UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the Period Ended Sepember 30, 2006
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period
From _____________to____________.
Commission file number 000-22847
AMEN Properties, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1831588
---------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 W. Wall Street, Suite 2300
Midland, TX 79701
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(Address of Principal Executive Offices)
(432-684-3821)
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes | X | No | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes | | No | X |
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes | | No | |
Applicable Only to Corporate Issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: Common Stock, $ .01 Par Value:
2,290,589 shares outstanding as of November 1, 2006.
Transitional Small Business Disclosure Format (check one): Yes | X | No | |
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheet at September 30, 2006 (Unaudited) 1
Consolidated Statement of Operations--for the three and nine months ended
September 30, 2006 and 2005 (Unaudited) 2
Consolidated Statement of Cash Flows-- for the nine months ended
September 30, 2006 and 2005 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 25
Item 3. Controls and Procedures 33
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 3. Defaults Upon Senior Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits 34
Signatures 40
Exhibits
11. Computation of Earnings Per Share.
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss. 1350.
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (notes A3, E and I) $ 2,437,252
Accounts receivable (notes A6 and A15) 1,330,901
Other current receivable (note C) 6,399,701
Other current assets 92,373
------------
Total current assets $10,260,227
RESTRICTED CASH EQUIVALENTS (note E) 2,181,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation of $85,410 (notes A7, A8 and F) 152,958
INVESTMENT IN REAL ESTATE JOINT VENTURE (note G) 1,687,238
ROYALTY INTERESTS, at cost net of accumulated depletion
of $ 32,560 (notes A7, A8 and H) 130,294
LONG-TERM INVESTMENTS (notes A4 and I) 62,350
MINORITY INTEREST (note A13) 1,532
OTHER ASSETS
Goodwill (note A9 and B) 2,916,085
Deposits and other assets 31,395
------------
Total other assets 2,947,480
-----------
TOTAL ASSETS $17,423,079
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 678,982
Accrued liabilities (note J) 865,806
Current portion of long-term obligations (note L) 4,489,029
Accrued interest payable 148,082
Deferred revenue (note A12) 72,254
------------
Total current liabilities $ 6,254,153
LONG-TERM OBLIGATIONS, less current portion (note L) 2,812,154
COMMITMENTS AND CONTINGENCIES (note N) -
STOCKHOLDERS' EQUITY (notes O and P)
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
80,000 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
125,000 Series "C" shares issued and outstanding, convertible into
a total of 500,000 shares of common stock at the option of the holders (note A14) 125
Common stock, $.01 par value, 20,000,000 shares authorized;
2,290,589 shares issued and outstanding 22,906
Additional paid-in capital 44,970,100
Accumulated deficit (36,636,519)
------------
Total stockholders' equity 8,356,772
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,423,079
===========
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30,
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
----------- ------------- ------------ -------------
Operating revenue
Rental revenue $ 834,128 $ 894,749 $ 2,418,702 $ 2,237,068
Energy management fees 809,217 - 1,486,023 -
Retail electricity revenue 1,956,012 2,545,563 8,516,667 3,981,948
----------- ------------- ------------ -------------
Total operating revenue 3,599,357 3,440,312 12,421,392 6,219,016
----------- ------------- ------------ -------------
Operating expense
Cost of goods and services 1,934,621 2,453,362 7,818,782 3,876,737
Rental property operations 631,300 554,428 1,652,483 1,412,537
General and administrative 539,056 329,312 1,272,789 759,877
Depreciation, amortization and depletion 112,022 106,284 319,357 302,790
----------- ------------- ------------ -------------
Total operating expenses 3,216,999 3,443,386 11,063,411 6,351,941
----------- ------------- ------------ -------------
(Loss) income from operations 382,358 (3,074) 1,357,981 (132,925)
----------- ------------- ------------ -------------
Other (expense) income
Interest income 61,023 14,037 169,839 41,574
Interest expense (343,344) (130,748) (690,211) (393,243)
Gain on sale of investments (note C) 1,405,495 - 1,405,495 -
Other (expense) income (209,399) 11,218 (299,451) 37,632
----------- ------------- ------------ -------------
Total other (expense) income 913,775 (105,493) 585,672 (314,037)
----------- ------------- ------------ -------------
Income (loss) from continuing operations before income taxes
and minority interest 1,296,133 (108,567) 1,943,653 (446,962)
Income taxes (note A11) - - - -
Minority interest (3,547) (41,899) (60,256) (78,492)
----------- ------------- ------------ -------------
NET INCOME (LOSS) $ 1,292,586 $ (150,466) $ 1,883,397 $ (525,454)
==========================================================
Net income (loss) per common share (basis) $ .56 $ (.07) $ .84 $ (.24)
==========================================================
Net income (loss) per common share (diluted) $ .36 $ (.07) $ .52 $ (.24)
==========================================================
Weighted average number of common shares outstanding - basic 2,290,589 2,203,310 2,247,938 2,202,015
=========== ============= ============ =============
Weighted average number of common shares outstanding - diluted 3,640,353 2,203,310 3,597,702 2,202,015
=========== ============= ============ =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
2
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30,
(Unaudited)
2006 2005
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) $ 1,883,397 $ (525,454)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation, depletion and amortization 319,357 302,790
Impairment of note receivable - 86,555
Increase in bad debt expense 16,163 -
Gain on sale of investments (1,405,495) -
Minority interest 60,256 78,492
Changes in operating assets and liabilities:
Accounts receivable 381,401 (1,561,741)
Deposits and other assets 117,280 -
Deferred costs 30,692 (27,730)
Accounts payable (530,342) 974,761
Accrued and other liabilities 161,417 (78,402)
Deferred revenue (52,086) 66,237
------------ ------------
Net cash provided by (used in) operating activities 982,040 (684,492)
------------ -------------
Cash flows from investing activities:
Purchases of property and equipment (402,704) (475,979)
Restricted cash equivalents (625,736) (1,124,533 )
Sales and maturity of investments 2,100,000 -
Net cash acquired in acquisition of limited partnership interest (note B) 283,152 -
Repayments of notes receivable 50,000 13,000
------------ -------------
Net cash provided by (used in) investing activities 1,404,712 (1,587,512)
------------ -------------
Cash flows from financing activities:
Repayments of notes payable (2,354,887) (1,573,898)
Net proceeds from issuance of common and preferred stock - 2,024,455
Net proceeds from exercised warrants 337,495 -
Minority interest cash distributions (36,536) -
------------ ------------
Net cash (used in) provided by financing activities (2,053,928) 450,557
------------ ------------
Net increase (decrease) in cash and cash equivalents 332,824 (1,821,447)
Cash and cash equivalents at beginning of period 2,104,428 4,147,900
------------ -------------
Cash and cash equivalents at end of period $ 2,437,252 $ 2,326,453
============ ============
Non - cash investing and financing activities:
Effective April 1, 2006, the Company acquired 100%
of Priority Power Management, Ltd. and
assumed a note payable to sellers (see note B) $ 3,230,051 $ -
============ ============
On September 27, 2006, the Company distributed certain
net assets to minority interest owners (see note C) $ 369,250 $ -
============ ============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
3
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. Organization
Effective October 2002, AMEN formed NEMA Properties, LLC ("NEMA"), a
Nevada limited liability company; AMEN Minerals, LP ("Minerals"), a
Delaware limited partnership; and AMEN Delaware, LP ("Delaware"), a
Delaware limited partnership, to pursue acquisitions as authorized by
stockholders on September 19, 2002. AMEN Properties, Inc. and
Subsidiaries is a self-administered and self-managed Delaware
corporation. Effective July 2004, AMEN Properties, Inc. and
Subsidiaries and affiliates (collectively referred to as the
"Company") formed W Power and Light, LP ("W Power"), a Delaware
limited partnership to enter into the retail electricity market in
Texas. Effective April 1, 2006, AMEN Properties acquired 100% of
Priority Power Management, Ltd. a Texas limited partnership, and
Priority Power Management, Dallas, Ltd. a Texas limited partnership,
(collectively referred to as "Priority Power"). Priority Power is
primarily involved in providing energy management services and the
Company believes that Priority Power's business is complimentary to
the retail electricity provider business conducted by the Company's
subsidiary W Power.
