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 June 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.
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(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 July 31, 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 June 30, 2004 (Unaudited) 1
Consolidated Statement of Operations--for the three and six months ended
June 30, 2004 and 2003 (Unaudited) 2
Consolidated Statement of Cash Flows--for the six months ended
June 30, 2004 and 2003 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Controls and Procedures 14
Part II. OTHER INFORMATION
Items 1-6 Exhibits and Reports on Form 8-K 15
Signatures 17
Exhibits 18
11. Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30, 2004
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents (notes A3 and D) $ 2,548,716
Accounts receivable net of allowance of $91,066 (notes A6 and A12) 54,589
------
Total current assets $ 2,603,305
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,023,833 (notes A7 and A8) 11,761,371
ROYALTY INTERESTS, at cost net of accumulated amortization of $4,347 (notes A7 and C) 158,507
INVESTMENTS (notes A4 and D) 62,350
OTHER ASSETS
Note receivable (note E) 249,555
Deferred costs (note A9) 214,791
Rents receivable (notes A6 and A12) 77,311
------
Total other assets 541,657
-------
TOTAL ASSETS $ 15,127,190
===============
CURRENT LIABILITIES
Current portion of long-term obligations (note H) $ 234,185
Accounts payable 205,032
Accrued liabilities (note F) 133,822
Deferred revenue (note G) 33,356
Other liabilities 223,180
-------
Total current liabilities $ 829,575
LONG-TERM OBLIGATIONS
Deferred revenue (note G) 163,876
Long-term debt, less current portion (note H) 9,000,087
---------
Total long-term liabilities 9,163,963
MINORITY INTEREST (note A11) 997,220
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY (note J)
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 (38,494,909)
-----------
Total stockholders' equity 4,136,432
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,127,190
===============
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 Six Months Ended
June 30, June 30,
2004 2003 2004 2003
------------- ------------ ----------- -----------
Rental revenue $ 1,073,582 $ 1,088,162 $ 2,147,882 $ 2,159,433
Operating Expense
Sales and marketing 664 2,765 1,895 3,942
General and administrative 142,956 145,222 257,312 261,737
Depreciation and amortization 111,048 94,701 217,501 200,564
Insurance 24,856 22,907 47,895 22,907
Travel and entertainment - 450 359 677
Utilities 215,843 232,536 436,120 378,933
Building maintenance 181,973 161,332 337,168 310,613
Office expense 102,314 119,292 207,289 224,598
Taxes, except income 59,520 47,478 119,439 99,078
------------- ------------ ----------- -----------
Total operating expenses 839,174 826,683 1,624,978 1,503,049
------------- ------------ ----------- -----------
Net income (loss) from operations 234,408 261,479 522,904 656,384
Other income (expense)
Interest income 2,603 5,736 6,054 11,653
Interest expense (147,183) (154,264) (280,591) (347,264)
Other income 15,685 28,539 32,567 69,835
------------- ------------ ----------- -----------
Total other income (expense) (128,895) (119,989) (241,970) (265,776)
------------- ------------ ----------- -----------
Net income (loss) before income taxes and
minority
Interest 105,513 141,490 280,934 390,608
Income taxes (note A10) - - - -
Minority interest (76,420) (96,549) (159,235) (239,185)
------------- ------------ ----------- -----------
(76,420) (96,549) (159,235) (239,185)
------------- ------------ ----------- -----------
NET INCOME (LOSS) $ 29,093 $ 44,941 $ 121,699 $ 151,423
============= ============ =========== ===========
Net income per common share (basic) $ .01 $ .02 $ .06 $ .07
============= ============ =========== ===========
Net income per common share (diluted) $ .01 $ .02 $ .04 $ .05
============= ============ =========== ===========
Weighted average number of common shares
outstanding - basic 2,201,356 2,047,256 2,201,356 2,019,808
============= ============ =========== ===========
Weighted average number of common shares
outstanding - diluted 3,051,079 2,896,979 3,051,079 2,869,531
============= ============ =========== ===========
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 Six Months Ended June 30,
Increase (Decrease) in Cash and Cash Equivalents 2004 2003
---- ----
Cash flows from operating activities:
Net income $ 121,699 $ 151,423
Adjustments to reconcile net income to net cash provided by operating
activities:
Allowance for doubtful accounts - 29,241
Depreciation, amortization and depletion 217,501 200,564
Loss on sale of investments 520 -
Minority interest 159,235 239,185
Loss on sale of fixed asset - 3,946
Changes in operating assets and liabilities:
Accounts receivable (2,614) 62,140
Deposits and other assets - 840
Deferred costs (63,715) (64,453)
Accounts payable 27,852 (60,369)
Accrued and other liabilities (91,924) (176,292)
Deferred revenue (17,773) 127,877
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Net cash provided by operating activities 350,781 514,102
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Cash flows from investing activities:
Purchases of property and equipment (114,728) (87,535)
Proceeds from sale of property and equipment - 5,170
Sales and maturity of investments 50,000 896,115
Purchase of royalty interests (162,854) -
Purchase of investments - (1,092,668)
Acquisition of limited partnership interest (99,296) -
Repayments of notes receivable 14,216 -
-------------- --------------
Net cash used in investing activities (312,662) (278,918)
-------------- --------------
Cash flows from financing activities:
Minority interest distributions (129,905) (13,967)
Repayments of notes payable (101,025) (130,441)
Repayments of capitalized leases - (9,995)
-------------- --------------
Net cash used in financing activities (230,930) (154,403)
-------------- --------------
Net (decrease) / increase in cash and cash equivalents (192,811) 80,781
Cash and cash equivalents at beginning of period 2,741,527 1,541,183
-------------- --------------
Cash and cash equivalents at end of period $ 2,548,716 $ 1,621,964
============== ==============
The accompanying footnotes are an integral part of these consolidated financial statements
3
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 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 June 30, 2004, the Company,
through Delaware's investment in a limited partnership, has a
commercial real estate portfolio consisting of majority ownership
in two office properties located in Midland and Lubbock, Texas
comprising an aggregate of approximately 539,837 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. The operations of the Company
are primarily conducted through Delaware 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
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
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 using the liability method.
