UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File No. 000-22847
AMEN Properties, Inc.
(Exact Name of Registrant in Its Charter)
DELAWARE 54-1831588
------------------------------ ----------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
303 West Wall St., Suite 2300
MIDLAND, TX 79701
--------------------------------------- -----------
(Address or Principal Executive Offices) (Zip Code)
432-684-3821
------------
Issuer's telephone number, including area code
Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
-----------------------------
Title of each class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]
The issuer's revenues from continuing and discontinued operations for the twelve
months ended December 31, 2004 were $4,309,886.
The Company is not considered an investment company.
The aggregate market value of common stock held by non-affiliates, based on the
closing price at which the stock was sold at February 11, 2005 was approximately
$11.8 million. The total number of shares outstanding of the issuer's common
stock as of February 11, 2005 was 2,201,356.
Transitional Small Business Disclosure Format (Check One): Yes____ No__X__
DOCUMENTS INCORPORATED BY REFERENCE
Exhibits to certain of the Company's filings are incorporated by reference as
Exhibits to this Report as set forth in Part III, Item 13.
Portions of the Company's definitive proxy statement for its 2005 annual
shareholders meeting filed before April 29, 2005, are incorporated by reference
in Part III.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-KSB/A (the "Amendment") amends the Annual Report
on Form 10-KSB of Amen Properties, Inc. (the "Company") for the year ended
December 31, 2004 which was filed on March 31, 2005 (the "Original Report").
This Amendment is being filed in order to reflect the signature of the Company's
independent auditor on the audit opinion included with the Financial Statements
included under Item 7 of the Original Report. Except for the foregoing and the
exhibits filed herewith and listed in Item 15, this Amendment does not modify or
update the Company's previously reported financial statements or any other
financial disclosures or other information contained in, or exhibits to, the
Original Report. Unaffected items of the Original Report have not been repeated
in this Amendment.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements prepared in accordance with Regulation S-B are included
in this report commencing on page 7.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
------------- --------------------
3.1+ Certificate of Incorporation and Certificates of Amendments thereto of
DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.4 ~ Certificate of Designation for Series A Preferred Stock
3.4(a)~~ Amended Certificate of Designation for Series A Preferred Stock
3.5~~ Certification of Designation for Series B Preferred Stock
3.6*** Certificate of Amendment of Certificate of Incorporation dated May 26,
2004
3.7@ Certificate of Designation for Series C Preferred Stock
2
4.1+ Warrant Certificate between the Company and Robert Varney dated July
10, 1996
4.2+ Warrant Certificate between the Company and Robert Varney dated
September 26, 1996
4.3+ Warrant Certificate between the Company and Bruce Edgington dated July
30, 1996
4.4+ Warrant Certificate between the Company and Bruce Edgington dated
October 30, 1996
4.5@ Form of Warrant Certificate dated March 1, 2005
10.1// Asset Purchase Agreement between the Company and Blue Hill Media, Inc.
dated December 13, 2002
10.2+ Form of Stock Option Agreement
10.3+ 1997 Stock Option Plan
10.4* 1997 Stock Option Plan, as amended April 6, 1998
10.5* 1998 Stock Option Plan
10.6** 1998 Stock Option Plan, as amended February 26, 1999
10.7## 1998 Stock Option Plan, as amended March 3, 2000
10.8++ Stock Purchase Agreement between the Company and A. Scott Dufford for
Series A Preferred Stock dated September 29, 2000
10.9++ Stock Purchase Agreement between the Company and John R. Norwood for
Series A Preferred Stock dated September 29, 2000
10.10++ Stock Purchase Agreement between the Company and J.M. Mineral and Land
Co. for Series A Preferred Stock dated September 29, 2000
10.11++ Stock Purchase Agreement between the Company and Jon M. Morgan Pension
Plan for Series A Preferred Stock dated September 29, 2000
10.12++ Stock Purchase Agreement between the Company and Stallings Properties,
Ltd. for Series A Preferred Stock dated September 29, 2000
10.13++ Stock Purchase Agreement between the Company and John D. Bergman for
Series A Preferred Stock dated September 29, 2000
10.14++ Stock Purchase Agreement between the Company and Julia Jones Family
Trust for Series A Preferred Stock dated September 29, 2000
10.15++ Stock Purchase Agreement between the Company and Dodge Jones Foundation
for Series A Preferred Stock dated September 29, 2000
10.16++ Stock Purchase Agreement between the Company and Soft Op, L.P. for
Series A Preferred Stock dated September 29, 2000
10.17++ Stock Purchase Agreement between the Company and Lighthouse Partners,
L.P. for Series A Preferred Stock dated September 29, 2000
10.18++ Stock Purchase Agreement between the Company and Ray McGlothlin, Jr.