The Company's business purpose is to acquire investments in commercial
real estate, oil and gas royalties, retail electricity operations and
stabilized cash flowing businesses or assets. As of September 30,
2006, the Company, through Delaware's investment in a real estate
joint venture, has a commercial real estate portfolio consisting of an
ownership of approximately 18% in two office properties located in
Midland, Texas comprising an aggregate of approximately 428,560 square
feet of gross leasable area. Through its investment in Minerals, AMEN
has acquired an investment interest in an oil and gas royalty trust
and other oil and gas royalties. Through the Company's investment in W
Power, Amen entered the retail electricity market in the state of
Texas. On April 1, 2006, the Company, through it's investment in
Priority Power, began aggregating electric consumers and negotiating
power prices on their behalf with retail electric providers. The real
estate operations of the Company are primarily conducted through
Delaware of which AMEN is the sole general partner; the retail
electricity operations are primarily conducted through W Power of
which Amen is the sole general partner; the aggregation of electric
consumers is primarily conducted through Priority 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.
Inter-company balances and transactions have been eliminated.
Management uses estimates and assumptions in preparing the
consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. Those
estimates and assumptions affect the reported amounts of assets,
liabilities, revenues and expenses in the consolidated financial
statements, and the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
4
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
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.
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 $8,008,939 as of
September 30, 2006. Disclosure about fair value of financial
instruments is based on pertinent information available to management
as of September 30, 2006.
6. Accounts Receivable
Management regularly reviews accounts receivable and estimates the
necessary amounts to be recorded as an allowance for uncollectibility.
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.
The Company estimated the allowance for doubtful accounts related to W
Power's billed account receivables to be approximately .2% percent of
W Power's retail electricity billed revenue for the three months and
nine months ended September 30, 2006. Due to the limited historical
data, the Company regularly reviews the accounts receivable and
accordingly makes adjustments in estimating the allowance for doubtful
accounts.
Priority Power trade accounts receivable arise from aggregation fees
and other management services. An allowance for uncollectible accounts
receivable is provided, when considered necessary by management, for
estimated amounts not expected to be collectible. No allowance was
provided or deemed necessary at September 30, 2006. At September 30,
2006 accounts receivable consisted of the following:
5
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Billed electricity receivables $ 289,263
Unbilled electricity receivables 661,648
Aggregation fees 437,086
Allowance for doubtful accounts (57,096)
-------------
Accounts receivable, net $ 1,330,901
=============
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 36.5 years. 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. Investment in Real Estate Joint Venture
As discussed in Note C to the consolidated financial statements, the
Company sold a significant interest in certain real estate and
contributed its retained 18.017% undivided ownership interest in the
real estate to a joint venture in which the Company has significant
continuing involvement
The Company's investment in real estate joint venture is recorded at
its remaining net cost, adjusted for its 18.017% joint venture share
of earnings (loss) using the equity method of accounting, and joint
venture cash contributions and distributions.
6
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
10. Goodwill
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill and other intangible
assets with investment lives no longer be amortized. The intangible
assets are tested for impairment annually. If there is an impairment,
the amount will be expensed and the intangible assets will be written
down accordingly.
11. Stock-Based Compensation
On January 1, 2006 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R), Accounting for Stock-Based
Compensation, to account for its stock-based compensation. In December
2004, the Financial Accounting Standards Board issued SFAS 123(R)
effective for small business issuers after December 15, 2005. The new
Statement requires mandatory reporting of all stock-based compensation
awards on a fair value basis of accounting. Generally, companies are
required to calculate the fair value of all stock awards and amortize
that fair value as compensation expense over the vesting period of the
awards.
12. 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. For the three months and nine months ended
September 30, 2006, no income tax exposure has been provided due to
the utilization of the Company's net operating losses.
13. Deferred Revenue
Deferred revenue consists of prepaid aggregation fees. Deferred
revenue is amortized over the life of the aggregation contract for
prepaid aggregation fees.
14. 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 September 30, 2006 and
2005.
15. Contingently Convertible Securities
The Company has outstanding Series A Preferred Stock ("Series A"),
Series B Preferred Stock ("Series B") and Series C Preferred Stock
("Series C") whose terms enable the holder, under certain conditions,
to convert such securities into 1,349,764 shares of the Company's
Common Stock as shown in the following table.
7
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Number Purchase Conversion Number of
Series of Shares Price Rate Common 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 for any periods in which
their effect are antidilutive.
16. Revenue Recognition
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.
8
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
The Company's gross revenues for aggregation and other services to our
customers are recognized upon delivery and include estimated
aggregation fees and other services delivered but not billed by the
end of the period.
As of September 30, 2006, the Company recorded unbilled revenue of
$164,343 for aggregation fees. Accrued unbilled revenues are based on
our estimates of customer usage since the date of the last meter
reading provided by the independent system operators or electric
distribution companies. Volume estimates are based on average daily
volumes, estimated customer usage and applicable customer aggregation
rates. Unbilled revenues are calculated by multiplying volume
estimates by our estimated rates by customer. Estimated amounts are
adjusted when actual usage and rates are known and billed.
17. Income (Loss) Per Share
Income (loss) per share is computed based on the weighted average
common shares and common stock equivalents outstanding during each
period. The effects of Series A, Series B and Series C Convertible
Preferred Stock are not included in the computation of diluted
earnings per share for any periods in which their effect are
antidilutive.
18. 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.
19. New Accounting Pronouncements
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.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing
of Financial Assets - an amendment of FASB Statement No. 140. This
Statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with
respect to the accounting for separately recognized servicing assets
and servicing liabilities. The provisions of this Statement shall be
effective as of the beginning of an entity's first fiscal year that
begins after September 15, 2006.
9
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. The provisions of this Statement shall be effective for
financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years.
In September 2006, the FASB issued SFAS No. 158, Employer's Accounting
for Defined Benefit Pension and Other Postretirement Plans - an
amendment to FASB Statement No. 87, 88, 106, and 132R. This Statement
improves financial reporting by requiring an employer to recognize the
overfunded or underfunded status of a defined benefit postretirment
plan (other than a multiemployer plan) as an asset or liability in its
statement of financial position and to recognize changes in that
funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted
net assets of a no-for-profit organization. An employer with publicly
traded equity securities shall initially apply the requirement to
recognize the funded status of a benefit plan and the disclosure
requirements as of the end of the fiscal year ending after December
15, 2006. An Employer without publicly traded equity securities shall
initially apply the requirements as of the end of the fiscal year
ending after June 15, 2007.
Management does not believe the new pronouncements will have a
material impact on its financial statements.