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 June
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
$77,311 of tenant receivables at June 30, 2004, which is expected
to be collected over the remaining lives of the leases.
13. 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.
14. 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.
6
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.
15. New Accounting Pronouncements
In September 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring. This Statement improves
financial reporting by requiring that a liability for a cost
associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is
incurred. The accounting for similar events and circumstances
will be the same, thereby improving the comparability and
representation faithfulness of reported financial information.
The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002,
with early application encouraged.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure, an amendment
of SFAS No. 123, Accounting for Stock-Based Compensation. This
Statement amends SFAS No. 123, to provide alternative methods of
transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based compensation and the effect of the method used on
reported results. Certain of the disclosure modifications are
required for fiscal years ending after December 15, 2002 and are
included in the notes to these consolidated financial statements.
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.
7
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.
Management does not believe the new pronouncements will have a
material impact on its financial statements.
16. 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)
--------
Cash used for the acquisition 208,346
Less: cash acquired 109,050
-------
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
During the quarter ended June 30, 2004, the Company 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 June 30,
2004.
8
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.
At June 30, 2004 the Company's cash and cash equivalents consist of
the following:
Cash in banks $ 2,548,716
================
Securities available-for-sale in the accompanying balance sheet at
June 30, 2004 total $62,350. The aggregate market value, cost
basis, and unrealized gains and losses of securities
available-for-sale, by major security type as of June 30, 2004
are as follows:
Gross
Market Cost Unrealized
Value Basis Gains
----- ----- -----
Oil and Gas Royalty Trust Fund $ 62,350 62,350 -
--------------- ------ ----------
Total $ 62,350 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 the Offline Business line. 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 June 30, 2004, the
outstanding principal balance on the note receivable was
$249,555. Because the current maturities are not reasonably
estimable at June 30, 2004, the entire principal balance is
reported as non-current.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at June 30, 2004:
9
Accrued property taxes $ 124,351
Other liabilities 9,471
-----
$ 133,822
================
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 - 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%.
NOTE I - RELATED PARTY TRANSACTIONS
At June 30, 2004, related parties leased approximately 29,000 square
feet. TCTB received rental income from these related parties of
approximately $65,361 and $132,617 during the quarter and six
months ended June 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.
10
During the quarter ended June 30, 2004 the Company purchased a
percentage of certain royalty interests with related parties,
individually, purchasing the remaining interest.
NOTE J - 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.
NOTE K - SUBSEQUENT EVENTS
On July 30, 2004, TCTB purchased a multi-tenant office building in
Midland, Texas. This building has a net rental area of
approximately 99,244 and is currently 40% occupied. The building
was built during 1979 and renovated in 1990 and the purchase
price of the acquired building was $436,500.
On August 1, 2004, the Company created W Power and Light, LP. The
new limited partnership's sole limited partner is NEMA, LLC and
the sole general partner is Amen Properties, Inc. The creation of
this partnership is to provide a subsidiary in which the Company
can move into the Retail Electricity Provider (REP) market in the
state of Texas.
11
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. Both of our buildings in TCTB performed well. We fully
anticipate that 2004 operations will mirror 2003 for both 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 and commercial real estate. 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 Electric Provider (REP)
market in Texas. On August 1, 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.
12
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
For the three-months and six-months ended June 30, 2004 and 2003 the
Company had a net decrease in net income of $15,848 and $29,724, respectfully.
For the first time in the Company's history the Company tithed approximately
$40,000 to two separate National Christian Organizations, Young Life and Campus
Crusade for Christ, during the three months ended June 30, 2004. The Company's
By-Laws state the Company will tithe an amount that will approximate 10% of net
income. Additionally the company experienced an increase in building maintenance
and an increase in the amount of insurance expense during the six months ended
June 30, 2004 as compared the six months ending June 30, 2003.
