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 September 30, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period From
________________to_______________.
Commission file number 000-22847
AMEN PROPERTIES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1831588
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 W. Wall Street, Suite 1700
Midland, TX 79701
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(Address of Principal Executive Offices)
(432-684-3821)
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
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Applicable Only to Corporate Issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: Common Stock, $ .01 Par Value:
2,201,356 shares outstanding as of October 21, 2004
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at September 30, 2004 (Unaudited) 1
Consolidated Statement of Operations--for the three
and nine months ended September 30, 2004 and 2003 (Unaudited) 2
Consolidated Statement of Cash Flows-- for the nine months ended
September 30, 2004 and 2003 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Item 3. Controls and Procedures 16
Part II. OTHER INFORMATION
Items 1-6 Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibits 20
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, 2004
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents (notes A3 and D) $ 2,378,596
Accounts receivable (notes A6 and A12) 38,064
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Total current assets $ 2,416,660
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,126,616 (notes A7 and A8) 12,114,267
ROYALTY INTERESTS, at cost net of accumulated
amortization of $8,461 (notes A7 and C) 154,393
OTHER ASSETS
Note receivable (note E) 249,555
Deferred costs (note A9) 164,425
Rents receivable (notes A6 and A12) 78,323
Other Investments (note D) 62,350
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Total other assets 554,653
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TOTAL ASSETS $ 15,239,973
=============
CURRENT LIABILITIES
Current portion of long-term obligations (note I) $ 236,957
Accounts payable 185,867
Accrued liabilities (note F) 226,074
Deferred revenue (note G) 48,320
Other liabilities 252,355
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Total current liabilities $ 949,573
LONG-TERM OBLIGATIONS
Deferred revenue (note G) 155,543
Long-term debt, less current portion (note I) 8,941,510
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Total long-term liabilities 9,097,053
MINORITY INTEREST (note A11) 1,070,282
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY (note K)
Preferred stock, $.001 par value, 5,000,000 shares authorized;
80,000 Series "A" shares issued and outstanding 80
80,000 Series "B" shares issued and outstanding 80
Common stock, $.01 par value, 20,000,000 shares authorized;
2,201,356 shares issued and outstanding 22,014
Common stock warrants 127,660
Additional paid-in capital 42,481,507
Accumulated deficit (38,508,276)
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Total stockholders' equity 4,123,065
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,239,973
=============
The accompanying footnotes are an integral part of these consolidated financial statements
1
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------ ------------ ----------- -----------
Rental revenue $ 1,107,570 $ 1,091,741 $ 3,255,452 $ 3,251,174
Expense
Sales and marketing 2,158 1,728 4,053 5,671
General and administrative 99,621 105,844 356,933 367,581
Depreciation and amortization 112,709 103,027 330,210 303,591
Insurance 27,911 22,766 75,806 45,673
Travel and entertainment 308 -- 667 677
Utilities 247,979 230,426 684,098 609,359
Building maintenance 179,824 148,364 516,901 458,977
Other expense 105,356 124,487 312,644 349,085
Taxes, except income 64,460 52,170 183,899 151,248
Startup expense 79,660 -- 79,660 --
----------- ----------- ----------- -----------
Total expenses 919,986 788,812 2,544,871 2,291,862
----------- ----------- ----------- -----------
Net income from operations 187,584 302,929 710,581 959,312
Other income (expense)
Interest income 2,641 7,700 8,695 19,353
Interest expense (146,518) (153,562) (427,109) (500,826)
Other income 15,987 42,004 48,462 111,839
----------- ----------- ----------- -----------
Total other income (expense) (127,890) (103,858) (369,952) (369,634)
----------- ----------- ----------- -----------
Net income before income taxes and minority
interest 59,694 199,071 340,629 589,678
Income taxes (note A10) -- -- -- --
Minority interest (73,062) (102,191) (232,297) (341,376)
----------- ----------- ----------- -----------
(73,062) (102,191) (232,297) (341,376)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (13,368) $ 96,880 $ 108,332 $ 248,302
=========== =========== =========== ===========
Net income (loss) per common share - basic $ (.01) $ .04 $ .05 $ .12
=========== =========== =========== ===========
Net income (loss) per common share - diluted $ (.01) $ .03 $ .04 $ .08
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - basic 2,201,356 2,201,356 2,201,356 2,081,316
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - diluted 2,201,356 3,051,079 3,051,079 2,931,039
=========== =========== =========== ===========
The accompanying footnotes are an integral part of these consolidated financial statements
2
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
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Increase (Decrease) in Cash and Cash Equivalents 2004 2003
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Cash flows from operating activities:
Net income $ 108,332 $ 248,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Net loss / (gain) on investments 520 (4,001)
Allowance for doubtful accounts -- 29,241
Depreciation, amortization and depletion 330,210 303,591
Minority interest 232,297 341,376
Loss on sale of fixed asset -- 3,946
Changes in operating assets and liabilities:
Accounts receivable 12,899 63,314
Deposits and other assets -- 840
Deferred costs (19,161) (47,000)
Accounts payable 8,687 (117,113)
Accrued and other liabilities 29,504 (123,191)
Deferred revenue (11,141) 115,542
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Net cash provided by operating activities 692,147 814,847
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Cash flows from investing activities:
Purchases of property and equipment (570,408) (99,405)
Proceeds from sale of property and equipment -- 5,170
Sales and maturity of investments 50,000 1,448,690
Purchase of royalty interests (162,854) --
Purchase of investments -- (1,623,989)
Acquisition of limited partnership interest (99,296) --
Repayments of notes receivable 14,216 --
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Net cash used in investing activities (768,342) (269,534)
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Cash flows from financing activities:
Minority interest distributions (129,905) (13,967)
Repayments of notes payable (156,831) (163,746)
Repayments of capitalized leases -- (9,995)
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Net cash used in financing activities (286,736) (187,708)
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Net (decrease) / increase in cash and cash equivalents (362,931) 357,605
Cash and cash equivalents at beginning of period 2,741,527 1,541,183
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Cash and cash equivalents at end of period $ 2,378,596 $ 1,898,788
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The accompanying footnotes are an integral part of these consolidated financial statements
3
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. ORGANIZATION
Effective October 2002, AMEN formed NEMA Properties, LLC ("NEMA"), a
Nevada limited liability company; AMEN Minerals, LP ("Minerals"), a
Delaware limited partnership; and AMEN Delaware, LP ("Delaware"), a
Delaware limited partnership, to pursue acquisitions as authorized by
stockholders on September 19, 2002. Effective July 2004 Amen formed W
Power and Light, LP ("W Power"), a Delaware limited partnership to
enter into the retail electricity market in Texas. AMEN Properties,
Inc. and Subsidiaries and affiliates (collectively referred to as the
"Company") is a self-administered and self-managed Delaware
corporation.
The Company's business purpose is to acquire investments in commercial
real estate, oil and gas royalties and stabilized cash flowing
businesses or assets. As of September 30, 2004, the Company, through
Delaware's investment in a limited partnership, has a commercial real
estate portfolio consisting of majority ownership in three office
properties, two properties located in Midland, Texas and one property
located in Lubbock, Texas, comprising an aggregate of approximately
639,259 square feet of gross leasable area ("GLA"). The investment was
obtained through Delaware's acquisitions of a partnership interest in
TCTB Partners, Ltd. ("TCTB") a Texas limited partnership, totaling
approximately 71.3%. Through its investment in Minerals, AMEN has
acquired an investment interest in an oil and gas royalty trust and
other oil and gas royalties. Through the Company's investment in W
Power, Amen is positioned to enter the retail electricity market in the
state of Texas. The real estate operations of the Company are primarily
conducted through Delaware of which AMEN is the sole general partner
and the retail electricity operations are primarily conducted through W
Power of which Amen is the sole general partner.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its majority-owned/controlled subsidiaries and affiliates.
Intercompany balances and transactions have been eliminated.
Management uses estimates and assumptions in preparing the consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America. Those estimates and
assumptions affect the reported amounts of assets, liabilities,
revenues and expenses in the consolidated financial statements, and the
disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.
3. CASH EQUIVALENTS
The Company considers cash on hand, cash on deposit in banks, money
market mutual funds and highly liquid debt instruments purchased with a
maturity of three months or less to be a cash equivalent.
4
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. INVESTMENTS
The Company invests in U.S. government bonds and treasury notes,
municipal bonds, and corporate bonds. Investments with original
maturities greater than three months but less than twelve months from
the balance sheet date are short-term investments. Those investments
with original maturities greater than twelve months from the balance
sheet date are long-term investments.
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 and
accounts receivable approximate fair value because of the relatively
short maturity of these instruments.
6. TENANT ACCOUNTS RECEIVABLE
Management regularly reviews accounts receivable and estimates the
necessary amounts to be recorded as an allowance for uncollectibility.
These reserves are established on a tenant-specific basis and are based
upon, among other factors, the period of time an amount is past due and
the financial condition of the obligor.