NOTE B - BUSINESS COMBINATIONS
On May 25, 2006, the Company completed the acquisition of 100% of
Priority Power Management, effective April 1, 2006, for an aggregate
consideration of $3,730,051. Priority Power is primarily involved in
providing energy management services and the Company believes that
Priority Power's business is complimentary to the retail electricity
provider business conducted by the Company's subsidiary W Power. The
acquisition resulted in the Company allocating $2,916,085 of the
purchase price to goodwill. This allocation is principally the result
of the purchase price being based on a business valuation of Priority
Power for the period ended December 31, 2005. The acquisition
consisted of $500,000 of cash paid and promissory notes totaling
$3,230,051 payable to the selling partners of Priority Power. This
acquisition has been accounted for under the purchase method of
accounting and Priority Power's results of operations for the three
months ended June 30, 2006 and September 30, 2006 have been included
in the Company's Consolidated Statement of Operations for the period
then ended. The purchase price has been allocated based on the
estimated fair values of 100% of the acquired partnership interests at
the acquisition date as follows:
Goodwill $ 2,916,085
Fair value of fixed assets acquired 96,467
Fair value of other current assets acquired 460,201
Fair value of liabilities assumed (525,854)
Note payable to sellers (3,230,051)
-------------
Net Cash acquired for the acquisition (283,152)
Less: total cash acquired 783,152
-------------
Net cash paid $ 500,000
=============
10
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
The total amount of goodwill expected to be deducted for tax purposes
for the tax year ending December 31, 2006 is $145,804.
The following summary compares the Company's operating results for the
nine months ended September 30, 2006 as reported, to a pro forma of
those results prepared on the assumption that the purchase had taken
place on January 1, 2006.
As
Reported Proforma
------------- -------------
Revenues $ 12,421,392 13,070,396
============= =============
Net income $ 1,883,397 2,174,123
============= =============
Income per common share (basic) $ .84 .97
============= =============
Income per common share (diluted) $ .52 .60
============= =============
Weighted average number of common shares
Outstanding - basis 2,247,938 2,247,938
============= =============
Weighted average number of common shares
Outstanding - diluted 3,597,702 3,597,702
============= =============
NOTE C - DISPOSITION OF ASSETS
Effective September 27, 2006, the Company entered into an Agreement to
Distribute Assets with and among the partners of TCTB Partners, Ltd.
The assets consisted of the following: the twenty-four-story Bank of
America Tower, where the Company's headquarters are located, which was
completed in 1977 and encompasses 329,178 rentable square feet and a
900 space-parking garage; the related Bank of America 12-lane drive
through banking facility; and the twelve story Century Plaza Tower
which was built in 1979 (renovated in 1990) and has 99,422 rentable
square feet. The Properties constituted substantially all of the
assets of TCTB prior to the transactions described herein and were
subject to a lien to secure a promissory note payable to Wells Fargo
Bank Texas, N.A. The partners of TCTB agreed that it was in their best
interest to distribute undivided interests in the assets to the
partners according to the sharing ratios of the Partnership in
connection with the sale of interests, described below, in the assets.
The Bank agreed to allow TCTB to distribute the assets to the partners
of TCTB in exchange for the payoff of the note as described below. The
asset distribution to the TCTB minority interest partners resulted in
an approximate $369,000 reduction in minority interest.
Contemporaneous with the distribution of the Properties, the Company
along with the General Partner and the other Limited Partners of TCTB
collectively agreed to sell and sold 75% of their collective undivided
interest in the Properties to Hampshire Plaza Garage, LLC and S.E.S.
11
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Investments, Ltd., unaffiliated third party purchasers for a privately
negotiated price of $9.0 million. This resulted in the Company,
through its wholly owned subsidiary Amen Delaware, LP, selling
approximately 74% of its undivided interest in the distributed assets
for approximately $6.4 million (net proceeds of approximately
$3,570,500) with a gain on the sale of approximately $1,405,500. The
sale of approximately 74% of the Company's original 71.348% interest
in the assets resulted in the Company retaining approximately 18.017%
in an investment in a real estate joint venture.
A separate Purchase Agreement was executed between Buyers and TCTB as
nominee for the Selling Partners dated September 29, 2006. While
beneficial title to the Properties resided with each partner of TCTB,
subsequent and pursuant to the Agreement to Distribute Assets, the
Selling Partners agreed that TCTB would continue to hold record title
to their interests in the Properties and then transfer record title to
an undivided 75% interest in the Properties directly to Buyers in
order to facilitate the closing of the Purchase Agreement which
occurred on September 29, 2006. Pursuant to the Purchase Agreement,
TCTB, the Selling Partners and Buyers agreed to indemnify each other
against, and hold each other harmless from all liabilities arising out
of ownership, operations or maintenance of the Properties for their
respective periods of ownership.
In connection with the Agreement to Distribute Assets the restricted
$2.1 million certificate of deposit that secured the Note was applied
to the outstanding balance of the Note resulting in the Note balance
of approximately $3.7 million being distributed to the partners of
TCTB Partners, Ltd., approximately $2.6 million net to the Company.
The Note was subsequently paid in full on October 2, 2006 through the
application of approximately $3.9 million of the $9.0 million sales
proceeds under the Purchase Agreement received on October 2, 2006. The
remaining $5.0 million of the sales proceeds (after closing costs)
were paid to the Selling Partners in accordance with their respective
interests in the Properties (approximately $3.5 million to the
Company). The Company plans to use its net proceeds from the sale (i)
to pay the remaining balance (approximately $1.7 million) on certain
promissory notes entered into by the Company in connection with its
acquisition of partnership interests in TCTB (including approximately
$266,000 to Mr. Jon Morgan, President and COO of the Company, and
approximately $410,000 to an affiliate of Mr. Eric Oliver, Chairman of
the Board and CEO of the Company), (ii) for potential real estate
acquisition or redevelopment opportunities, (iii) to fund potential
capital requirements of its electricity business subsidiaries, W Power
and Light, LP and Priority Power Management, LP, (iv) for potential
purchases of oil and gas mineral and royalty interests, and (v) for
general working capital.
NOTE D - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at four financial institutions,
which at times may exceed federally insured limits. At September 30,
2006 the Company had approximately $2,270,635 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 Priority Power's revenues are derived principally from
uncollateralized customer electricity billings and TCTB's revenues are
derived principally from uncollateralized rents from tenants. 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.
12
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
NOTE E - RESTRICTED CASH EQUIVALENTS
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 September 30, 2006, the Company had
deposits with JPMC totaling $2,181,000 collateralizing outstanding
Letters of Credit.
NOTE F - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at
September 30, 2006:
Furniture, fixtures and equipment $ 238,368
Less: accumulated depreciation (85,410)
-------------
$ 152,958
=============
Depreciation expense for the nine months ended September 30,
2006 and 2005 was $313,034 and $276,032, respectively.
Included in the 313,034 of 2006 depreciation expense is
$275,984 of depreciation related to the buildings sold on
September 29, 2006.
NOTE G - INVESTMENT IN REAL ESTATE JOINT VENTURE
Effective September 27, 2006, the Company entered into an Agreement to
Distribute Assets with and among the partners of TCTB Partners, Ltd.
Contemporaneous with the distribution of the assets, the Company along
with the General Partner and the other Limited Partners of TCTB
collectively agreed to sell and sold 75% of their collective undivided
interest in the assets (see note C). The sale of the Company's
undivided interest in the assets resulted in the Company retaining
approximate 18.017% undivided interest in the assets described above
(see Subsequent Events note Q).
NOTE H - ROYALTY INTERESTS
The Company, through its wholly-owned subsidiary Amen Minerals, LP,
currently owns 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 quarters ended September 30, 2006 and 2005.
13
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Depletion expense for the nine months ended September 30, 2006 and
2005 was $6,324 and $10,509, respectively.
NOTE I - CASH, CASH EQUIVALENTS AND INVESTMENTS
At September 30, 2006 and 2005, the Company's cash and cash
equivalents consist of cash in banks of $2,437,252.
