regional transmission organizations and independent system operators
have imposed and may continue to impose price limitations, bidding rules and
other mechanisms in an attempt to address price volatility and other issues in
power markets. If the trend toward competitive restructuring of the power market
is reversed, discontinued or delayed, our business growth prospects and
financial results could be adversely affected.
Reliance on ERCOT.
ERCOT is responsible for handling, scheduling and settlement for all electricity
supply volumes in the ERCOT Region. ERCOT plays a vital role in the collection
and dissemination of metering data from the transmission and distribution
utilities to the retail electric providers. We and other retail electric
providers schedule volumes based on forecasts, which are based, in part, on
information supplied by ERCOT. To the extent that these amounts are not accurate
or timely, we could have incorrectly estimated our scheduled volumes and supply
costs.
In the event of a default by a retail electric provider of its payment
obligations to ERCOT, the portion of the obligation that is unrecoverable by
ERCOT is assumed by the remaining market participants in proportion to each
participant's load ratio share. We would pay a portion of the amount owed to
ERCOT should such a default occur if ERCOT is not successful in recovering such
amount. The default of a retail electric provider in its obligations to ERCOT
could have an adverse effect on our business.
Our Strategic Plans May Not be Successful.
The Company's retail energy business operates in the deregulated segments of the
electric power industry. The successes of our long-term strategic plans are
predicated upon the continuation of the trend toward greater competitive markets
in this industry. If the trend towards competitive restructuring of the electric
power industry is reversed, discontinued or delayed, our business could be
adversely affected.
Non-Performance By Counterparties.
Our operations are exposed to the risk that counterparties who owe us money or
commodities and services will not perform their obligations. When such parties
fail to perform their obligations, we might be forced to replace the underlying
commitment at then-current market prices. In this event, we could incur reduced
operating results or losses.
THE FOREGOING SUMMARY OF CERTAIN CONSIDERATIONS AND RISKS DO NOT PURPORT TO BE A
COMPLETE EXPLANATION OF THE RISKS RELATED TO AN INVESTMENT IN THE COMPANY.
PROSPECTIVE INVESTORS SHOULD READ SEC FILINGS AND OTHER INFORMATION PROVIDED BY
THE COMPANY BEFORE DETERMINING TO INVEST IN THE COMPANY.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements prepared in accordance with Item 310(a) of Regulation
S-B are included in this report commencing on page 34.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
27
None
ITEM 8a. 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, 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 are primarily attributable to the Company currently having only one
full time employee at the corporate level and the continuing development of the
Company's new start up subsidiary W Power and Light, L.P. 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 Securities 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
officer 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 within the time period specified in the rules and forms of the SEC,
notwithstanding the deficiencies noted above.
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.
ITEM 8b. OTHER INFORMATION
None
PART III
Information Incorporated by Reference
The information required by Item 9 -- Directors and Executive Officers of the
Registrant, Item 10 -- Executive Compensation, Item 11 -- Security Ownership of
Certain Beneficial Owners and Management and Related Stockholders Matters (other
than information concerning securities authorized for issuance under equity
compensation plans), Item 12 -- Certain Relationships and Related Transactions,
and Item 14 -- Principal Accountant Fees and Services, is incorporated by
reference from our definitive proxy statement, which will be filed with the SEC
no later than April 30, 2006. For information concerning securities authorized
for issuance under equity compensation plans, see "Market for Common Equity and
Related Stockholder Matters -- Securities Authorized for Issuance under Equity
Compensation Plans" in Part II of this Form 10-KSB
ITEM 13. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1+ Certificate of Incorporation and Certificates of Amendments
thereto of DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
28
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.4 ~ Certificate of Designation for Series A Preferred Stock
3.4(a) ~~ Amended Certificate of Designation for Series A Preferred Stock
3.5 ~~ Certification of Designation for Series B Preferred Stock
3.6*** Certificate of Amendment of Certificate of Incorporation dated
May 26, 2004
3.7@ Certificate of Designation for Series C Preferred Stock
4.1+ Warrant Certificate between the Company and Robert Varney dated
July 10, 1996
4.2+ Warrant Certificate between the Company and Robert Varney dated
September 26, 1996
4.3+ Warrant Certificate between the Company and Bruce Edgington dated
July 30, 1996
4.4+ Warrant Certificate between the Company and Bruce Edgington dated
October 30, 1996
4.5@ Form of Warrant Certificate dated March 1, 2005
10.1// Asset Purchase Agreement between the Company and Blue Hill Media,
Inc. dated December 13, 2002
10.2+ Form of Stock Option Agreement
10.3+ 1997 Stock Option Plan
10.4* 1997 Stock Option Plan, as amended April 6, 1998
10.5* 1998 Stock Option Plan
10.6** 1998 Stock Option Plan, as amended February 26, 1999
10.7## 1998 Stock Option Plan, as amended March 3, 2000
10.8++ Stock Purchase Agreement between the Company and A. Scott Dufford
for Series A Preferred Stock dated September 29, 2000
10.9++ Stock Purchase Agreement between the Company and John R. Norwood
for Series A Preferred Stock dated September 29, 2000
10.10++ Stock Purchase Agreement between the Company and J.M. Mineral and
Land Co. for Series A Preferred Stock dated September 29, 2000
10.11++ Stock Purchase Agreement between the Company and Jon M. Morgan
Pension Plan for Series A Preferred Stock dated September 29,
2000
10.12++ Stock Purchase Agreement between the Company and Stallings
Properties, Ltd. for Series A Preferred Stock dated September 29,
2000
29
10.13++ Stock Purchase Agreement between the Company and John D. Bergman
for Series A Preferred Stock dated September 29, 2000
10.14++ Stock Purchase Agreement between the Company and Julia Jones
Family Trust for Series A Preferred Stock dated September 29,
2000
10.15++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series A Preferred Stock dated September 29, 2000
10.16++ Stock Purchase Agreement between the Company and Soft Op, L.P.
for Series A Preferred Stock dated September 29, 2000
10.17++ Stock Purchase Agreement between the Company and Lighthouse
Partners, L.P. for Series A Preferred Stock dated September 29,
2000
10.18++ Stock Purchase Agreement between the Company and Ray McGlothlin,
Jr. for Series A Preferred Stock dated September 29, 2000
10.19++ Stock Purchase Agreement between the Company and Gary J. Lamb for
Series A Preferred Stock dated September 29, 2000
10.20++ Stock Purchase Agreement between the Company and Frosty Gilliam,
Jr. for Series A Preferred Stock dated September 29, 2000
10.21++ Stock Purchase Agreement between the Company and Bruce Edgington
for Series B Preferred Stock dated December 31, 2001
10.22++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series B Preferred Stock dated December 31, 2001
10.23++ Stock Purchase Agreement between the Company and Earl E. Gjelde
for Series B Preferred Stock dated December 31, 2001
10.24++ Stock Purchase Agreement between the Company and Jon M. Morgan
for Series B Preferred Stock dated December 31, 2001
10.25++ Stock Purchase Agreement between the Company and Soft Op, L.P.
for Series B Preferred Stock dated December 31, 2001
10.26++ Annex to the Stock Purchase Agreement for Series A Preferred
Stock dated September 29, 2000
10.27# Agreement to Suspend Dividends and Consent of the Holders of
Series A Preferred Stock of Amen Properties, Inc. dated May 30,
2003.