For the three months and six months ended June 30, 2004 and 2003, rental
revenue declined $14,580 and $11,551 respectfully. The decline is largely due to
the decline of parking permits issued to tenants in the surrounding buildings in
downtown Midland.
The remainder of the operating costs relate to expenses incurred at TCTB to
operate the buildings. For the three-months ended June 30, 2004 and 2003 the
decline in interest is mainly due to a decline in the interest rate on the
Delaware notes (see note H 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. Also, during the six months ended June 30, 2003 the
Company incurred approximately $42,000 of accrued dividends on the Preferred A
and B stock. The accrual of dividends on the Preferred A and B stock were
suspended as of March 31, 2003 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.
Liquidity and Capital Resources
During the six months ended June 30, 2004 and 2003, net cash provided by
operating activities was $350,781 and $514,102, respectfully. The net decrease
13
of approximately $162,000 is mainly due to a decrease in deferred revenue and
other accrued liabilities. In 2003, the Company received a one time cash payment
of $238,000 from a tenant (see Note G to the Financial Statements for further
discussion). The Company does not anticipate this type of payment occurring
during the year ending December 31, 2004. The net change in other accrued
liabilities for the six months ending June 30, 2004 as compared to the net
change in other accrued liabilities for the six months ending June 30, 2003 has
declined in large part because of the non-reoccurring expenses accrued in 2003
related to the termination of previous employees related to the on-line
business.
Net cash used in investing activities during the six months ended June 30,
2004 mainly consist of the additional 6.485533% limited partnership interest
purchased from certain limited partners in TCTB (see note B to the Financial
Statements for further discussion) and the purchase of two separate royalty
interests (see note C to the Financial Statements for further discussion).
During the period ending June 30, 2003, the Company's net cash used in 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 six 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 repayment of notes payable mainly consists 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's management, under the supervision and with the participation
of the Company's Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), performed an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as of June 30, 2004 before
the filing date of this quarterly report. Based on that evaluation, the CEO and
CFO concluded that the Company's disclosure controls and procedures were
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to their evaluation.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Change in Securities
None to report.
ITEM 3. Defaults Upon Senior Securities
14
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 18, 2004, the Company held its annual meeting of shareholders. At
the meeting, the following proposals were voted upon by the Company's
shareholders. At the record date, March 15, 2004, there were 2,201,356 shares of
common stock, 333,333 of Preferred A and 233,276 of Preferred B issued. A total
of 2,767,965 voting shares and 2,270,755 (82.04%) of the shares, which
represents the necessary quorum, voted on the proposals.
Proposal I: To elect the following nominees as directors:
It was proposed that six members be elected at the meeting to the Board of
Directors.
------------------------------------- -------------- ------------- --------------- -------------- -----------
Proposal I For Percentage Against Percentage Abstain
of Votes
Cast of Votes Cast
------------------------------------- -------------- ------------- --------------- -------------- -----------
Eric Oliver 2,268,110 99.88% 2,645 .12% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Jon M. Morgan 2,268,110 99.88% 2,645 .12% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Bruce E. Edgington 2,268,110 99.88% 2,645 .12% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Earl E. Gjelde 2,268,110 99.88% 2,645 .12% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Donald M. Blake Jr. 2,268,110 99.88% 2,645 .12% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
G. Randy Nicholson 2,268,110 99.88% 2,645 .12% -
------------------------------------- -------------- ------------- --------------- -------------- -----------
Proposal II: Amendment to the Certificate of Incorporation Effecting the
Certificate of Designation of Series and Determination of Rights and Preferences
of Series A and Series B Preferred Stock of Amen Properties, Inc.
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Total For Percentage Against Percentage Abstain
Voting of Votes
Shares Cast of Votes Cast
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
Proposal II 2,767,965 1,478,055 53.40% 9,524 .34% 7,144
------------------------ ------------ -------------- ------------- --------------- -------------- -----------
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 USCss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USCss.1350.
15
(b) Reports on Form 8-K
On June 10, 2004, the Company filed an Item 5 Form 8-K to disclose that the
Company filed a Certificate of Amendment of Certificate of Incorporation of Amen
Properties, Inc. Pursuant to the agreements entered into between Amen
Properties, Inc. and the Series A and Series B Preferred Shareholders, the
Company, with shareholder approval received at the 2004 annual stockholder
meeting, 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 (except for dividends paid
with respect to the common stock of the Company).
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.
16
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.
August 13, 2004 By: /s/ Eric Oliver
---------------
Eric Oliver
Chairman and Chief Executive Officer
August 13, 2004 By: /s/ John M. James
-----------------
John M. James
Chief Financial Officer and Secretary
17
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 USCss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USCss.1350.
18