Securities available-for-sale in the accompanying balance sheet at
September 30, 2006 and 2005 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
---------- ---------- ----------
Other securities $ 62,350 62,350 -
========== ========== ==========
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 2006:
Accrued settlement expenses $ 217,284
Accrued corporate tithing 209,266
Accrued TDSP charges 145,869
Accrued sales tax 127,940
Other liabilities 165,447
-------------
$ 865,806
=============
NOTE K - OPERATING SEGMENTS
The Company's business activities are mainly comprised of three
reportable segments, real estate operations, a retail electricity
provider ("REP"), and retail electricity aggregation services.
The commercial real estate portfolio consists of the Company's
investment in a real estate joint venture (see notes C and G),
consisting of an ownership of approximately 18% in two office
properties located in Midland, Texas comprising an aggregate of
approximately 428,560 square feet of gross leasable area.
Amen entered the retail electricity market in the state of Texas in
July 2004. The retail electricity operations are primarily conducted
through W Power of which Amen is the sole general partner. The REP
segment will sell electricity and provide the related billing,
customer service, collection and remittance services to both
residential and commercial customers.
On April 1, 2006, the Company, through it's investment in Priority
Power, began aggregating electric consumers and negotiating power
prices on their behalf with retail electric providers. The aggregation
of electric consumers is primarily conducted through Priority Power of
which Amen is the sole general partner.
14
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Each segment's accounting policies are the same as those described in
the summary of significant accounting policies and the following
tables reflect totals for the three and nine months ended September
30, 2006 and 2005, respectively.
Three months ended September 30, 2006:
--------------------------------------
Energy Inter-Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- ------------ ------------- ------------ ------------- -------------
Revenues from
external customers $ 1,956,012 $ 834,128 $ 809,217 $ - $ - $ 3,599,357
============= ============ ============= ============ ============= =============
Revenues from other
operating segments $ 305,461 $ 5,411 $ - $ - $ (310,872) $ -
============= ============ ============= ============ ============= =============
Depreciation,
amortization and
depletion $ 3,876 $ 102,270 $ 4,583 $ 1,293 $ - $ 112,022
============= ============ ============= ============ ============= =============
Interest expense $ 60,325 $ 276,769 $ 62,582 $ - $ (56,332) $ 343,344
============= ============ ============= ============ ============= =============
Segment net income
(loss) $ (78,124) $ 12,382 $ 425,750 $ 988,372 $ (55,794) $ 1,292,586
============= ============ ============= ============ ============= =============
Segment assets $ 3,859,107 $ 218,984 $ 1,075,279 $ 12,368,839 $ (99,130) $ 17,423,079
============= ============ ============= ============ ============= =============
Goodwill $ - $ - $ - - $ - $ -
============= ============ ============= ============ ============= =============
Expenditures for
segment assets $ 5,722 $ 325,263 $ 13,694 $ 2,245 $ - $ 346,924
============= ============ ============= ============ ============= =============
Three months ended September 30, 2005:
--------------------------------------
Energy Inter-Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- ------------ ------------- ----------- ------------- --------------
Revenues from
external customers $ 2,545,563 $ 894,749 $ - $ - $ - $ 3,440,312
============= ============ ============= =========== ============= ==============
Revenues from other
operating segments $ 299,519 $ 4,987 $ - $ - $ (304,506) $ -
============= ============ ============= =========== ============= ==============
Depreciation,
amortization and
depletion $ 3,160 $ 76,168 $ - $ 26,956 $ - $ 106,284
============= ============ ============= =========== ============= ==============
Interest expense $ 23,862 $ 130,692 $ - $ - $ (23,806) $ 130,748
============= ============ ============= =========== ============= ==============
Segment net income
(loss) $ (71,240) $ 146,233 $ - $ (201,708) $ (23,751) $ (150,466)
============= ============ ============= =========== ============= ==============
Segment assets $ 2,975,936 $ 7,614,249 $ - $ 5,816,485 $ (469,215) $ 15,937,455
============= ============ ============= =========== ============= ==============
Expenditures for
segment assets $ 17,167 $ 33,139 $ - $ 1,325 $ - $ 51,631
============= ============ ============= =========== ============= ==============
15
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Nine months ended September 30, 2006:
-------------------------------------
Energy Inter-Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- ------------ ------------- ------------ ------------- -------------
Revenues from
external customers $ 8,516,667 $ 2,418,702 $ 1,486,023 $ - $ - $ 12,421,392
============= ============ ============= ============ ============= =============
Revenues from other
operating segments $ 794,572 $ 20,797 $ - $ - $ (815,369) $ -
------------- ------------ ============= ------------ ------------- -------------
Depreciation,
amortization and
depletion $ 10,985 $ 293,522 $ 7,400 $ 7,450 $ - $ 319,357
============= ============ ============= ============ ============= =============
Interest expense $ 163,776 $ 553,767 $ 125,165 $ 136 $ (152,633) $ 690,211
============= ============ ============= ============ ============= =============
Segment net income
(loss) $ 348,016 $ 210,312 $ 687,921 $ 789,243 $ (152,095) $ 1,883,397
============= ============ ============= ============ ============= =============
Goodwill $ - $ - $ 2,916,085 $ - $ - $ 2,916,085
============= ============ ============= ============ ============= =============
Segment assets $ 3,859,107 $ 218,984 $ 1,075,279 $ 12,368,839 $ (99,130) $ 17,423,079
============= ============ ============= ============ ============= =============
Expenditures for
segment assets $ 10,306 $ 381,495 $ 14,496 $ (3,593) $ - 402,704
============= ============ ============= ============ ============= =============
Nine months ended September 30, 2005:
------------------------------------
Energy Inter-Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- ------------ ------------- ----------- ------------- --------------
Revenues from
external customers $ 3,981,948 $ 2,237,068 $ - $ - $ - $ 6,219,016
============= ============ ============= =========== ============= ==============
Revenues from other
operating segments $ 572,345 $ 18,287 $ - $ - $ (590,632) $ -
------------- ------------ ============= ----------- ------------- --------------
Depreciation,
amortization and
depletion $ 6,460 $ 214,930 $ - $ 81,400 $ - $ 302,790
============= ============ ============= =========== ============= ==============
Interest expense $ 46,757 $ 353,262 $ - $ 91,185 $ (97,961) $ 393,243
============= ============ ============= =========== ============= ==============
Segment net income
(loss) $ (335,867) $ 273,948 $ - $ (416,941) $ (46,594) $ (525,454)
============= ============ ============= =========== ============= ==============
Segment assets $ 2,975,936 $ 7,614,249 $ - $ 5,816,485 $ (469,215) $ 15,937,455
============= ============ ============= =========== ============= ==============
Expenditures for
segment assets $ 32,662 $ 436,510 $ - $ 6,807 $ - $ 475,979
============= ============ ============= =========== ============= ==============
16
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
NOTE L - 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 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 (e) a final judgment or order for
the payment of money in excess of $100,000. Effective September 27,
2006, the Company entered into an Agreement to Distribute Assets with
and among the partners of TCTB Partners, Ltd. (see note C). The Bank
agreed to allow TCTB to distribute the assets to the partners of TCTB
in exchange for the payoff of the note. In connection with the
Agreement to Distribute Assets the restricted $2.1 million certificate
of deposit that secured the Note was applied to the outstanding
balance of the Note resulting in the Note balance of approximately
$3.7 million being distributed to the partners of TCTB Partners, Ltd.,
approximately $2.6 million net to the Company.
On March 3, 2006 TCTB entered into a loan agreement with a financial
institution for a revolving line of credit note (the "Line of Credit")
of $300,000. The line of credit bears interest at a variable rate per
annum equal to the Prime Rate, currently 8.25% as of September 30,
2006. The proceeds from the Note are intended to be used to fund
potential tenant lease improvements provided for in new tenant lease
agreements at TCTB. The loan agreement is secured by substantially all
of the assets of TCTB.