10.28# Agreement to Suspend Dividends and Consent of Holders of Series B
Convertible Preferred Stock of Amen Properties, Inc. dated May
30, 2003.
10.29^ Consent, Waiver and Amendment of the holders of Series A
Preferred Stock dated January 2005 (identical copy executed by
each holder)
10.30^ Consent, Waiver and Amendment of the holders of Series B
Preferred Stock dated January 2005 (identical copy executed by
each holder)
10.31++ Annex to the Stock Purchase Agreement for Series B Preferred
Stock dated December 31, 2001
30
10.32// Agreement and Transfer of Limited Partnership Interest between
the Company and the Selling Partners of TCTB Partners, Ltd. dated
October 31, 2002
10.33// Amended Promissory Note between the Company and A. Scott Dufford
dated October 31, 2002, with schedule describing all outstanding
Amended Promissory Notes between the Company and the Selling
Partners of TCTB Partners, Ltd, which are identical other than
differences stated in the schedule.
10.34// Credit Agreement between TCTB Partners, Ltd. and Wells Fargo Bank
Texas, N.A. dated June 5, 2002, the exhibits of which are not
included due to their size.
10.35// Lease Agreement between TCTB Partners, Ltd. and Bank of America,
N.A. dated September 30, 2003.
10.36// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural
Resources USA, Inc. dated April 4, 2000.
10.38### Employment and Noncompetition Agreement between the Company and
Kevin Yung dated as of July 1, 2004
10.39@@ Agreement to Distribute Assets among TCTB Partners, Ltd. and its
partners dated as of December 31, 2004
10.40@@ Purchase Agreement between certain partners of TCTB Partners,
Ltd. and 1500 Broadway Partners, Ltd. dated as of December 31,
2004
10.41@ 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
10.42@ Loan Agreement between Amen Properties, Inc. and Western National
Bank
10.43@ Western National Bank Revolving Line of Credit Note
11 Statement of computation of earnings per share
21.1 Subsidiaries of the Company
23.1 Consent of Johnson, Miller & Co.
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.
99.1 Press release regarding 2005 Annual Report on Form 10-KSB
+ Incorporated by reference to the Company's Registration Statement on Form SB-2
declared effective by the Securities and Exchange Commission on September 24,
1997, SEC File No. 333-25937
++ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 29, 2002, amended July 25,
2002 and August 14, 2002.
31
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
# Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on June 4, 2003.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
~ Incorporated by reference to the Company's Registration Statement on Form S-3
declared effective by the Securities and Exchange Commission on December 1,
2000, SEC File No. 333-49126
~~ Incorporated by reference to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on April 5, 2002, SEC file No.
333-85636
// Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 24, 2003.
@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005.
@@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on January 4, 2005.
^ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 2005.
32
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMEN Properties, Inc.
March 28, 2006 By: /s/ Eric L. Oliver
---------------------------------------
Eric L. Oliver,
Chairman of the Board of Directors and Chief
Executive Officer
March 28, 2006 By: /s/ John M. James
----------------------------------------
John M. James,
Chief Financial Officer
and Secretary
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
March 28, 2006 By: /s/ Jon Morgan
---------------------------------------
Director and Chief Operating Officer
March 28, 2006 By: /s/ Bruce Edgington
---------------------------------------
Director
March 28, 2006 By: /s/ Randy G. Nicholson
---------------------------------------
Director
33
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 35
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 36
CONSOLIDATED STATEMENTS OF OPERATIONS 37
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 38
CONSOLIDATED STATEMENTS OF CASH FLOWS 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 41
34
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
AMEN Properties, Inc. and Subsidiaries
Midland, Texas
We have audited the accompanying consolidated balance sheets of AMEN Properties,
Inc. and Subsidiaries as of December 31, 2005 and 2004, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMEN
Properties, Inc. and Subsidiaries at December 31, 2005 and 2004, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
JOHNSON MILLER & CO., CPA's PC
Midland, Texas
February 24, 2006
35
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
2005 2004
--------- ---------
CURRENT ASSETS
Cash and cash equivalents (notes A3, C and E) $ 2,104,428 4,147,900
Accounts receivable (notes A6 and A15), net of allowance of $ 40,933
and $91,066 in 2005 and 2004, respectively
Trade receivables, net 1,263,398 71,369
Related parties 37,147 1,366
--------- ---------
1,300,545 72,735
Current portion of note receivable (note G) 50,000 -
Other current assets 198,239 77,399
--------- ---------
Total current assets 3,653,212 4,298,034
RESTRICTED CASH AND SHORT-TERM INVESTMENTS (note F) 3,655,264 2,100,000
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,247,801 and $873,883 in 2005 and 2004,
respectively (notes A7, A8, and H) 8,103,659 7,986,598
ROYALTY INTERESTS, at cost net of accumulated depletion
of $26,236 and $12,484 in 2005 and 2004, respectively (notes A7 and D) 136,618 150,370
LONG-TERM INVESTMENTS (notes A4 and E) 62,350 62,350
OTHER ASSETS
Note receivable (note G) - 249,555
Deferred costs (note A9) 30,692 52,357
Deposits and other assets 10,531 72,000
--------- ---------
Total other assets 41,223 373,912
--------- ---------
TOTAL ASSETS $ 15,652,326 14,971,264
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,149,127 115,104
Accrued liabilities (note I) 421,641 319,498
Deferred revenue - related party (note A12) 50,649 70,127
Accrued interest payable 76,112 286,802
Current portion of long-term obligations (note M) 259,009 1,634,935
--------- ---------
Total current liabilities 1,956,538 2,426,466
LONG-TERM OBLIGATIONS, less current portion (note M)
Financial institutions 6,336,172 6,596,416
Related parties 879,738 879,738
--------- ---------
7,215,910 7,476,154
MINORITY INTEREST (notes A13) 343,996 252,655
COMMITMENTS AND CONTINGENCIES (notes A18, J, O and P) - -
STOCKHOLDERS' EQUITY (notes R and S)
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 A14) 80 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 A14) 80 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 holder (note A14) 125 -
Common stock, $.01 par value, 20,000,000 shares authorized; 2,206,215 and
2,201,356 shares issued and outstanding at December 31, 2005 and 2004 22,063 22,014
Common stock warrants - 127,660
Additional paid-in capital 44,633,448 42,481,507
Accumulated deficit (38,519,914) (37,815,352)
Accumulated other comprehensive income - -
--------- ---------