7. DEPRECIATION, AMORTIZATION AND DEPLETION
Property, plant and equipment are stated at cost. Depreciation is
determined using the straight-line method over the estimated useful
lives ranging from three to forty years. Leasehold improvements are
amortized over the shorter of the life of the asset or the remaining
lease term. Intangible assets are amortized over the useful lives of
five to ten years using the straight-line method. Costs for the repair
and maintenance of property and equipment are expensed as incurred.
Royalty acquisitions are stated at cost. Depletion is determined using
the units-of-production method based on the estimated oil and gas
reserves.
8. IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of the carrying
value of its long-lived assets and identifiable intangibles by
monitoring and evaluating changes in circumstances that may indicate
that the carrying amount of the asset may not be recoverable. Examples
of events or changes in circumstances that indicate that the
recoverability of the carrying amount of an asset should be assessed
include but are not limited to the following: a significant decrease in
the market value of an asset, a significant change in the extent or
matter in which a 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.
5
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company considers historical performance and anticipated future
results in its evaluation of potential impairment. Accordingly, when
indicators or impairments are present, the Company evaluates the
carrying value of these assets in reaction to the operating performance
of the business and future discounted and nondiscounted cash flows
expected to result from the use of these assets. Impairment losses are
recognized when the sum of expected future cash flows are less than the
assets' carrying value.
9. DEFERRED COSTS
Deferred costs primarily consist of deferred financing costs. Deferred
financing costs are amortized as interest expense over the life of the
related debt.
10. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 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.
11. 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, 2004.
12. 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. As a result of recording rental revenue on a
straight-line basis, accounts receivable include $78,323 of tenant
receivables at September 30, 2004, which is expected to be collected
over the remaining lives of the leases.
13. START UP COSTS
Starts up expenses are associated with certain expenses incurred with W
Power and Light, LP. These expenses include but are not limited to
salary, fees and licenses, travel and legal expense. Starts up costs
are expensed as incurred.
14. EARNINGS PER SHARE
The effects of Series "A" and "B" convertible Preferred Stock are not
included in the computation of diluted earnings per share for any
periods in which their effect is antidilutive.
Disclosures regarding shares and share price have been adjusted to
reflect the 1-for-4 reverse stock split dated February 3, 2003 in
accordance with accounting principles generally accepted in the United
States of America.
6
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
15. 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.
16. NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued a revised Interpretation No. 46,
CONSOLIDATION OF VARIABLE INTEREST ENTITIES, replacing the original
Interpretation issued in January 2003. The revised Interpretation
provides guidance on when certain entities should be consolidated or
the interests in those entities should be disclosed by enterprises that
do not control them through majority voting interest. Under the revised
Interpretation, entities are required to be consolidated by enterprises
that lack majority voting interest when equity investors of those
entities have insignificant capital at risk or they lack voting rights,
the obligation to absorb expected losses, or the right to receive
expected returns. Entities identified with these characteristics are
called variable interest entities and the interests that enterprises
have in these entities are called variable interests. These interests
can derive from certain guarantees, leases, loans or other arrangements
that result in risks and rewards that are disproportionate to the
voting interests in the entities. The provisions of the revised
Interpretation must be immediately applied for variable interest
entities created after January 31, 2003 and for variable interests in
entities commonly referred to as "special purpose entities." For all
other variable interest entities, implementation is required by March
31, 2004.
In July 2003, the FASB issued SFAS No. 149, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 149 amends and clarifies
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS No. 149 improves financial reporting of derivatives by
requiring contracts with comparable characteristics be accounted for
similarly. This Statement also incorporates clarifications of the
definition of a derivative. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003. Management will consider
the impact of this Statement on its financial statements for future
periods.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY. SFAS No. 150 requires that an issuer classify a financial
instrument that is within its scope as a liability. Many of those
instruments were previously classified as equity such as common or
preferred shares that are mandatorily redeemable-that embody an
unconditional obligation requiring the issuer to redeem the shares by
transferring its assets at a specified date or upon an event that is
certain to occur. The provisions of this Statement shall be effective
for the first fiscal period beginning after December 15, 2004.
7
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Management does not believe the new pronouncements will have a material
impact on its financial statements.
17. RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to
conform to the 2004 presentation.