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 on
October 1, 2002. 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
17
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
payment. Due to the distribution and sale of the assets of TCTB in
late September 2006, the Company elected to forgo the payment as
described above and paid the remaining balance of the principal
balance along with the entire accrued interest balance during October
2006, (see note Q).
Delaware entered into a promissory note (the "Hexagon Note") on
February 18, 2004, effective January 1, 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%. Due to the
distribution and sale of the assets of TCTB in late September 2006,
the Company elected to pay the remaining balance of the principal
balance along with the accrued interest balance during October 2006,
(see note Q).
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 (8.25% at September 30, 2006). 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.
NEMA entered into twenty-two promissory notes (the "NEMA Notes") on
May 18, 2006, effective April 1, 2006 totaling $3,230,051 to purchase
100% ownership interest in Priority Power Management, Ltd, a Texas
limited partnership, and Priority Power Management Dallas, Ltd, a
Texas limited partnership. The notes are due in quarterly installments
of principal and interest beginning on September 30, 2006 with a final
maturity of December 31, 2013. The term notes bear interest at a fixed
rate per annum of 7.75%.
Long-term debt as of September 30, 2006:
Long-term Current
Portion Portion Total
--------------- --------------- ---------------
TCTB note $ - $ 2,611,928 $ 2,611,928
Delaware notes - 1,394,543 1,394,543
Hexagon note - 145,064 145,064
Line of credit - - -
WNB note - - -
NEMA notes 2,812,154 337,494 3,149,648
--------------- --------------- ---------------
Total $ 2,812,154 $ 4,489,029 $ 7,301,183
=============== =============== ===============
18
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Maturities of long-term debt at September 30, 2006 are as follows:
2006 $ 4,489,029
2007 364,420
2008 393,494
2009 424,888
2010 1,629,352
------------
Total 7,301,183
Less current portion 4,489,029
------------
Long-term portion $ 2,812,154
============
NOTE M - RELATED PARTY TRANSACTIONS
At September 30, 2006 and 2005, related parties leased from TCTB,
office space of approximately 32,000 square feet. TCTB received rental
income from these related parties of approximately $84,373 and $77,388
during the quarters then ended, respectively.
The Company closed the sale and issuance of 125,000 shares of Series C
Preferred Stock and 250,000 Warrants (see note O) pursuant to a
Purchase Agreement, as amended by the Second Amendment on March 1,
2005 between the Company and certain accredited investors, including
the Company's President and Chief Operating Officer, Jon M. Morgan,
the Company's Chief Executive Officer, Eric Oliver and Bruce
Edgington, one of the Company's Directors.
The following table reflects the Series C issuance to the Company's
officers and directors.
Number of Common Preferred C Purchase
Preferred C Stock Voting Price
Shares Equivalent Equivalent
--------------- ----------------- ---------------- -------------
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
=============== ================= ================ =============
19
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
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
=============== =================
On May 18, 2006, Jon M. Morgan and Bruce Edgington exercised their
outstanding warrants (described above) for a total exercise price of
$112,496 and $25,000, respectively. Mr. Morgan received 28,124 shares
of common stock and Mr. Edgington received 6,250 shares of common
stock upon the exercise of their stock warrants.
On May 25, 2006, the Company completed its acquisition of all of the
outstanding partnership interests in Priority Power pursuant to a
Securities Purchase Agreement by and between the Company and its
subsidiary, NEMA and the partners of Priority Power dated May 18,
2006. The total purchase price was $3,730,051, comprised of (i)
$500,000 in cash, and (ii) promissory notes with the aggregate
principal amount of $3,230,051 (see note L) from the Company and NEMA
and payable to the sellers. There are several business relationships
among Priority Power, its partners, the Company and its subsidiaries,
and their respective affiliates. The Company's retail electricity
provider subsidiary, W Power, has contractual relationships with
Priority Power with respect to providing electricity to less than 0.2%
of Priority Power's clients and the Company believes W Power will not
provide energy to any Priority Power clients in the future.
Additionally certain of the selling partners of Priority Power are
customers of W Power none of which are considered significant
customers. In addition, certain of the selling partners of Priority
Power are also five percent or more stockholders of the Company or
affiliates of stockholders of the Company, including an affiliate of
Jon M. Morgan, the President and Chief Operating Officer of the
Company, and Eric L. Oliver, the Chairman of the Board of Directors
and the Chief Executive Officer of the Company. Jon M. Morgan is a
fifty percent owner of Anthem Oil and Gas, Inc which was a selling
limited partner of Priority Power. Mr. Morgan also owned a one third
interest in the selling general partner of Priority Power Management,
Ltd. Eric L. Oliver owned a thirty-seven and a half percent interest
in a selling limited partner of Priority Power, Oakdale Ventures, Ltd.
The following table reflects the portion of the Company's long-term
debt payable to related parties:
Delaware
NEMA notes notes Total
------------ ----------- ------------
Eric Oliver, CEO $ 24,142 - $ 24,142
Jon M. Morgan , COO 571,063 - 571,063
5% Shareholders 1,109,003 - 1,109,003
------------ ----------- ------------
Total $ 1,704,208 - $ 1,704,208
============ =========== ============
Effective September 27, 2006, the Company entered into an Agreement to
Distribute Assets with and among the partners of TCTB Partners, Ltd.
Contemporaneous with the distribution of the Properties, the Company
along with the General Partner and the other Limited Partners of TCTB
collectively agreed to sell and sold 75% of their collective undivided
interest in the Properties to Hampshire Plaza Garage, LLC and S.E.S.
Investments, Ltd., unaffiliated third party purchasers for a privately
negotiated price of $9.0 million (see note C).
20
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Mr. Jon Morgan, COO of the Company, and his affiliate were among the
Selling Partners and the sale of their undivided interest in the
Properties resulted in Mr. Morgan receiving a net check in the amount
of $79,317. Mr. Morgan is also an owner and officer of the General
Partner of TCTB, and took actions in such capacity in connection with
this transaction in addition to acting as an officer of the Company.
As an owner of such General Partner, Mr. Morgan indirectly received an
additional $5,300 from the sale of the General Partner's interest in
the Properties
NOTE N - 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 September 30, 2006:
2006 $ 853,169
2007 825,852
2008 148,960
-------------
Total $ 1,827,981
=============
NOTE O - STOCKHOLDERS' EQUITY
On February 3, 2005, the Company finalized an agreement involving a
private placement under Regulation D for the new Series C Preferred
Stock and common stock purchase warrants (the "Warrants") to
accredited investors (the "Purchase Agreement"). The Company closed
the sale and issuance of 125,000 Series C Preferred Stock and 250,000
Warrants pursuant to the Purchase Agreement, as amended by the Second
Amendment (the "Amended Purchase Agreement"), on March 1, 2005. The
purchase price consisted of a total of $2 million in cash and limited
guaranties from the investors in favor of Western National Bank
covering the credit facility described in Note L. No underwriting
discounts or commissions were paid in connection with this issuance.
Certain facts related to the exemption from registration of the
issuance of the securities under securities law are set forth in the
Amended Purchase Agreement as representations of the investors,
including without limitation their investment intent, their status as
accredited investors, the information provided to them, the restricted
nature of the securities, and similar matters.
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
21
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
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.
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.
On May 18, 2006, the Company issued 84,374 shares of common stock for
$337,496 upon the exercise of certain stock warrants (described above)
covering 84,374 shares with a strike price of $4.00.
NOTE P - 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 September 30, 2006, all options available
under the 1997 Plan have been granted: 62,579 options have been
exercised, and 188,221 options are outstanding which are fully vested
and range in price from $3.50 to $61.36 and have a weighted average
contractual maturity of 2.27 years.