Total stockholders' equity 6,135,882 4,815,989
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,652,326 14,971,264
========== ==========
36
See accompanying summary of accounting policies and notes to consolidated
financial statements
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2005 2004
----------- -----------
Operating revenue
Rental revenue $ 3,008,669 2,461,629
Retail electricity revenue 7,172,223 -
----------- -----------
Total operating revenue 10,180,892 2,461,629
----------- -----------
Operating expense
Cost of goods and services 6,923,619 -
Rental property operations 1,941,620 1,389,276
General and administrative 929,653 495,624
Depreciation, amortization and depletion 387,669 300,342
Start-up expenses (note A17) - 156,841
----------- -----------
Total operating expenses 10,182,561 2,342,083
----------- -----------
(Loss) income from operations (1,669) 119,546
----------- -----------
Other (expense) income
Interest income 71,017 11,946
Interest expense (552,567 ) (579,487 )
Loss on sale of investment - (509)
Impairment of note receivable (186,555 ) -
Other income 56,553 67,845
----------- -----------
Total other (expense) income (611,552 ) (500,205 )
----------- -----------
Loss from continuing operations before income taxes and
minority interest (613,221 ) (380,659 )
Income taxes (notes A11 and J) - -
Minority interest (91,341) (117,331)
----------- -----------
Net loss from continuing operations (704,562 ) (497,990 )
----------- -----------
Net income from discontinued business component (note K) - 394,127
Gain on sale of assets of discontinued business component (note K) - 905,118
----------- -----------
Net income from business component - 1,299,245
----------- -----------
NET (LOSS) INCOME $ (704,562 ) 801,255
=========== ===========
Net income (loss) per common share (basic)
Net loss from continuing operations $ (.32) (.23 )
Net income from discontinued business component - .18
Gain on sale of discontinued business component - .41
----------- -----------
Net (loss) income $ (.32) .36
=========== ===========
Net income (loss) per common share (diluted)
Net loss from continuing operations $ (.32) (.16 )
Net income from discontinued business component - .13
Gain on sale of discontinued business component - .29
----------- -----------
Net (loss) income $ (.32) .26
=========== ===========
Weighted average number of common shares outstanding - basic 2,203,073 2,201,356
Weighted average number of common shares outstanding - diluted 2,203,073 3,051,120
37
See accompanying summary of accounting policies and notes to consolidated
financial statements
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2005 and 2004
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
---------- --------- ---------- --------- -----------
Balance, December 31, 2003 160,000 $ 160 2,201,356 $ 22,014 42,481,507
Other comprehensive income - - - - -
Net income - - - - -
Total Comprehensive Income - - - - -
---------- --------- ---------- --------- -----------
Balance, December 31, 2004 160,000 160 2,201,356 22,014 42,481,507
Preferred C stock issuance 125,000 125 - - 1,999,875
Common stock issued pursuant to
stock options exercised - - 4,859 49 24,406
Expiration of stock warrants - - - - 127,660
Other comprehensive income - - - - -
Net (loss) - - - - -
Total Comprehensive Income - - - - -
---------- --------- ---------- --------- -----------
Balance, December 31, 2005 285,000 $ 285 2,206,215 $ 22,063 44,633,448
========== ========= ========== ========= ==========
Accumulated
Other
Common Comprehensive
Stock Accumulated Income Total
Warrants Deficit (Loss) Equity
---------- ----------- ----------- ---------
Balance, December 31, 2003 127,660 (38,616,607) (295) 4,014,439
Other comprehensive income - - 295 295
Net income - 801,255 - 801,255
---------
Total Comprehensive Income - - - 801,550
---------- ----------- ----------- ---------
Balance, December 31, 2004 127,660 (37,815,352) - 4,815,989
Preferred C stock issuance - - - 2,000,000
Common stock issued pursuant to
stock options exercised - - - 24,455
Expiration of stock warrants (127,660) - - -
Other comprehensive income - - - -
Net (loss) - (704,562 ) - (704,562 )
---------
Total Comprehensive Income - - - (704,562 )
---------- ----------- ----------- ---------
Balance, December 31, 2005 - (38,519,914) - 6,135,882
========== =========== =========== =========
38
See accompanying summary of accounting policies and notes to
consolidated financial statements
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
2005 2004
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net (loss) income $ (704,562 ) 801,255
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation, amortization and depletion 387,669 300,342
Impairment of note receivable 186,555 -
Gain on sale of assets of discontinued business component - (905,118 )
Loss on sale of investments - 479
Minority interest 91,341 117,331
Changes in operating assets and liabilities:
Accounts receivable (1,177,677) (97,195)
Decrease in allowance for doubtful accounts (50,133 ) -
Other assets (120,840 ) (763)
Deferred costs 21,665 615
Accounts payable 1,034,023 36,520
Accrued and other liabilities (108,547 ) 316,122
Deferred revenue (19,478 ) 121,819
Discontinued business component - 16,231
------------ ------------
Net cash (used in) provided by operating activities (459,984 ) 707,638
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (490,978) (561,151)
Deposits 61,469 -
Proceeds from sale of discontinued business component - 3,924,141
Sales and maturity of investments - 53,400
Purchase of investments (1,555,264 ) (2,266,213)
Acquisition of limited partnership interest (note B) - (208,346)
Repayments of notes receivable 13,000 1,208
Purchases of property and equipment of discontinued
business component - (4,798)
------------ ------------
Net cash (used in) provided by investing activities (1,971,773 ) 938,241
------------ ------------
Cash flows from financing activities:
Repayments of notes payable (1,636,170) (224,209)
Net proceeds from issuance of common and preferred stock 2,024,455 -
Minority interest distributions - (129,905)
Minority interest contributions - 114,608
------------ ------------
Net cash provided by (used in) financing activities 388,285 (239,506)
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,043,472 ) 1,406,373
Cash and cash equivalents at beginning of year 4,147,900 2,741,527
------------ ------------
Cash and cash equivalents at end of year $ 2,104,428 4,147,900
39
See accompanying summary of accounting policies and notes to
consolidated financial statements
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31,
2005 2004
------------ ------------
Cash paid during the year for:
Interest $ 454,791 468,387
Non-cash investing and financing activities:
In December 2004, the Company distributed certain net
assets related to discontinued business component
to minority interest owners (see note A13 and K). $ - 978,775
In January 2004, the Company acquired additional
partnership interests with a note payable to the sellers $ - 250,778
(see note B).