NOTE B - BUSINESS COMBINATIONS
Effective January 1, 2004, Delaware completed the acquisition of
approximately 6.5% of additional limited partnership interest in TCTB
for an aggregate consideration of approximately $459,124 including
approximately $208,346 of cash paid. This acquisition has been
accounted for under the purchase method of accounting. The purchase
price has been allocated based on the estimated fair values of the
approximate 6.5% acquired interest at the acquisition date as follows:
Fair value of assets acquired $1,028,255
Liabilities assumed (448,277)
Notes payable to sellers (250,778)
Minority interest (120,854)
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Cash used for the acquisition 208,346
Less: cash acquired 109,050
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Net cash paid $ 99,296
=========
For purposes of financial reporting, the Company has accounted for the
acquisition as if it occurred on January 1, 2004, the effective date of
the transaction. Management considers this acquisition to be immaterial
to the financial statements taken as a whole.
NOTE C - ROYALTY INTERESTS
Earlier in 2004, the Company, through its wholly owned subsidiary Amen
Minerals, LP, completed the acquisition of two separate royalty
interests, one in the state of Texas and one in the state of Oklahoma.
The total consideration paid by the Company for the royalty interests
was $162,854. Under accounting principles generally accepted in the
United States of America, revenues and expenses are recognized on an
accrual basis. Royalty income is generally received one to two months
following the month of production and the Company uses estimates to
accrue royalty income for the quarter ended September 30, 2004.
NOTE D - CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company invests in cash in banks, U.S. government bonds, oil and
gas royalty trust funds and various other investments. All highly
liquid instruments with original maturities of three months or less are
considered cash equivalents; those with original maturities greater
than three months but less than twelve months from the balance sheet
date are considered short-term investments; and those with original
maturities greater than twelve months from the balance sheet date are
considered 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 shareholders' equity. Realized gains and losses and
permanent declines in value, if any, on available-for-sale securities
are reported in other income or expense as incurred. The cost of
securities sold is determined by the specific identification method.
8
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
At September 30, 2004 the Company's cash and cash equivalents consist
of the following:
Cash in banks $2,378,596
=========
Other investments at September 30, 2004 are comprised of oil and gas
royalty interests with a cost basis of $62,350.
NOTE E - NOTE RECEIVABLE
On December 13, 2002, the Company received a note receivable in the
amount of $275,000, with an annual interest rate of 6.00%, from a
third-party for the sale of substantially all assets associated with a
direct mail advertising service. The note receivable is due in
quarterly installments, beginning April 10, 2003, equal to 20% of the
gross margin of the Offline Business operations for the prior calendar
quarter period, with all remaining unpaid principal and interest due on
January 10, 2010. As of September 30, 2004, the outstanding principal
balance on the note receivable was $249,555. Because the current
maturities are not reasonably estimable at September 30, 2004, the
entire principal balance is reported as non-current.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 2004:
Accrued property taxes $191,165
Other liabilities 34,909
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$226,074
NOTE G - DEFERRED REVENUE
In April 2003, the Company received a one time cash payment of $238,871
from a tenant in the Lubbock building. This represents a prepayment of
a buildout loan between the tenant and TCTB, which was structured and
recognized as additional rent. The payment was deferred and is being
amortized over the term of the lease, approximately seven years.
NOTE H - OPERATING SEGMENTS
On July 30, 2004 the Company formed and initiated the development of W
Power and Light, LP (W Power). W Power was established to enter into
the retail electricity market in Texas. The formation of W Power
resulted in the diversification of the Company's business activities
into two reportable segments: real estate operations and a retail
electricity provider (REP). The real estate operations consist of three
office properties, two located in Midland, Texas and one located in
Lubbock, Texas, and comprise an aggregate of approximately 639,259
square feet of gross leaseable area. The REP segment will sell
electricity and provide the related billing, customer service,
collection and remittance services to both residential and commercial
customers.
9
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 months ending September 30, 2004.