for Series A Preferred Stock dated September 29, 2000
10.19++ Stock Purchase Agreement between the Company and Gary J. Lamb for
Series A Preferred Stock dated September 29, 2000
3
10.20++ Stock Purchase Agreement between the Company and Frosty Gilliam, Jr.
for Series A Preferred Stock dated September 29, 2000
10.21++ Stock Purchase Agreement between the Company and Bruce Edgington for
Series B Preferred Stock dated December 31, 2001
10.22++ Stock Purchase Agreement between the Company and Dodge Jones Foundation
for Series B Preferred Stock dated December 31, 2001
10.23++ Stock Purchase Agreement between the Company and Earl E. Gjelde for
Series B Preferred Stock dated December 31, 2001
10.24++ Stock Purchase Agreement between the Company and Jon M. Morgan for
Series B Preferred Stock dated December 31, 2001
10.25++ Stock Purchase Agreement between the Company and Soft Op, L.P. for
Series B Preferred Stock dated December 31, 2001
10.26++ Annex to the Stock Purchase Agreement for Series A Preferred Stock
dated September 29, 2000
10.27# Agreement to Suspend Dividends and Consent of the Holders of Series A
Preferred Stock of Amen Properties, Inc. dated May 30, 2003.
10.28# Agreement to Suspend Dividends and Consent of Holders of Series B
Convertible Preferred Stock of Amen Properties, Inc. dated May 30,
2003.
10.29@@@ Consent, Waiver and Amendment of the holders of Series A Preferred
Stock dated January 2005 (identical copy executed by each holder)
10.30@@@ Consent, Waiver and Amendment of the holders of Series B Preferred
Stock dated January 2005 (identical copy executed by each holder)
10.31++ Annex to the Stock Purchase Agreement for Series B Preferred Stock
dated December 31, 2001
10.32// Agreement and Transfer of Limited Partnership Interest between the
Company and the Selling Partners of TCTB Partners, Ltd. dated October
31, 2002
10.33// Amended Promissory Note between the Company and A. Scott Dufford dated
October 31, 2002, with schedule describing all outstanding Amended
Promissory Notes between the Company and the Selling Partners of TCTB
Partners, Ltd, which are identical other than differences stated in the
schedule.
10.34// Credit Agreement between TCTB Partners, Ltd. and Wells Fargo Bank
Texas, N.A. dated June 5, 2002, the exhibits of which are not included
due to their size.
10.35// Lease Agreement between TCTB Partners, Ltd. and Bank of America, N.A.
dated September 30, 2003.
10.36// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural
Resources USA, Inc. dated April 4, 2000.
10.37 Agreement and Transfer of Limited Partnership Interest dated February
18, 2004.
10.38### Employment and Noncompetition Agreement between the Company and Kevin
Yung dated as of July 1, 2004
10.39@@ Agreement to Distribute Assets among TCTB Partners, Ltd. and its
partners dated as of December 31, 2004
10.40@@ Purchase Agreement between certain partners of TCTB Partners, Ltd. and
1500 Broadway Partners, Ltd. dated as of December 31, 2004
4
10.41@ Securities Purchase Agreement between the Company and certain investors
dated January 18, 2005, as amended by a First Amendment dated January
28, 2005 and a Second Amendment dated February 28, 2005
11@@@ Statement of computation of earnings per share
21.1@@@ Subsidiaries of the Company
23.1@@@ Consent of Johnson, Miller & Co.