Changes in other comprehensive income - unrealized
appreciation on available -for- sale securities. $ - 295
40
See accompanying summary of accounting policies and notes to
consolidated financial statements
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
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. Effective July 2004 Amen formed W
Power and Light, LP ("W Power"), a Delaware limited partnership to
enter into the retail electricity market in Texas. AMEN Properties,
Inc. and Subsidiaries and affiliates (collectively referred to as the
"Company") is a self-administered and self-managed Delaware
corporation.
As of December 31, 2005 and 2004, 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 has 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. 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.
3. 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.
41
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
4. Investments
The Company invests in U.S. government bonds and treasury notes,
municipal bonds, certificates of deposit, corporate bonds and other
securities. 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.
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.
5. 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 $7,103,000 as of
December 31, 2005. Disclosure about fair value of financial
instruments is based on pertinent information available to management
as of December 31, 2005.
6. Accounts Receivable
Management regularly reviews accounts receivable and estimates the
necessary amounts to be recorded as an allowance for uncollectibility.
For TCTB 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.
W Power's 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 December 31, 2005, the W Power'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 data 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 December 31, 2005 and 2004, accounts receivable consisted of the
following:
2005 2004
-------- --------
Tenant receivables $ 160,534 25,632
42
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
Billed electricity receivables 655,141 -
Unbilled electricity receivables 525,803 -
Allowance for doubtful accounts (40,933) (91,066)
Other receivables - 138,169
Accounts receivable, net $ 1,300,545 72,735
7. 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.
8. 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.
9. 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.
10. Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion (APB) 25, Accounting for Stock Issued to
Employees, which uses the intrinsic value method. As required by Statement of
Financial Accounting
43
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company
has disclosed the pro forma impact on the consolidated financial statements
assuming the measurement provisions of SFAS No. 123 and additional disclosure
requirements of SFAS No. 148 have been adopted.
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. Deferred Revenue
Deferred revenue mainly consists of prepaid rent from a related party and is
being amortized over the life of the lease.
13. 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 December 31, 2005 and 2004.
14. 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.
Number of Number of Common
Series Shares Purchase 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.
15. Revenue Recognition
44
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
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 December 31 2005 and 2004, 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").
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.
16. Advertising Expense
All advertising costs are expensed when incurred. Advertising expenses were
approximately $7,000 and $5,000 for the years ended December 31, 2005 and 2004,
respectively.
17. Start-up Costs
Start up expenses are associated with certain expenses incurred with W Power and
Light, LP. These expenses include but are not limited to salary, fees and
licenses, travel and legal expense. Start up costs were $156,841 for the year
ended December 31, 2004 and were expensed as incurred.
45
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
18. Earnings (Loss) Per Share
There were no preferred stock dividends for the periods ended December 31, 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.
19. 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.
20. New Accounting Pronouncements
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
Statement 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.
46
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
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.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140. This
Statement amends FASB Statement No.133, Accounting for Derivative Instruments
and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement resolves
issues addressed in Statement 133 Implementation Issue No. D1, "Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets." The
provisions of this Statement shall be effective for financial instruments
acquired or issued after the beginning of an entity's first fiscal year that
begins after September 15, 2006.
Management does not believe the new pronouncements will have a material impact
on its financial statements.
21. 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 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 - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at three financial institutions, which at
times may exceed federally insured limits. At December 31, 2005 and 2004, the
Company had approximately $1,475,000 and $3,673,000 respectively, 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.
W Power and TCTB's revenues are derived principally from uncollateralized
customer electricity billings and rents from tenants, respectively. The
concentration of credit risk in a limited number of industries affects its
overall exposure to credit risk because customers and tenants may be similarly
affected by changes in economic and other conditions.
47
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
NOTE D - 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 uses estimates to
accrue royalty income for the years ended December 31, 2005 and 2004.
NOTE E CASH, CASH EQUIVALENTS AND INVESTMENTS
At December 31, 2005 and 2004 the Company's cash and cash equivalents consist of
cash in banks of $2,104,428 and $4,147,900, respectively.
Securities available-for-sale in the accompanying balance sheet at December 31,
2005 and 2004 totaled $62,350. The aggregate market value, cost basis, and
unrealized gains and losses of securities available-for-sale, by major security
type are as follows:
Gross
Market Cost Unrealized
Value Basis Losses
------------ -------- -------------
As of December 31, 2005 and 2004:
Other securities $ 62,350 62,350 -
============ ========= ===========
NOTE F - RESTRICTED CASH AND SHORT-TERM INVESTMENTS
The Company holds a $2,100,000 certificate of deposit with a financial
institution which bears interest at 4.00% and matures on December 28, 2006. 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.
On October 18, 2005 the Company entered into a continuing agreement for
commercial and standby letters of credit (the "Letters of Credit") with JPMorgan
Chase Bank, N.A., Houston, Texas, ("JPMC"). Under the agreement JPMC may, but is
not obligated to, issue one or more standby or commercial letters of credit, on
behalf of W Power. The Letters of Credit are generally required in the normal
course of business operations to support the Company's obligations to
collateralize certain obligations to electric power providers, TDSPs, and ERCOT.
Currently the Letters of Credit bear an interest rate of seven-tenths of one
percent (0.70%) payable quarterly in advance. In order to support the Letters of
Credit, the Company, JPMC and JP Morgan Securities Inc. maintain a tri-party
control agreement that creates a security interest in favor of Chase in a
certain Money Market Fund the Company maintains with JPMC. At December 31, 2005,
the Company had deposits with JPMC totaling $1,555,264 collateralizing
outstanding Letters of Credit.
48
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
NOTE G - 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 December 31, 2005, the note receivable was valued at $50,000, net of
an impairment allowance of $186,555. In February 2006, the adjusted note
receivable balance of $50,000 was repaid.
NOTE H - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at December 31, 2005 and 2004:
2005 2004
----------- -----------
Buildings $ 8,467,365 8,447,862
Furniture, fixtures and equipment 141,998 90,321
Tenant improvements 583,099 163,300
Land 158,998 158,998
----------- -----------
9,351,460 8,860,481
Less: accumulated depreciation (1,247,801) (873,883)
----------- -----------
$ 8,103,659 7,986,598
============== ============
Depreciation expense for 2005 and 2004 was $373,917 and $266,165, respectively.