Real Estate
REP Operations Other Total
------------------------------------------------------------------
Revenues from external customers - 1,107,570 - 1,107,570
Depreciation, Amortization and
Depletion - 108,329 4,114 112,443
Segment net income (loss) (79,660) 129,274 13,959 63,573
Segment assets (net of
accumulated depreciation) - 12,110,328 - 12,110,328
Expenditures for segment assets - 455,680 - 455,680
RECONCILIATION OF SEGMENT INFORMATION
REVENUES
Total revenues for reportable segments $ 1,107,570
---------------
Consolidated revenues $ 1,107,570
PROFIT / (LOSS)
Reportable segment REP $ (79,660)
Reportable segment real estate operations 129,274
Other segmental profit 13,959
---------------
Total allocated segmental profit 63,573 Unallocated amounts:
Corporate expenses (76,941)
---------------
Consolidated net loss $ (13,368)
DEPRECIATION, AMORTIZATION AND DEPLETION
Total reportable segments $ 112,443
Unallocated amounts:
Corporate depreciation 266
---------------
Consolidated depreciation, amortization and depletion $ 112,709
ASSETS
Total assets for reportable segments $ 12,110,328
Corporate assets 3,939
----------------
Consolidated assets (net of accumulated depreciation) $ 12,114,267
10
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE I - LONG-TERM OBLIGATIONS
On June 5, 2002, TCTB entered into a loan agreement 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 was required to start making
monthly payments of principal and interest in the amount of $53,663 for
the term note until maturity of the note on May 31, 2009. The loan
agreement is secured by substantially all of the assets of TCTB. The
loan agreement restricts cash distributions to TCTB's owners. TCTB
shall not declare or pay any distributions in excess of tax liability
due annually (but in any event, no more than 40% of net income), either
in cash or any property to any owners. The loan agreement also contains
other customary conditions and events of default, the failure to comply
with, or occurrence of, would prevent any further borrowings and would
generally require the repayment of any outstanding borrowings along
with accrued interest under the loan agreement. Such events of default
include (a) non-payment of loan agreement debt and interest thereon,
(b) non-compliance with the terms of the credit agreement covenants,
(c) cross-default with other debt in certain circumstances, (d)
bankruptcy and (c) a final judgment or order for the payment of money
in excess of $100,000.
Delaware entered into nine promissory notes, in an aggregate amount of
$2,789,087, to purchase the 64.9% ownership interest in TCTB. The notes
are due in annual payments of principal and interest beginning April 1,
2005 with a final maturity of May 31, 2009. The interest rate is equal
to the Wall Street Journal Prime Lending Rate plus 1.5%. The annual
payments are equal to a set percentage, ranging from 1% to 16% of the
future net operating loss benefit of the Company. The net operating
loss benefits are calculated as the dollar value of the federal income
tax benefit to the Company of the net operating loss calculated in
accordance with the Internal Revenue Code, for the calendar year
preceding the date of each annual payment.
Delaware entered into a promissory note in the amount of $250,778 to
purchase approximately 6.5% additional ownership interest in TCTB. The
note is due in quarterly installments of principal and interest
beginning on April 1, 2004 with a final maturity of October 1, 2009.
The term note bears interest at a fixed rate per annum of 5%.
Maturities of long-term debt at September 30, 2004 are as follows:
2005 $ 236,957
2006 253,985
2007 271,068
2008 290,643
2009 5,312,857
Thereafter 2,812,957
----------
Total 9,178,467
Less current portion 236,957
----------
Long-term portion $8,941,510
==========
11
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE J - RELATED PARTY TRANSACTIONS
At September 30, 2004, related parties leased approximately 29,000
square feet. TCTB received rental income from these related parties of
approximately $65,834 and $198,451 during the three months and nine
months ended September 30, 2004, respectfully.
Prior to Amen Properties, Inc. acquiring a limited partnership interest
in TCTB, TCTB Partnership had entered into an agreement with Priority
Power Management, Ltd to provide aggregation and consulting services in
the management of TCTB Partnership's electricity use and costs. This
agreement is due to expire December 31, 2004 and is scheduled to be
renegotiated prior to the expiration date. The Company's Chief
Operating Officer has an indirect 18% ownership in Priority Power
Management, Ltd.
During the quarter ended June 30, 2004 the Company, through its
subsidiary Amen Minerals, LP, purchased a percentage of two certain
royalty interests with certain individuals and related parties
acquiring the remaining percentages. Effective April 1, 2004 the
Company purchased a 25% interest in a Texas oil and gas royalty for a
purchase price of $102,519 along with the Chief Operating Office
directly acquiring a 10.625% interest and the Chief Executive Officer
indirectly acquiring 22.5% interest. Effective April 2, 2004 the
Company purchased a 20% interest in a Oklahoma oil and gas royalty for
a purchase price of $60,335 along with the Chief Operating Officer
directly acquiring a 8.5% interest and the Chief Executive Officer
acquiring an indirect 20% interest (see note C for further discussion).
NOTE K - STOCKHOLDERS' EQUITY
At a special meeting held January 30, 2003, the Company's stockholders
approved a 1-for-4 reverse stock split, which became effective on
February 3, 2003. This action brought the closing bid price of AMEN's
common stock over the $1.00 per share criteria required before the
February 14, 2003 deadline issued by the Nasdaq Listing Panel.
Disclosures regarding shares and share price have been adjusted to
reflect the 1-for-4 reverse stock split in accordance with generally
accepted accounting principles in the United States of America. The
Company entered into agreements effective May 30, 2003 with its Series
A and Series B Preferred Shareholders pursuant to which the Preferred
Shareholders agreed to the suspension of the accrual of dividends on
the Series A and Series B Preferred Stock from and after April 1, 2003.