23.2 Consent of Johnson, Miller & Co.
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss.1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss.1350.
+ Incorporated by reference to the Company's Registration Statement on Form SB-2
declared effective by the Securities and Exchange Commission on September 24,
1997, SEC File No. 333-25937
++ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 29, 2002, amended July 25,
2002 and August 14, 2002.
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
# Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on June 4, 2003.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
~ Incorporated by reference to the Company's Registration Statement on Form S-3
declared effective by the Securities and Exchange Commission on December 1,
2000, SEC File No. 333-49126
~~ Incorporated by reference to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on April 5, 2002, SEC file No.
333-85636
// Incorporated by reference to the Company's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 24, 2003.
@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005.
@@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on January 4, 2005.
5
@@@ Incorporated by reference to the Company's Report on Form 10-KSB filed with
the Securities and Exchange Commission on March 31, 2005
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last fiscal quarter
covered by this report.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMEN Properties, Inc.
May 12, 2005 By: /s/ Eric L. Oliver
---------------------------------------------
Eric L. Oliver,
Chairman of the Board of Directors
and Chief Executive Officer
May 12, 2005 By: /s/ John M. James
---------------------------------------------
John M. James, Chief Financial
Officer and Secretary
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
May 12, 2005 By: /s/ Jon Morgan
---------------------------------------------
Director and Chief Operating Officer
May 12, 2005 By: /s/ Bruce Edgington
---------------------------------------------
Director
May 12, 2005 By: /s/ Randy G. Nicholson
---------------------------------------------
Director
6
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 8
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 9
CONSOLIDATED STATEMENTS OF INCOME 10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 11
CONSOLIDATED STATEMENTS OF CASH FLOWS 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14
7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
AMEN Properties, Inc. and Subsidiaries
Midland, Texas
We have audited the accompanying consolidated balance sheets of AMEN Properties,
Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AMEN Properties,
Inc. and Subsidiaries at December 31, 2004 and 2003, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
JOHNSON, MILLER & CO.
Midland, Texas
March 15, 2005
8
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS
2004 2003
------------ -----------
CURRENT ASSETS
Cash and cash equivalents (notes A3, D and F) $ 4,147,900 2,741,527
Accounts receivable (notes A6 and A14), net of allowance of $91,066 --
in 2004 and 2003, respectively 72,735 51,859
Short-term investments (notes A4 and F) -- 50,225
Other current assets 77,399 78,507
------------ -----------
Total current assets 4,298,034 2,922,118
RESTRICTED CERTIFICATE OF DEPOSIT (Note G) 2,100,000 --
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $873,883 and $822,301 in 2004 and 2003,
respectively (notes A7, A8, and I) 7,986,598 11,662,960
ROYALTY INTERESTS, at cost net of accumulated depletion
of $12,484 (Notes A7 and E) 150,370 --
LONG-TERM INVESTMENTS (notes A4 and F) 62,350 62,350
OTHER ASSETS
Note receivable (note H) 249,555 250,763
Deferred costs (note A9) 52,357 79,064
Rents receivable (notes A6 and A14) -- 75,288
Deposits and other assets 72,000 4,348
------------ -----------
Total other assets 373,912 409,463
------------ -----------
TOTAL ASSETS $ 14,971,264 15,056,891
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 115,104 151,818
Accrued liabilities (note J) 319,498 258,237
Deferred revenue (note K) 70,127 34,463
Accrued interest payable 286,802 175,702
Current portion of long-term obligations (note N) $ 1,634,935 186,156
------------ -----------
Total current liabilities 2,426,466 806,376
LONG-TERM OBLIGATIONS, less current portion (note N) 7,476,154 8,898,364
DEFERRED REVENUE (note K) -- 180,542
MINORITY INTEREST (note A12) 252,655 1,157,170