NOTE I - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
2005 2004
----------- -----------
Accrued property taxes $ 185,988 185,344
Accrued TDSP charges 123,655 -
Other liabilities 111,998 134,154
----------- -----------
$ 421,641 319,498
============== ============
NOTE J - INCOME TAXES
There was no income tax expense or benefit to report for the years ended
December 31, 2005 and 2004. A reconciliation of income taxes at the statutory
rate to the Company's effective rate is as follows for the years ended December
31:
49
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
2005 2004
----------- -----------
Computed at the expected statutory rate $ (229,000) 272,000
Less valuation allowance 229,000 (272,000)
----------- -----------
Income taxes $ - -
============== ============
Noncurrent deferred tax assets and liabilities at December 31, 2005 and 2004 were as follows:
2005 2004
----------- -----------
Deferred tax assets
Net operating loss carry-forward $ 10,518,400 10,506,860
Start-up costs 39,994 42,977
Other - 30,963
----------- -----------
Gross deferred tax assets 10,558,394 10,580,800
----------- -----------
Deferred tax liabilities
Property, plant and equipment (123,281) (109,686)
Other (13,917 ) -
----------- -----------
Gross deferred tax liabilities (137,198) (109,686)
----------- -----------
Valuation allowance (10,421,196) (10,471,114)
----------- -----------
Net noncurrent deferred tax assets $ - -
============== ============
As of December 31, 2005, the Company has net operating loss carry-forwards
totaling approximately $31,683,000 for federal and state income tax purposes
expiring in 2012 through 2022.
NOTE K - DISCONTINUED BUSINESS COMPONENT
On January 4, 2005, 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, the operations of the
Lubbock, Texas office building for the year ended December 31, 2004 are
classified as discontinued operations.
In accordance with an Agreement to Distribute Assets, effective December 31,
2004, 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 F), pledged by TCTB to the Bank as
additional collateral. Immediately following the Property distribution, the
Company and the selling minority interest partners agreed to sell 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.
50
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
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 years ended December 31, 2005 and 2004, respectively.
December 31, 2005:
Continuing Discontinued
Real Estate Real Estate Other and
REP Operations Component Corporate
---------------- --------------- --------------- -------------
Revenues from external $ 7,172,223 $ 3,008,669 $ - $ -
customers
================ =============== =============== =============
Revenues from other
operating segments $ 820,710 $ 23,275 $ - $ -
================ =============== =============== =============
Depreciation,
amortization and
depletion $ 9,717 $ 362,162 $ - $ 15,790
================ =============== =============== =============
Interest expense $ 86,601 $ 550,982 $ - $ -
================ =============== =============== =============
Segment net income (loss) $ (350,799) $ 318,796 $ - $ (587,537)
================ =============== =============== =============
Segment assets $ 3,159,563 $ 7,480,267 $ - $ 5,500,160
================ =============== =============== =============
Expenditures for segment
assets $ 32,662 $ 451,510 $ - $ 6,807
================ =============== =============== =============
Inter-Company
Transaction Consolidated
Eliminations Total
-------------- --------------
Revenues from external $ - $ 10,180,892
customers
============== ==============
Revenues from other
operating segments $ (843,985) $ -
============== ==============
Depreciation,
amortization and
depletion $ - $ 387,669
============== ==============
Interest expense $ (85,016) $ 552,567
============== ==============
Segment net income (loss) $ (85,022) $ (704,562)
============== ==============
Segment assets $ (487,664) $ 15,652,326
============== ==============
Expenditures for segment
assets $ - $ 490,979
============== ==============
December 31, 2004:
Continuing Discontinued
Real Estate Real Estate Other and
REP Operations Component Corporate
---------------- --------------- --------------- -------------
Revenues from external
customers $ - $ 2,461,629 $ 1,848,257 $ -
================ =============== =============== =============
Revenues from other
operating segments $ - $ - $ - $ -
================ =============== =============== =============
Depreciation,
amortization and
depletion $ 864 $ 285,786 $ 144,418 $ 13,692
================ =============== =============== =============
Interest expense $ - $ 579,487 $ - $ -
================ =============== =============== =============
Segment net income (loss) $ (157,705) $ 75,926 $ 1,299,245 $ (416,211)
================ =============== =============== =============
Segment assets $ 159,453 $ 14,001,398 $ - $ 810,413
================ =============== =============== =============
Expenditures for segment
assets $ 25,919 $ 526,663 $ 4,798 $ 8,569
================ =============== =============== =============
Inter-Company
Transaction Consolidated
Eliminations Total
-------------- --------------
Revenues from external
customers $ - $ 4,309,886
============== ==============
Revenues from other
operating segments $ - $ -
============== ==============
Depreciation,
amortization and
depletion $ - $ 444,760
============== ==============
Interest expense $ - $ 579,487
============== ==============
Segment net income (loss) $ - $ 801,255
============== ==============
Segment assets $ - $ 14,971,264
============== ==============
Expenditures for segment
assets $ - $ 565,949
============== ==============
51
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
NOTE M - LONG-TERM OBLIGATIONS
On June 5, 2002, TCTB entered into a loan agreement (the "TCTB Note") with a
financial institution 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 TCTBs
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 Bank Texas, N.A. The Bank agreed to
release its lien on the Lubbock building in exchange for a $2,100,000 restricted
certificate of deposit (see note F) pledged by TCTB to the Bank as additional
collateral.
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 6.9% and is adjusted each
October 1 to equal the Wall Street Journal Prime Lending Rate (6.75% at October
31, 2005) 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. 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%.
52
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
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 (7.25% at December 31,
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.
Long-term debt as of December 31, 2005:
Long-term Current
Portion Portion Total
---------------- ------------- ----------------
TCTB Note $ 5,686,649 $ 218,385 $ 5,905,034
Delaware Notes 1,394,543 - 1,394,543
Hexagon Note 134,718 40,624 175,342
WNB Note - - -
---------------- ------------- ----------------
Total $ 7,215,910 $ 259,009 $ 7,474,919
================ ============ ===============
Maturities of long-term debt at December 31, 2005 are as follows:
2006 $ 259,009
2007 277,636
2008 296,464
2009 5,247,267
2010 1,394,543
----------------
Total 7,474,919
Less current portion 259,009
----------------
Long-term portion $ 7,215,910
================
Long-term debt as of December 31, 2004:
Long-term Current
Portion Portion Total
---------------- ------------- ----------------
TCTB Note $ 5,906,268 $ 201,737 $ 6,108,005
Delaware Notes 1,394,543 1,394,543 2,789,086
Hexagon Note 175,343 38,655 213,998
WNB Note - - -
---------------- ------------- ----------------
Total $ 7,476,154 $ 1,634,935 $ 9,111,089
================ ============ ===============
53
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
NOTE N - RELATED PARTY TRANSACTIONS
At December 31, 2005 and 2004, related parties leased from TCTB, office space of
approximately 32,000 square feet. TCTB received rental income from these related
parties of approximately $348,600 and $264,000 during the year ended December
31, 2005 and 2004, respectfully.
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 D).