Additionally, the Company agreed to declare and pay the accrued and
unpaid dividends of $360,000 on the Preferred Stock through March 31,
2003 in shares of the Company's common stock. As a result, the Company
issued 209,300 unregistered shares of common stock of the Company to
satisfy the accrued dividend as of March 31, 2003. Further, the Company
received shareholder approval at the 2004 annual stockholder meeting,
and filed a Certificate of Amendment of Certificate of Incorporation of
Amen Properties, Inc. on May 28, 2004 to amend the Series A and Series
B Preferred Stock Designations. The amendment effectuates the
elimination of the Preferred A and Preferred B Shareholders dividend
other than for dividends with respect to the common stock of the
Company.
12
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE L - SUBSEQUENT EVENTS
On October 29, 2004 the Midland Development Corporation ("MDC")
approved an Economic Development Agreement with W Power and Light, LP.
Upon approval by the City Council of Midland, Texas, the agreement will
provide for a maximum of $210,000 in forgivable loans to W Power and
Light, LP. The forgivable loans will be disbursed in $70,000 increments
beginning on or before February 28, 2005 and ending on or before
February 28, 2007. During the entire term of this agreement, W Power
shall post with the MDC a letter of credit unconditionally indemnifying
the MDC in the event of any default by the Company on the payments it
has agreed to make to the MDC under the agreement. During the term of
the agreement, W Power is to provide a minimum of 10 jobs in Midland,
Texas with an annualized rate of $500,000 by December 31, 2005, 17 jobs
with an annualized rate of $800,000 by December 31, 2006, and 23 jobs
with a an annualized rate of $1,000,000 by December 31, 2007.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and related footnotes included in the
Annual Report on Form 10-KSB.
FORWARD LOOKING STATEMENTS
Certain information in this section may contain "forward-looking statements"
within the meaning of Section 21e of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including, but
not limited to, any projections of earnings, revenues or other financial items,
any statements of the plans and objectives of management for future operations,
any statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, "forward-looking
statements" can be identified by the use of terminology such as "may," "will,"
"expects," "believes," "plans," "anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in its forward-looking
statements are reasonable, it can give no assurance that such expectations or
any of its "forward-looking statements" will prove to be correct, and actual
results could differ materially from those projected or assumed in the Company's
"forward-looking statements." Our financial condition and results, as well as
any other "forward-looking statements," are subject to inherent risks and
uncertainties, including but not limited to those risk factors disclosed in the
Company's definitive Schedule 14A dated August 27, 2002 and year end December
31, 2003 Annual Report on Form 10-KSB.
BACKGROUND
Amen Properties, Inc. (formerly Crosswalk.com) consisted primarily of the
operation of CROSSWALK.COM(TM) (the "Online Business") and a direct mail
advertising service (the "Offline Business") prior to the end of 2002. During
the last quarter of 2002, the Company sold substantially all of the assets used,
required, useful, or otherwise relating to the operations of both the Online and
Offline Business. The Company then changed its name to Amen Properties, Inc.
effective February 3, 2003. Following shareholder approval of a new business
plan the Company initially acquired 64.86% of a limited partnership interest in
TCTB Partnership (TCTB) and in early 2004 the Company acquired an additional
6.485533% interest in TCTB. This additional interest purchased combined with the
initial limited partnership interest purchased in 2002 gives the Company a total
of 71.348013% limited partnership interest in TCTB.
During 2003, the Company reported net income for the first time in the Company's
history. The buildings in TCTB performed well. We fully anticipate that 2004
operations will mirror 2003 for the buildings in TCTB. The Company's investments
during 2003 in two royalty trust performed well. Amen Properties, Inc.
liquidated one royalty trust position in late 2003 and currently still maintains
a position in another royalty trust.
Although 2003 was not a breakout year for AMEN, it did serve to establish a
baseline operating history in which future performance of our fully transitioned
Company can be measured. During 2003, the Company pursued numerous acquisition
opportunities. None of the acquisitions were consummated due to not meeting our
four acquisition criteria, as stated in our 2003 annual 10-KSB.
Management continues to assess opportunities to add value for our shareholders.