COMMITMENTS AND CONTINGENCIES (notes A18, L and P) -- --
STOCKHOLDERS' EQUITY (notes S and T)
Convertible preferred stock, $.001 par value, 5,000,000 shares authorized;
80,000 Series "A" shares issued and outstanding, convertible into
a total of 616,447 shares of common stock at the option of the holders (note A13) 80
80
80,000 Series "B" shares issued and outstanding, convertible into
a total of 233,317 shares of common stock at the option of the holders (note A13) 80
80
Common stock, $.01 par value, 20,000,000 shares authorized;
2,201,356 shares issued and outstanding 22,014 22,014
Common stock warrants 127,660 127,660
Additional paid-in capital 42,481,507 42,481,507
Accumulated deficit (37,815,352) (38,616,607)
Accumulated other comprehensive income (loss) -- (295)
------------ -----------
Total stockholders' equity 4,815,989 4,014,439
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,971,264 15,056,891
============ ===========
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
9
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
2004 2003
----------- -----------
Rental revenue $ 4,309,886 4,345,099
Operating expenses:
Sales and marketing 4,580 7,351
General and administrative 583,473 488,107
Depreciation, amortization and depletion 444,760 408,335
Insurance 105,244 68,439
Travel and entertainment 837 827
Utilities 933,014 854,140
Building maintenance 710,063 621,905
Office expense 433,338 479,486
Taxes, except income 262,558 238,873
Start-up costs (note A16) 156,841 --
----------- ----------
Total operating expenses 3,634,708 3,167,463
----------- ----------
Net income from operations 675,178 1,177,636
Other income (expense):
Interest income 11,946 31,020
Interest expense (579,487) (654,319)
Other income 972,456 253,306
----------- ----------
Total other income (expense) 404,915 (369,993)
----------- ----------
Net income before income taxes and minority interest 1,080,093 807,643
Income taxes (notes A11 and L) -- --
Minority interest (278,838) (415,814)
----------- ----------
NET INCOME $ 801,255 391,829
=========== ==========
Net income per common share (basic) $ .36 .19
Net income per common share (diluted) $ .26 .13
Weighted average number of common shares outstanding - basic 2,201,356 2,111,328
Weighted average number of common shares outstanding - diluted 3,051,120 2,961,051
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
10
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003
Other
Preferred Stock Common Stock Additional Common Comprehensive
--------------- ------------------- Paid-in Stock Accumulated Income Total
Shares Amount Shares Amount Capital Warrants Deficit (Loss) Equity
------- ------ --------- --------- ----------- ------- ----------- ------- ---------
Balance, December 31, 2002 160,000 $160 1,992,056 $19,920 42,123,601 127,660 (39,008,436) 7,162 3,270,067
Common stock issued
pursuant to a
deferral of preferred
stock dividend -- -- 209,300 2,094 357,906 -- -- --
360,000
Other comprehensive loss -- -- -- -- -- -- -- (7,457) (7,457)
Net income -- -- -- -- -- -- 391,829 -- 391,829
----------
TOTAL COMPREHENSIVE
INCOME -- -- -- -- -- -- -- -- 384,372
------- ---- --------- ------- ---------- ------- ----------- ------ ----------
Balance, December 31, 2003 160,000 160 2,201,356 22,014 42,481,507 127,660 (38,616,607) (295) 4,014,439
======= ==== ========= ======= ========== ======= =========== ====== ==========
Other comprehensive income -- -- -- -- -- -- -- 295 295
Net income -- -- -- -- -- -- 801,255 -- 801,255
----------
TOTAL COMPREHENSIVE
INCOME -- -- -- -- -- -- -- -- 801,550
------- ---- --------- ------- ---------- ------- ----------- ------ ----------
Balance, December 31, 2004 160,000 $160 2,201,356 $22,014 42,481,507 127,660 (37,815,352) -- 4,815,989
======= ==== ========= ======= ========== ======= =========== ====== ==========
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
11
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2004 2003
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $ 801,255 391,829
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and depletion 444,760 408,335
(Gain) loss on sale of fixed assets (905,118) 9,125
Loss (gain) on sale of investments 479 (120,405)
Minority interest 278,838 415,814
Changes in operating assets and liabilities:
Accounts receivable (20,976) 109,924
Deposits and other assets 7,808 5,300
Deferred costs 5,657 (5,572)
Accounts payable (18,242) (63,037)