The Company closed the sale and issuance of 125,000 shares of Series C Preferred
Stock and 250,000 Warrants (see note R) 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 Preferred C
Preferred C Common 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
=============== ================= ================ =============
54
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
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.
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 are estimated as follows
as of December 31, 2005:
2006 $ 2,859,113
2007 684,604
2008 148,960
2009 -
-----------------
Total $ 3,692,677
=================
NOTE P - RENTAL ARRANGEMENTS
The Company has rented facilities under operating leases. Future minimum lease
payments under non-cancelable operating leases aggregate $4,548,946 as of
December 31, 2005 and are due as follows:
Percentage of
Future Total Space
Minimum Under Lease
Rent Expiring
---------------- ----------------
2006 $ 1,841,902 40.5%
2007 1,451,965 31.9%
2008 625,453 13.7%
2009 544,308 12.0%
2010 85,318 1.9%
Thereafter - 0%
--------------- -----------------
Total $ 4,548,946 100%
================= ================
55
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
Of the above leases, future minimum lease payments under non-cancelable
operating leases to related parties aggregate $514,514 as of December 31, 2005
and are due as follows:
2007 $ 311,530
2008 202,984
--------------
$ 514,514
==============
NOTE Q - SIGNIFICANT TENANTS
For the years ended December 31, 2005 and 2004, the Company had three customers
that accounted for more than ten-percent of the Company's revenue as follows:
2005 2004
------------ -------------
Bank of America $ 656,800 591,000
Fasken Oil and Ranch, Ltd 389,800 277,487
Pioneer Natural Resources 382,900 356,000
------------ -------------
Total $ 1,429,500 1,224,487
============= =============
NOTE R - STOCKHOLDERS' EQUITY
The Company received shareholder approval at the 2004 annual stockholder
meeting, and filed a Certificate of Amendment of Certificate of Incorporation of
Amen Properties, Inc. on May 28, 2004 to amend the Series A and Series B
Preferred Stock Designations. The amendment effectuates the elimination of the
Preferred A and Preferred B Shareholders dividend other than for dividends with
respect to the common stock of the Company.
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 M. 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.
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.
56
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
On July 29, 2005, the Company issued 4,859 shares of common stock for $24,455
upon the exercise of certain stock options covering 341 and 4,518 shares with a
strike price of $3.88 and $5.12, respectively.
NOTE S - STOCK OPTION PLAN
Since the inception of the Company, various options have been granted by the
Board of Directors to founders, directors, employees, consultants and ministry
partners. In February 1997, the Company authorized 67,100 additional shares of
common stock to underlie additional options reserved for key employees and for
future compensation to members of the Board of Directors. The Board of Directors
also adopted and the Stockholders approved, the 1997 Stock Option Plan ("1997
Plan"), which provides for the granting of either qualified or non-qualified
options to purchase an aggregate of up to 514,484 shares of common stock,
inclusive of the 67,100 shares mentioned above, and any and all options or
warrants granted in prior years by the Company. As of December 31, 2005, all
options available under the 1997 Plan have been granted: 62,579 options have
been exercised, and 320,222 options are outstanding which are fully vested and
range in price from $3.50 to $61.36.
The 1998 Stock Option Plan ("1998 Plan") was approved by the Board of Directors
in April 1998, with approved amendment in May 2000. The 1998 Plan gives the
Company the authority to issue 300,000 options to purchase AMEN common stock. If
any stock options granted under the 1998 Plan terminate, expire or are canceled,
new stock options may thereafter be granted covering such shares. In addition,
any shares purchased under the 1998 Plan subsequently repurchased by the
Company, if management elects, pursuant to the terms hereof may again be granted
under the 1998 Plan. The shares issued upon exercise of stock options under the
1998 Plan may, in whole or in part, be either authorized but unissued shares, or
issued shares reacquired by the Company. As of December 31, 2005, 4,859 options
have been exercised and 113,381 options are outstanding and are fully vested and
range in price from $1.98 to $45.50.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model.
For the year ended December 31, 2005, the following assumptions were used:
dividend yield of 0%; risk-free interest rates based on the Treasury bond yield
at the date of grant for three- to five-year bonds, depending on the expected
term; volatility range approximating 50.9% to 51.1% depending on the grant date;
and an expected term of ten years. For the year ended December 31, 2004, the
following assumptions were used: dividend yield of 0%; risk-free interest rates
based on the Treasury bond yield at the date of grant for three- to five-year
bonds, depending on the expected term; volatility range approximating 121.0%,
depending on the grant date; and an expected term of ten years.
57
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
The table below summarizes the stock option activity for the years ending 2005
and 2004:
Weighted
Options Average
Options Outstanding Outstanding Price
--------------------------------- -------------- ---------------
Outstanding December 31, 2003 455,798 $ 15.78
Options forfeited (805) 15.78
--------------
Outstanding December 31, 2004 454,993 13.05
Options exercised (4,859) 3.88
Options forfeited (54,481) 14.07
Options issued 37,950 5.97
--------------
Outstanding December 31, 2005 433,603 $ 14.06
==============
At December 31, 2005 the 433,603 outstanding options are fully
vested and exercisable. They range in price from $1.98 to $61.36
and have a weighted average contractual maturity of 3.11 years.
The weighted average grant date fair value for equity options
issued during the year ending December 31, 2005 was $3.97 per
share. Had compensation expense been determined based on the fair
value of the options at the grant dates consistent with the
method of accounting under SFAS No. 123 for the year ending
December 31, 2005 and 2004, the Company's net income and net
income per share for the years ended December 31, 2005 and 2004
would have been decreased to the proforma amounts indicated
below:
2005 2004
--------------- ------------
Net loss from continuing operations,
as reported $ (704,562 ) (497,990 )
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method (150,842) (21,576)
--------------- ------------
Net loss from continuing operations, pro forma (855,404) (519,566)
Net income from discontinued
business component - 394,127
Gain on sale of assets of discontinued
business component - 905,118
--------------- ------------
Net (loss) income, pro forma $ (855,404 ) 779,679
=============== =============
58
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
As reported: Net income (loss) per common share (basic):
Net loss from continuing operations $ (.32 ) (.23)
Net income from discontinued
business component - .18
Gain on sale of assets of discontinued
business component - .41
--------------- ------------
As reported $ (.32 ) .36
=============== =============
Pro forma: Net income per common share (diluted):
Net loss from continuing operations $ (.39 ) (.24 )
Net income from discontinued
business component - .18
Gain on sale of assets of discontinued
business component - .41
--------------- ------------
Pro forma $ (.39 ) .35
=============== =============
NOTE T - EMPLOYEE BENEFIT PLAN
In January 1998, the Company adopted a defined contribution 401(k) plan which
covers substantially all of its eligible employees. The maximum employee
contribution allowed is $14,000 in 2005 or $13,000 in 2004. The Company is not
required to contribute to the 401(k) plan. The Company made discretionary
contributions of approximately $7,000 and $10,000 for 2005 and 2004,
respectively.