The 1998 Stock Option Plan ("1998 Plan") was approved by the Board of
Directors in April 1998, with an 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 September 30, 2006, 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 and have a weighted average contractual
maturity of 6.48 years.
Effective January 1, 2006, the Company adopted SFAS No. 123(R)
utilizing the modified prospective approach. The modified prospective
approach applies to new awards and to awards that were outstanding on
January 1, 2006 that are subsequently modified, repurchased or
cancelled. Under the modified prospective approach, compensation cost
for all share-based payments granted prior to, but not yet vested as
of January 1, 2006 and all share-based payments granted subsequent to
January 1, 2006 should be recognized as compensation expense in
accordance with the provisions of SFAS 123 (R). Under the modified
22
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
prospective approach prior periods are not restated to reflect the
impact of adopting the new standard. The share-based payments fair
value is estimated on the date of grant using the Black-Scholes
option-pricing model. As of January 1, 2006 the Company's outstanding
options for the 1997 Plan and 1998 Plan were fully vested and for the
thee and nine months ended September 30, 2006 the Company did not
issue any stock based compensation under the 1997 Plan or the 1998
Plan. As such the Company did not have any stock based compensation
expense to recognize during the three and nine months ended September
30, 2006.
The table below summarizes the stock option activity for the three and
nine months ended September 30, 2006:
Weighted
Options Average
Options Outstanding Outstanding Price
------------------------- ------------ ------------
Outstanding December 31,
2005 433,603 $ 14.06
Options exercised - -
Options forfeited (16,167) 12.48
Options issued - -
------------
Outstanding March 31,
2006 417,436 14.12
============
Options exercised - -
Options forfeited (2,692) 16.00
Options issued - -
------------
Outstanding June 30, 2006 414,744 14.11
Options exercised - -
Options forfeited (113,142) 17.15
Options issued - -
------------
Outstanding September 30,
2006 301,602 $ 14.11
============
At September 30, 2006 the 301,602 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 3.85 years
The table below summarizes the stock option activity for the three and
nine months ended September 30, 2005:
23
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2006
(Unaudited)
Weighted
Options Average
Options Outstanding Outstanding Price
------------------------- ------------ ------------
Outstanding December 31,
2004 454,993 $ 13.05
Options exercised - -
Options forfeited (13,620) 14.07
Options issued - -
------------
Outstanding March 31,
2005 441,373 14.06
============
Options exercised - -
Options forfeited (13,620) 14.07
Options issued - -
Outstanding June 30, 2005 427,753 14.00
============
Options exercised (4,859)
Options forfeited (13,620) 14.07
Options issued -
------------
Outstanding September 30,
2005 409,274 $ 14.02
============
At September 30, 2005 the 409,274 outstanding options are fully vested
and exercisable. They range in price from $1.98 to $61.36 and had a
weighted average contractual maturity of 3.38 years.
NOTE Q - SUBSEQUENT EVENTS
On October 2, 2006 the Company received approximately $6,399,000 on
the sale of approximate 74% of its undivided interest in the
distributed assets from TCTB. The proceeds were used to pay off the
balance of approximately $2,612,000 on the loan (the "TCTB note") that
secured substantially all of the assets distributed by TCTB.
Additionally, the Company paid off the balance, approximately
$1,395,000 of the nine promissory notes (the "Delaware notes"), that
the Company entered into on October 1, 2002, certain of which are with
related parties, to purchase the initial 64.9% ownership interest in
TCTB on October 1, 2002. The Company also paid the balance,
approximately $145,064, on a promissory note (the "Hexagon Note") the
Company entered into on February 18, 2004 to purchase an additional
6.485% ownership interest in TCTB.
24
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements for the three and six
month periods ended June 30, 2006 and 2005, and related footnotes presented in
Item 1 and the Company's December 31, 2005 Form 10-KSB.
Overview
AMEN Properties, Inc., (the "Company") is a real estate and energy company
engaged in owning and managing real estate, oil and gas royalties, and energy
related business properties. The Company is a holding company and conducts its
operations through AMEN Delaware, LP ("Delaware"); AMEN Minerals, LP
("Minerals") and W Power and Light, LP ("W Power"), each being a wholly owned
subsidiary of the Company. As of September 30, 2006, the Company, through
Delaware's investment in a real estate joint venture, has a commercial real
estate portfolio consisting of an ownership of approximately 18% in two office
properties located in Midland, Texas comprising an aggregate of approximately
428,560 square feet of gross leasable area. 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. The Company is engaged in the retail electricity market as a retail
electric provider serving both retail and wholesale customers within the state
of Texas through W Power. Effective April 1, 2006, AMEN Properties acquired 100%
of Priority Power Management, Ltd. a Texas limited partnership, and Priority
Power Management, Dallas, Ltd. a Texas limited partnership, (collectively
referred to as "Priority Power"). Priority Power is primarily involved in
providing energy management services and the Company believes that Priority
Power's business is complimentary to the retail electricity provider business
conducted by the Company's subsidiary W Power.
Application of Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and
contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an ongoing basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities where that
information is available from other sources. Certain estimates are particularly
sensitive due to their significance to the financial statements. Actual results
may differ significantly from management's estimates.
We believe that the most significant accounting policies that involve the use of
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
- Impairments,
- Business combinations,
- Revenue recognition,
- Consolidation of variable interest entities,
- Allowance for doubtful accounts and
- Stock options
25
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
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.
Business Combinations
We allocate the purchase price of acquired businesses 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 business, and other market data. Management also
considers information obtained about each business as a result of its
pre-acquisition due diligence 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.
26
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
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
27
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.
The Company's gross revenues for energy management services provided to our
customers are recognized upon delivery and include estimated aggregation fees
and other services delivered but not billed by the end of the period.
Accrued unbilled aggregation revenues are based on our estimates of customer
electricity usage since the date of the last meter reading provided by the
independent system operators or electric distribution companies. Volume
estimates are based on average daily volumes, estimated customer usage and
applicable customer aggregation rates. Unbilled aggregation revenues are
calculated by multiplying volume estimates by our estimated rates by customer.
Estimated amounts are adjusted when actual usage and rates are known and billed.
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,
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
28
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; billed and unbilled
customer retail electricity usage flowed for a given period and billed and
unbilled customer management fees based on 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.
The Company estimated the allowance for doubtful accounts related to W Power's
billed account receivables to be approximately 0.2% percent of W Power's retail
electricity billed revenue for the quarter ended June 30, 2006. Due to the
limited historical data, the Company regularly reviews the accounts receivable
and accordingly makes adjustments in estimating the allowance for doubtful
accounts. Priority Power's trade accounts receivable arise from aggregation fees
and other management services. An allowance for uncollectible accounts
receivable is provided for amounts not expected to be collectible. At June 30,
2006, no allowance was provided for Priority Power's accounts receivable due to
the limited captured historical data related to the estimated aggregation fees
and other services delivered but not billed by the end of the period. As of June
30, 2006 the Company considers Priority Power's accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
Stock Options
The Company accounts for its stock-based compensation in accordance with SFAS
No. 123R, Accounting for Stock-Based Compensation. In December 2004, the
Financial Accounting Standards Board issued SFAS 123(R) effective for small
business issuers after December 15, 2005. The new Statement requires mandatory
reporting of all stock-based compensation awards on a fair value basis of
accounting. Generally, companies are required to calculate the fair value of all
stock awards and amortize that fair value as compensation expense over the
vesting period of the awards.