We are focusing our efforts on value-added oil and gas properties, royalty
trusts, commercial real estate, and on the deregulated electricity industry in
the State of Texas. On July 30, 2004 the Company was able to acquire an
additional multi-tenant office building in downtown Midland. This building is
synergistic in that it is located across the street from our current Midland
building and will allow the Company to utilize our current building management
team in its operation. The Company is further pursuing opportunities for it
shareholders by trying to enter into the retail electricity market in Texas by
forming a Retail Electric Provider (REP) to compete in the Texas market. On July
30, 2004, the Company created W Power and Light, LP, a Delaware limited
partnership with Amen Properties being the sole general partner and NEMA, LLC
being the sole limited partner. The creation of W Power and Light, LP will allow
the Company to enter a new market created when the Texas legislature, in June
1999, adopted the Texas Electric Choice Plan, which significantly changed the
regulatory structure governing electric utilities in Texas. The Company recently
released an 8-K discussing the creation of W Power and Light, LP.
14
In addition, management intends to pursue other types of cash generating
assets, consisting primarily of office buildings in secondary stagnant markets,
office building in out of favor growth markets and oil and gas royalties.
Management also intends to pursue other types of property and business
endeavors, including but not limited to, real estate investment trusts and
partnership interests, for which there is a reasonable degree of accuracy in
ascertaining the risks associated with their future. In particular, we are
interested in existing businesses with management in place that have a stable
cash flow history.
The Company makes available, free of charge, its Annual Report on Form 10-K or
10-KSB, Quarterly Reports on Form 10-Q or 10-QSB, Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file or furnish them to the Securities Exchange
Commission. These reports may also be obtained directly from the SEC via an
Internet site (HTTP://WWW.SEC.GOV) and at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
RESULTS OF OPERATIONS
The Company experienced a decrease in net income of approximately $110,248 and
$139,970 for the three months and nine months ended September 30, 2004 and 2003,
respectfully. During the three months ended September 30, 2004, the Company
moved forward with the start up of W Power and Light, LP. The company incurred
approximately $80,000 in start up expenses which consist of payroll and office
expenses and third-party services. Additionally during the quarter ended
September 30, 2004, the Company experienced a decrease in other income of
approximately $26,000. This decrease is mainly due to the Company selling its
investment in a royalty trust during the fourth quarter of 2003. For the nine
months ended September 30, 2004, the net decrease in net income is mainly due to
the Company tithing approximately $40,000 as required by the Company's By-Laws
and the start up costs associated with W Power and Light, LP.
For the three months and nine months ended September 30, 2004 and 2003, rental
revenue increased approximately $15,829 and $4,278, respectfully. The increase
during the three months and nine months ending September 30, 2004 is mainly due
to the purchase of a twelve floor multi-tenant office building in downtown
Midland, Texas on July 30, 2004. The current year increase for the three and
nine months ending September 30, 2004 over the same periods ending September 30,
2003 have been partially offset by a decline in parking revenue and amortized
pre-paid rent.
The increase in expenses of approximately $130,000 during the three months
ending September 30, 2004 consist mainly of operating costs of approximately
$50,000 related to additional operating expenses associated with the purchase of
the twelve floor multi-tenant office in downtown Midland, Texas and
approximately $80,000 of start up expenses associated with W Power. For the
three months ended September 30, 2004 and 2003 the decline in interest is mainly
due to a decline in the interest rate on the Delaware notes (see note I to the
Financial Statements for further discussion) from 4.9% to 4.15%. The notes are
adjusted every October 1st to equal the prime rate plus 15 basis points.
Beginning October 1, 2004 the newly adjusted rate will be equal to 4.9%.
Additionally, during the nine months ending September 30, 2003 the Company
incurred approximately $42,000 in preferred stock dividends. Effective March 31,
2003 the preferred stock dividends were suspended and effectively eliminated by
shareholder vote at the 2004 annual stockholder meeting on May 18, 2004.
Other income primarily consists of royalty income and distributions received
from the Company's royalty trust investments and royalty interests.
15
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities during the nine months ended
September 30, 2004 and 2003 was $692,147 and $814,847, respectfully. The net
decrease of approximately $122,700 is mainly attributable to two factors. During
the nine months ended September 30, 2004 the Company tithed approximately
$40,000 to two separate National Christian Organizations and incurred
approximately $80,000 in startup expense in the creation of wholly owned
subsidiary, W Power and Light LP. Neither of which the Company experienced
during 2003.