59
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
NOTE U - QUARTERLY FINANCIAL DATA
Condensed consolidated statements of operations - Quarterly (Unaudited)
2005
Quarter ended
March 31 June 30 September 30 December 31 Total
------------- -------------- ------------- -------------- ------------
Rental revenue $
Rental revenue 670,182 672,137 894,749 771,601 3,008,669
Retail electricity revenue 310,789 1,125,596 2,545,563 3,190,275 7,172,223
------------- -------------- ------------- -------------- ------------
Total operating revenue 980,971 1,797,733 3,440,312 3,961,876 10,180,892
------------- -------------- ------------- -------------- ------------
Operating expense
Cost of goods and services 277,688 1,143,727 2,453,362 3,048,842 6,923,619
Rental property operations 407,622 452,447 554,428 527,123 1,941,620
General and administrative 206,986 223,579 329,312 169,776 929,653
Depreciation, amortization and depletion 91,835 104,671 106,284 84,879 387,669
------------- -------------- ------------- -------------- ------------
Total operating expense 984,131 1,924,424 3,443,386 3,830,620 10,182,561
------------- -------------- ------------- -------------- ------------
Income (loss) from continuing operations (3,160) (126,691) (3,074) 131,256 (1,669)
------------- -------------- ------------- -------------- ------------
Other (expense) income
Interest income 11,844 15,693 14,037 29,443 71,017
Interest expense (114,346) (148,149) (130,748) (159,324) (552,567)
Other income (expense) (17,164) 43,578 11,218 (167,634) (130,002)
------------- -------------- ------------- -------------- ------------
Total other income (expense) (119,666) (88,878) (105,493) (297,515) (611,552)
------------- -------------- ------------- -------------- ------------
Income (loss) from continuing operations
before income taxes and
minority interest (122,826) (215,569) (108,567) (166,259) (613,221)
Income taxes - - - - -
Minority interest (40,824) 4,231 (41,899) (12,849) (91,341)
------------- -------------- ------------- -------------- ------------
Net (loss) from continuing operations (163,650) (211,338) (150,466) (179,108) (704,562)
------------- -------------- ------------- -------------- ------------
Net income from discontinued business
component - - - - -
Gain on sale of assets of discontinued
business component - - - - -
------------- -------------- ------------- -------------- ------------
Net income from discontinued business - -
component
------------- -------------- ------------- -------------- ------------
NET INCOME (LOSS) $ (163,650) (211,338) (150,466) (179,108) (704,562)
============= ============== ============= ============== ============
Net income (loss) per common share (basic)
Loss from continuing operations $ (.07) (.10) (.07) (.08) (.32)
Discontinued business component - - - - -
Gain on sale of assets of discontinued
business component - - - - -
------------- -------------- ------------- -------------- ------------
Net (loss) income $ (.07) (.10) (.07) (.08) (.32)
============= ============== ============= ============== ============
Net income (loss) per common share (diluted)
Net loss from continuing operations $ (.07) (.10) (.07) (.08) (.32)
Discontinued business component - - - - -
Gain on sale of discontinued business
component - - - - -
------------- -------------- ------------- -------------- ------------
Net (loss) income $ (.07) (.10) (.07) (.08) (.32)
============= ============== ============= ============== ============
Weighted average number of common shares
outstanding - basic 2,201,356 2,201,356 2,203,310 2,203,073 2,203,073
============= ============== ============= ============== ============
Weighted average number of common shares
outstanding - diluted 2,201,356 2,201,356 2,203,310 2,203,073 2,203,073
============= ============== ============= ============== ============
60
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2005 and 2004
Condensed consolidated statements of operations - Quarterly (Unaudited)
2004
Quarter ended
March 31 June 30 September 30 December 31 Total
------------- -------------- ------------- -------------- ------------
Rental revenue $ 591,022 588,687 627,426 654,494 2,461,629
------------- -------------- ------------- -------------- ------------
Operating expenses, excluding start-up costs 472,605 519,732 514,031 678,874 2,185,242
Start-up costs - - 79,660 77,181 156,841
------------- -------------- ------------- -------------- ------------
Total operating expense
472,605 519,732 593,691 756,055 2,342,083
------------- -------------- ------------- -------------- ------------
Income (loss) from continuing operations 118,417 68,955 33,735 (101,561) 119,546
------------- -------------- ------------- -------------- ------------
Interest income 3,451 2,604 2,641 3,250 11,946
Interest expense (133,409) (147,183) (146,518) (152,377) (579,487)
Other income (expense) 16,882 15,593 15,987 18,874 67,336
------------- -------------- ------------- -------------- ------------
Total other income (expense)
(113,076) (128,986) (127,890) (130,253) (500,205)
------------- -------------- ------------- -------------- ------------
Income (loss) from continuing operations
before income taxes and
minority interest 5,341 (60,031) (94,155) (231,814) (380,659)
Income taxes - - - - -
Minority interest (33,506) (28,411) (28,404) (27,010) (117,331)
------------- -------------- ------------- -------------- ------------
Net (loss) from continuing operations (28,165) (88,442) (122,559) (258,824) (497,990)
------------- -------------- ------------- -------------- ------------
Net income from discontinued business
component 120,772 117,535 109,191 46,629 394,127
Gain on sale of assets of discontinued
business component - - - 905,118 905,118
------------- -------------- ------------- -------------- ------------
Net income from discontinued business 120,772 117,535 109,191 951,747 1,299,245
component
------------- -------------- ------------- -------------- ------------
NET INCOME (LOSS) $
92,607 29,093 (13,368) 692,923 801,255
============= ============== ============= ============== ============
Net income (loss) per common share (basic)
Loss from continuing operations $ (.01) (.04) (.06) (.12) (.23)
Discontinued business component .05 .05 .05 .03 .18
Gain on sale of assets of discontinued
business component - - - .41 .41
------------- -------------- ------------- -------------- ------------
Net income (loss) $ .04 .01 (.01) .32 .36
============= ============== ============= ============== ============
Net income (loss) per common share (diluted)
Net loss from continuing operations $ (.01) (.03) (.04) (.08) (.16)
Discontinued business component .04 .04 .03 .02 .13
Gain on sale of discontinued business
component - - - .29 .29
------------- -------------- ------------- -------------- ------------
Net income (loss) $ .03 .01 (.01) .23 .26
============= ============== ============= ============== ============
Weighted average number of common shares
outstanding - basic 2,201,356 2,201,356 2,201,356 2,201,356 2,201,356
============= ============== ============= ============== ============
Weighted average number of common shares
outstanding - diluted 3,051,079 3,051,079 3,051,079 3,051,120 3,051,120