Results of Operations
Overview
--------
For the nine months ended September 30, 2006, the Company generated net income
of $1,883,397 or $.84 per share as compared to a net loss of $525,454 or $.24
per share for the same period ended September 30, 2005, for a net increase of
$2,408,851. This increase is mainly due to the Company's wholly owned subsidiary
29
Amen Delaware, Ltd selling approximately 74% of its original 71.348% interest in
the distributed assets of TCTB during the quarter ending September 30, 2006 for
a gain of approximately $1,405,500; W Power generating net income for the nine
months ended September 30, 2006 of approximately $348,000 compared to a net loss
of approximately $336,000 for the same period ended September 30, 2005; and the
Company completing the acquisition of Priority Power effective April 1, 2006 and
Priority Power generating net income of approximately $688,000 since the date of
acquisition.
Revenues
--------
For the nine months ended September 30, 2006
For the nine months ended September 30, 2006, the Company experienced an
increase in rental revenue of approximately $181,000, as compared to the same
period ended September 30, 2005. The increase is mainly due to the Company
billing tenants for the incremental increase in building operations. The Company
did not pass through the incremental increase in building operations during the
same period ended September 30, 2005. W Power experienced a net increase in
retail electricity revenue of approximately $4,535,000. This increase is mainly
due to W Power moving from a start up phase to growing its customer base to
approximately 1,700 meters. Due to Priority Power Management not being a part of
the Company's operations during the nine months ended September 30, 2005
comparative information for energy management fees is not available.
Operating expenses
------------------
For the three months ended September 30, 2006
Total operating expenses for the three months ended September 30, 2006 and 2005
were $3,216,999 and $3,443,386, respectively. The decrease of approximately
$226,000 in operating expense is mainly related to W Power's decrease of
wholesale electricity purchases of approximately $519,000 coupled with an
increase of approximately $210,000 in general and administrative expense and
approximately $77,000 in rental property operations. The decrease in wholesale
electricity expense is primarily due to W Power ceasing sales to a large
wholesale customer at the beginning of July 2006. The increase in general and
administrative expense is mainly due to the acquisition of Priority Power
Management on April 1, 2006. The increase in Property operations is mainly
related to the increased utility expense the Company has experienced as compared
to the same period ended September 30, 2005.
W Power's cost of goods and services were $1,934,621 or approximately 99% of
retail sales for the three months September 30, 2006. This decrease in gross
profits is mainly due to an increase certain wholesale ERCOT ancillary energy
services.
For the nine months ended September 30, 2006
Total operating expense for the nine months ended September 30, 2006 as compared
to same period ended September 30, 2005 increased approximately $4,711,000. This
increase is mainly related to W Power's increase in purchased wholesale
electricity of approximately $3,942,000. The remaining increase in operating
expenses is mainly related to the increase of general and administrative costs,
approximately $513,000, associated with the newly acquired business segment
Priority Power and an increase in rental property operations, approximately
$240,000, associated with the increase in energy costs.
30
W Power's cost of goods and services were $7,818,782 or approximately 91.8% of
retail electricity sales for the nine months ended September 30, 2006, for a
gross profit of approximately $698,000 or approximately 8.1% of retail
electricity sales for the nine months ending September 30, 2006. For the nine
months ended September 30, 2005 W Power's cost of goods and services were
$3,876,737 or approximately 97.4% of retail electricity sales for the nine
months ended September 30, 2005, for a gross profit of approximately $105,000 or
approximately 2.1% of retail electricity sales for the nine months ending
September 30, 2005. The net increase of approximately 6.0% in gross profit
earnings is mainly due to W Power successfully increasing its customer contract
prices while also experiencing a decrease in the costs of wholesale power and
certain wholesale ERCOT ancillary services for the nine month period as compared
to last year.
Rental property operations expense increased approximately $240,000 for the nine
months ended September 30, 2006 as compared to nine months ended September 30,
2005. The increase for property operations is attributable to the increase in
utility expense due to the rising costs of energy.
For the nine months ended September 30, 2006 as compared to the same period
ending September 30, 2005, general and administrative costs increased
approximately $513,000. This increase is mainly attributable to the newly
acquired operating segment Priority Power.
Other (expense) income
----------------------
For the three months ended September 30, 2006
For the three months ended September 30, 2006, the Company experienced an
increase of approximately $47,000 in interest income as compared to the three
months ended September 30, 2005. This increase is mainly due to a rate increase
on the Company's previously held $2,100,000 certificated of deposit with the
Wells Fargo, Bank, N.A. coupled with the interest the Company received on the
restricted deposits with JPMorgan Chase Bank, N.A. totaling $2,181,000
collateralizing outstanding Letters of Credit (see Note E to the financial
statements for further explanation). During the three months ended September 30,
2006, the Company entered into an Agreement to Distribute Assets, effective
September 27, 2006, with and among the partners of TCTB Partners, Ltd. Following
the distribution of assets the Company along with the General Partner and other
Limited Partners of TCTB collectively agreed to sell and sold 75% of their
collective undivided interest in the distributed assets on September 29, 2006.
The Company reported a net gain of approximately $1,405,000 on the sale of
approximately 74% of its interest in distributed assets from it subsidiary TCTB
Partners, Ltd. (see Note C to the financial statements for further explanation).
For the three months ended September 30, 2006 and 2005, the Company incurred a
net change in other expense of approximately $220,000. This increase is mainly
related to the Company accruing approximately $209,000 in corporate tithing as
mandated by the Company's Corporate By-Laws.
For the nine months ended September 30, 2006
For the nine months ended September 30, 2006, as compared to the same period
ended September 30, 2005, the Company experienced an increase of approximately
$128,000 in interest income. This increase is mainly due to a rate increase on
the Company's previously held $2,100,000 certificated of deposit with the Wells
Fargo, Bank, N.A. coupled with the interest the Company received on the
restricted deposits with JPMorgan Chase Bank, N.A. totaling $2,181,000
collateralizing outstanding Letters of Credit (see Note E for further
explanation). For the nine months ended September 30, 2006 and 2005, the Company
experienced a net decrease in other income of approximately $337,000. This
change is mainly related to a non-recurring expense the Company paid to key
31
employees of Priority Power Management upon their signing of employment
agreements. The employee's retention of the bonus is not contingent on the
employees rendering of future services. This non-recurring expense approximated
$125,000. Additionally, the Company accrued approximately $209,000 in corporate
tithing during the quarter ending September 30, 2006, as mandated by the
Company's Corporate By-Laws.
Minority interest
-----------------
For the three and nine months ended September 30, 2006
Minority interest expense for the three months and nine months ended September
30, 2006 decreased approximately $38,000 and $18,000, respectively, as compared
to the same period ended September 30, 2005. This decrease reflects the minority
interest owner's share of net income of TCTB.
Liquidity and capital resources
Management's initial focus of the 2002 Business Plan was to focus on value added
plays in three distinct arenas, 1) acquiring office space in secondary stagnant
markets, 2) acquiring office space in out of favor growth markets 3) acquiring
investments in oil and gas royalties and to assess opportunities in acquiring
other properties and businesses that have a consistent and stable cash flow
history. Management believes that through its wholly owned subsidiary W Power,
we have been able to enter a market that will provide a stable cash flow in the
future. Additionally, we believe the recent acquisition of Priority Power
Management, LP (PPM) will also provide stable cash flow in the future, and is
consistent with our interest in the deregulated electricity market in Texas.
With PPM as a wholly owned subsidiary, Management believes we can continue
participating in opportunities within Texas and elsewhere, and diversify our
energy activities.