Net cash used in investing activities for the nine months ending September 30,
2004 and 2003 was $768,342 and $269,534, respectfully. The net increase in
investing activities of approximately $499,000 is attributable to several
investments during the nine months ending September 30, 2004. During the first
quarter of 2004, the Company purchased an additional 6.485533% limited
partnership interest from certain limited partners in TCTB (see note B to the
Financial Statements for further discussion). During the second quarter of 2004,
the Company purchased two separate royalty interests (see note C to the
Financial Statements for further discussion) and during the third quarter of
2004 the Company purchased a twelve floor multi-tenant office building in
downtown Midland, Texas on July 30, 2004. During the nine months ending
September 30, 2003 investing activities mainly consisted of the purchase and
sales of investments related to the Company's royalty trust investments.
Net cash used in financing activities for the nine months ending 2004, mainly
consist of partnership distributions and the repayment of notes payable. The
partnership distributions are at TCTB and were paid during the first quarter of
2004 and 2003. The repayments of notes payable mainly consist of the repayment
of the Wells Fargo note at TCTB.
Management is actively seeking acquisition opportunities that meet our criteria
in accordance with the Business Plan. Should an acquisition be made, expenditure
and required resources could change significantly. The Company's ability to
raise funds by the issuance of new equity is limited due to IRC Section 382
restrictions on utilization of the NOL. However, if an opportunity presents
itself that would be more valuable to the shareholders than the present value we
have assigned the NOL, we will strongly consider pursuing the deal and would
consider issuing equity to do so. Absent this, we intend on using certain
limited partnership structures and traditional bank borrowings to implement the
Business Plan and meet our growth targets. No assurances can be made that such
financing will be available on terms considered acceptable to the Company.
ITEM 3. CONTROLS AND PROCEDURES
The Company has carried out an evaluation under the supervision of management,
including the Chairman and Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
Chairman and Chief Executive Officer and Chief Financial Officer have concluded
that, as of September 30, 2004, the Company's disclosure controls and procedures
were effective to ensure that information required to be disclosed by the
Company in the reports filed or submitted by it under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC, and include
controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is assembled and reported to the
Company's management, including the Chairman and Chief Executive Officer and the
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.
16
Other than arising from the review described below, there have been not changes
in internal control over financial reporting during the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting. Management has
identified and reported to the Audit Committee of the Company's Board of
Directors certain matters involving internal control deficiencies. The
deficiencies noted were (a) a lack of documented control procedures (b) the lack
of segregation of duties and (c) insufficient supervision of the Company's
accounting personnel. The Company believes such deficiencies were primarily
attributable to the transition the Company went through during the end of 2002
and 2003 and changes in personnel within the accounting department.
Based on the evaluation performed under the supervision of management,
including the Chairman and Chief Executive Officer and the Chief Financial
Officer, the Company has concluded that, except as noted above the Company's
current disclosure controls and procedures are sufficient to timely alert the
Company's management to material information relating to the Company that is
required to be included in the Company's periodic Securities and Exchange
Commission filings, and that the internal controls are sufficient to provide
reasonable assurance that the consolidated financial statements are fairly
presented in conformity with accounting principles generally accepted in the
United States of America.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
None to 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, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
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.
17
(b) Reports on Form 8-K
On August 13, 2004, the Company filed an Item 5 Form 8-K to disclose that the
TCTB Limited Partnership puchased a twelve floor multi-tenant office building in
downtown Midland known as Century Plaza at a negotiated purchase price of
$436,500. The Company also reported as an Item 5 on Form 8-K the creation of W
Power and Light, LP (W Power). The Company was unsuccessful in an attempt to
acquire a retail electric provider ("REP") entity earlier in the year and
therefore initiated the formation of the new entity. W Power is a wholly owned
subsidiary of the Company and was created in order for the Company to enter the
retail electricity market in Texas. W Power and Light LP entered into an
employment agreement with Mr. Kevin Yung effective July 1, 2004. Mr. Yung is
responsible for the oversight of operations including initial licensing and
approvals necessary from the Public Utility Commission of the State of Texas
(PUCT) and Electrical Reliability Council of Texas (ERCOT) to become a REP in
the State of Texas. The Company anticipates licensing requirements to be
finalized by year end. As a REP, W Power will sell electricity and provide the
related billing, customer service, collection and remittance services to both
residential and commerical customers. The Texas regulatory structure permits
independent REPs to procure and sell electricity at unregulated prices and pay
the local transmission and distribution utilities a regulated tariff rate for
delivering electricity to the customers. Since, January 1, 2002, Texas
electricity users have had the option to purchase electricity at competitive
pricing from REPs.
18
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 12 2004 By: /s/ Eric Oliver
------------------------------------
Eric Oliver
Chairman and Chief Executive Officer
November 12, 2004 By: /s/ John M. James
------------------------------------
John M. James
Chief Financial Officer and Secretary
19
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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.
20