============= ============== ============= ============== ============
61
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- --------------------
3.1+ Certificate of Incorporation and Certificates of Amendments thereto
of DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.4 ~ Certificate of Designation for Series A Preferred Stock
3.4(a) ~~ Amended Certificate of Designation for Series A Preferred Stock
3.5 ~~ Certification of Designation for Series B Preferred Stock
3.6*** Certificate of Amendment of Certificate of Incorporation dated May
26, 2004
3.7@ Certificate of Designation for Series C Preferred Stock
4.1+ Warrant Certificate between the Company and Robert Varney dated July
10, 1996
4.2+ Warrant Certificate between the Company and Robert Varney dated
September 26, 1996
4.3+ Warrant Certificate between the Company and Bruce Edgington dated
July 30, 1996
4.4+ Warrant Certificate between the Company and Bruce Edgington dated
October 30, 1996
4.5@ Form of Warrant Certificate dated March 1, 2005
10.1// Asset Purchase Agreement between the Company and Blue Hill Media,
Inc. dated December 13, 2002
10.2+ Form of Stock Option Agreement
10.3+ 1997 Stock Option Plan
10.4* 1997 Stock Option Plan, as amended April 6, 1998
10.5* 1998 Stock Option Plan
10.6** 1998 Stock Option Plan, as amended February 26, 1999
10.7## 1998 Stock Option Plan, as amended March 3, 2000
10.8++ Stock Purchase Agreement between the Company and A. Scott Dufford
for Series A Preferred Stock dated September 29, 2000
62
10.9++ Stock Purchase Agreement between the Company and John R. Norwood for
Series A Preferred Stock dated September 29, 2000
10.10++ Stock Purchase Agreement between the Company and J.M. Mineral and
Land Co. for Series A Preferred Stock dated September
29, 2000
10.11++ Stock Purchase Agreement between the Company and Jon M. Morgan
Pension Plan for Series A Preferred Stock dated
September 29, 2000
10.12++ Stock Purchase Agreement between the Company and Stallings
Properties, Ltd. for Series A Preferred Stock dated
September 29, 2000
10.13++ Stock Purchase Agreement between the Company and John D. Bergman for
Series A Preferred Stock dated September 29, 2000
10.14++ Stock Purchase Agreement between the Company and Julia Jones Family
Trust for Series A Preferred Stock dated September 29, 2000
10.15++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series A Preferred Stock dated September 29, 2000
10.16++ Stock Purchase Agreement between the Company and Soft Op, L.P. for
Series A Preferred Stock dated September 29, 2000
10.17++ Stock Purchase Agreement between the Company and Lighthouse
Partners, L.P. for Series A Preferred Stock dated September 29, 2000
10.18++ Stock Purchase Agreement between the Company and Ray McGlothlin, Jr.
for Series A Preferred Stock dated September 29, 2000
10.19++ Stock Purchase Agreement between the Company and Gary J. Lamb for
Series A Preferred Stock dated September 29, 2000
10.20++ Stock Purchase Agreement between the Company and Frosty Gilliam, Jr.
for Series A Preferred Stock dated September 29, 2000
10.21++ Stock Purchase Agreement between the Company and Bruce Edgington for
Series B Preferred Stock dated December 31, 2001
10.22++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series B Preferred Stock dated December 31, 2001
10.23++ Stock Purchase Agreement between the Company and Earl E. Gjelde for
Series B Preferred Stock dated December 31, 2001
10.24++ Stock Purchase Agreement between the Company and Jon M. Morgan for
Series B Preferred Stock dated December 31, 2001
10.25++ Stock Purchase Agreement between the Company and Soft Op, L.P. for
Series B Preferred Stock dated December 31, 2001
10.26++ Annex to the Stock Purchase Agreement for Series A Preferred Stock
dated September 29, 2000
10.27# Agreement to Suspend Dividends and Consent of the Holders of Series
A Preferred Stock of Amen Properties, Inc. dated May 30, 2003.
63
10.28# Agreement to Suspend Dividends and Consent of Holders of Series B
Convertible Preferred Stock of Amen Properties, Inc. dated May 30,
2003.
10.29^ Consent, Waiver and Amendment of the holders of Series A Preferred
Stock dated January 2005 (identical copy executed by each holder)
10.30^ Consent, Waiver and Amendment of the holders of Series B Preferred
Stock dated January 2005 (identical copy executed by each holder)
10.31++ Annex to the Stock Purchase Agreement for Series B Preferred Stock
dated December 31, 2001
10.32// Agreement and Transfer of Limited Partnership Interest between the
Company and the Selling Partners of TCTB Partners, Ltd. dated
October 31, 2002
10.33// Amended Promissory Note between the Company and A. Scott Dufford
dated October 31, 2002, with schedule describing all outstanding
Amended Promissory Notes between the Company and the Selling
Partners of TCTB Partners, Ltd, which are identical other than
differences stated in the schedule.
10.34// Credit Agreement between TCTB Partners, Ltd. and Wells Fargo Bank
Texas, N.A. dated June 5, 2002, the exhibits of which are not
included due to their size.
10.35// Lease Agreement between TCTB Partners, Ltd. and Bank of America,
N.A. dated September 30, 2003.
10.36// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural
Resources USA, Inc. dated April 4, 2000.
10.38### Employment and Noncompetition Agreement between the Company and
Kevin Yung dated as of July 1, 2004
10.39@@ Agreement to Distribute Assets among TCTB Partners, Ltd. and its
partners dated as of December 31, 2004
10.40@@ Purchase Agreement between certain partners of TCTB Partners, Ltd.
and 1500 Broadway Partners, Ltd. dated as of December 31, 2004
10.41@ 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
10.42@ Loan Agreement between Amen Properties, Inc. and Western National
Bank
10.43@ Western National Bank Revolving Line of Credit Note
11 Statement of computation of earnings per share
21.1 Subsidiaries of the Company
23.1 Consent of Johnson, Miller & Co.
31.1 Certification of Chief Executive Officer.
64
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.
99.1 Press release regarding 2005 Annual Report on Form 10-KSB
+ Incorporated by reference to the Company's Registration Statement on Form SB-2
declared effective by the Securities and Exchange Commission on September 24,
1997, SEC File No. 333-25937
++ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 29, 2002, amended July 25,
2002 and August 14, 2002.
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
# Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on June 4, 2003.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
~ Incorporated by reference to the Company's Registration Statement on Form S-3
declared effective by the Securities and Exchange Commission on December 1,
2000, SEC File No. 333-49126
~~ Incorporated by reference to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on April 5, 2002, SEC file No.
333-85636
// Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 24, 2003.
@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005.
@@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on January 4, 2005.
^ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 2005.
65