As discussed last quarter, W Power faced several challenges during its first
year of operations, including: 1) rapidly escalating and volatile energy prices;
2) an extended period of above-average summer and fall temperatures resulting in
record breaking electricity demand and consumption across Texas; and 3) a
shortage of electric generating capacity. Management believes W Power will be
faced with similar challenges throughout 2006 and perhaps beyond. W Power will
need to continue a deliberately controlled growth plan in order not to exceed
its available credit required to hedge forward energy supply contracts and to
manage the risks associated with volatile energy prices. Even with continued
deliberate limiting of W Power's growth the Company's business model leads
management to expect positive earnings for 2006.
The PPM acquisition was made with a combination of cash and promissory notes.
PPM was profitable in the period. Management believes that PPM will continue its
profitability throughout 2006 and beyond, and will continue to grow its client
base and become an important component in providing stable cash flow in the
future. Management believes the continued high volatility of energy prices will
provide a reason for additional end-use energy consumers to solicit energy
management services from PPM.
Though we have not abandoned the 2002 business model, our focus is to continue
supporting W Power for the immediate future, integrate the PPM acquisition into
the Company and support is growth efforts, actively monitor TCTB, and assess
opportunities as they present themselves.
During the nine months ended September 30, 2006 and 2005, net cash provided by
(used in) operating activities was $982,040 and ($684,492), respectively for a
net increase of approximately $1,666,000 provided by operating activities. This
32
increase is mainly attributable to the net income of approximately $1,883,000
for the nine months ended September 30, 2006.
Net cash provided by (used in) investing activities was $1,404,712 and
($1,587,512) for the nine months ended September 30, 2006 and 2005,
respectively, for a net increase of approximately $2,992,000. During the three
months ended September 30, 2006, the Company entered into an Agreement to
Distribute Assets, effective September 27, 2006, with and among the partners of
TCTB Partners, Ltd. The assets constituted substantially all of the assets of
TCTB and were subject to a lien to secure a promissory note payable to Wells
Fargo Bank Texas, N.A. The partners of TCTB agreed that it was in their best
interest to distribute undivided interests in the assets to the partners
according to the sharing ratios of the Partnership. The Bank agreed to allow
TCTB to distribute the assets to the partners of TCTB in exchange for the payoff
of the note. Prior to the distribution the Company had the $2,100,000
certificate of deposit applied against the outstanding note with Wells Fargo
Bank, Texas N.A. (see Note C to the financial statements for further
explanation). Additionally, during the second quarter the Company completed the
acquisition of 100% of Priority Power Management, Ltd. This acquisition resulted
in the Company receiving a net increase in cash of approximately $283,000 and
incurring a non-cash related note payable in the amount of $3,230,051. A
non-cash distribution related to the asset distribution of TCTB amounted to
$369,250 and was a reduction in minority interests.
Net cash (used in) provided by financing activities was ($2,053,928) and
$450,557 for the nine months ended September 30, 2006 and 2005, respectively,
for a net change of approximately $2,505,000. During the nine months ended
September 30, 2006 the Company paid approximately $2,355,000 in principal
payments on the Company's outstanding notes. Additionally, during the nine
months ended September 30, 2006, the Company received approximately $337,000 in
net proceeds from the exercise of stock warrants issued On February 3, 2005, to
the accredited investors in the private placement under Regulation D for the new
Series C Preferred Stock. During the nine months ended September 30, 2006
minority interest distributions were approximately $36,500 and were related to
the minority interest owners in TCTB. For the nine months ended September 30,
2005 minority interest owners in TCTB did not receive a distribution.
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $29 million. This NOL is related to the Company's operations prior to
the Company presenting the 2002 business plan to shareholders. Management
believes the present value of this NOL is between $2.5 and $5 million and has
been diligent in its efforts to ensure its preservation and utilization.
ITEM 3. Controls and Procedures
The Company has carried out an evaluation under the supervision of management,
including the Chairman and Chief Executive Officer and the interim 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 interim 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. Management
believes that the deficiencies noted above do not materially interfere with the
33
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.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Information related to this Item has been previously included in Current Reports
on Form 8-K filed during the period covered by this Report.
ITEM 3. Defaults Upon Senior Securities
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None to report
ITEM 5. Other Information
None to report.
ITEM 6. Exhibits
(a) 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
34
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. Norw0od
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
35
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
10.32// Agreement and Transfer of Limited Partnership Interest between the
Company and the Selling Partners of TCTB Partners, Ltd. dated
October 31, 2002
36
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
10.44 Employment Agreement between Priority Power Management, Ltd and
John Bick (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on
June 1, 2006).
10.45 Employment Agreement between Priority Power Management, Ltd and
Padraig Ennis (Incorporated by reference to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
June 1, 2006).
10.46 Securities Purchas Agreement among Amen Properties, Inc. and NEMA
Properties, LLC, Priority Power Management, Ltd. and Priority
Power Management Dallas, Ltd. and their respective partners dated
as of May 18, 2006, including the forms of promissory note and
assignment delivered at closing (incorporated by reference to the
Company's Form 8-K Current Report filed on May 24, 2006).
10.47 Agreement to Distribute Assets among TCTB Partners, Ltd and its
partners dated as of September 27, 2006 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 5, 2006)
10.48 Purchase Agreement between between TCTB Partners, Ltd as nominee
for certain partners of TCTB Partners, Ltd and Hampshire Plaza
Garage, LLC and S.E.S. Investments, Ltd. dated as of September
29, 2006 (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on
October 5, 2006)
37
10.48 Management Agreement between between the Company and TCTB
Management Group, LLC. dated as of September 29, 2006
(Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on October 5,
2006)
11 Statement of computation of earnings per share
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss.1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss.1350.
99.1 Press release regarding September 30, 2006 Quarterly Report on
Form 10-QSB
+ 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.
38
@@ 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.
39
SIGNATURES
In accordance with the requirements of Securities Act of 1934, AMEN Properties,
Inc., the registrant, has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMEN Properties, Inc.
November 14, 2006 By: /s/ Eric Oliver
---------------
Eric Oliver
Chairman and Chief Executive Officer
November 14, 2006 By: /s/ John M. James
-----------------
John M. James
Interim Chief Financial Officer and Secretary
40
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
10.9++ Stock Purchase Agreement between the Company and John R. Norw0od
Norwood for Series A Preferred Stock dated September 29, 2000
41
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.
10.28# Agreement to Suspend Dividends and Consent of Holders of Series B
Convertible Preferred Stock of Amen Properties, Inc. dated May 30,
2003.
42
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
10.44 Employment Agreement between Priority Power Management, Ltd and John
Bick (Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on June 1, 2006).
10.45 Employment Agreement between Priority Power Management, Ltd and
Padraig Ennis (Incorporated by reference to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
June 1, 2006).
10.46 Securities Purchas Agreement among Amen Properties, Inc. and NEMA
Properties, LLC, Priority Power Management, Ltd. and Priority
Power Management Dallas, Ltd. and their respective partners dated
as of May 18, 2006, including the forms of promissory note and
assignment delivered at closing (incorporated by reference to the
Company's Form 8-K Current Report filed on May 24, 2006 as
amended on August 8, 2006).
43
10.47 Agreement to Distribute Assets among TCTB Partners, Ltd and its
partners dated as of September 27, 2006 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 5, 2006)
10.48 Purchase Agreement between between TCTB Partners, Ltd as nominee
for certain partners of TCTB Partners, Ltd and Hampshire Plaza
Garage, LLC and S.E.S. Investments, Ltd. dated as of September
29, 2006 (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on
October 5, 2006)
10.48 Management Agreement between between the Company and TCTB
Management Group, LLC. dated as of September 29, 2006
(Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on October 5,
2006)
11 Statement of computation of earnings per share
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss.1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss.1350.
99.1 Press release regarding September 30, 2006 Quarterly Report on Form
10-QSB
+ 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
44
~~ 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.
45