Accrued and other liabilities 206,326 (72,069)
Deferred revenue (93,149) 106,077
----------- ----------
Net cash provided by operating activities 707,638 1,185,321
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (565,949) (151,518)
Proceeds from sale of property, equipment and intangible assets 3,924,141 --
Sales and maturity of investments 53,400 1,839,223
Purchase of investments (2,266,213) (1,497,201)
Acquisition of limited partnership interest (note B) (208,346) --
Repayments of notes receivable 1,208 24,237
----------- ----------
Net cash provided by investing activities 938,241 214,741
----------- ----------
Cash flows from financing activities:
Repayments of notes payable (224,209) (175,467)
Repayments of capitalized leases -- (10,284)
Minority interest distributions (129,905) (13,967)
Minority interest contributions 114,608 --
----------- ----------
Net cash used in financing activities $ (239,506) (199,718)
----------- ----------
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
12
AMEN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
2004 2003
----------- ----------
Net increase in cash and cash equivalents $1,406,373 1,200,344
Cash and cash equivalents at beginning of year 2,741,527 1,541,183
---------- ----------
Cash and cash equivalents at end of year $4,147,900 2,741,527
========== ==========
CASH PAID DURING THE YEAR FOR:
Interest $ 468,387 470,783
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In December 2004, the Company distributed certain net
assets to minority interest owners (see note C) $ 978,775 --
In January 2004, the Company acquired additional
partnership interests with a note payable to the sellers $ 250,778 --
(see note B)
Changes in unrealized appreciation on available -for- sale
securities $ 295 (7,457)
In March 2003, the Company issued 209,300 shares of
stock pursuant to a deferral of preferred stock dividend $ -- 360,000
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
13
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
36
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 December 31, 2004, the Company, through
Delaware's investment in a limited partnership, has a commercial real
estate portfolio consisting of majority ownership in two office
properties located in Midland, Texas comprising an aggregate of
approximately 428,560 square feet of gross leasable area. The
investment was obtained through Delaware's acquisitions of a
partnership interest in TCTB Partners, Ltd. ("TCTB") a Texas limited
partnership, totaling approximately 71.3%. Through its investment in
Minerals, AMEN has acquired an investment interest in an oil and gas
royalty trust and other oil and gas royalties. Through the Company's
investment in W Power, Amen 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. INVESTMENTS
The Company invests in U.S. government bonds and treasury notes,
municipal bonds, certificates of deposit and corporate bonds.
Investments with original maturities greater
14
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
than three months but less than twelve months from the balance sheet
date are short-term investments. Those investments with original
maturities greater than twelve months from the balance sheet date are
long-term investments.
The Company's marketable securities are classified as
available-for-sale as of the balance sheet date, and are reported at
fair value with unrealized gains and losses, net of tax, recorded in
stockholders' equity. Realized gains or losses and permanent declines
in value, if any, on available-for-sale investments are reported in
other income or expense as incurred.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, investments, accounts
receivable, notes receivable, and accounts payable approximate fair
value because of the relatively short maturity of these instruments.
The fair value of the fixed rate debt, based upon current interest
rates for similar debt instruments with similar payment terms and
expected payoff dates, would be approximately $8,922,000 as of December
31, 2004. Disclosure about fair value of financial instruments is based
on pertinent information available to management as of December 31,
2004.
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 an asset is used or a significant physical change in an
asset, a significant adverse change in legal factors or in the business
climate that could affect the value of an asset or an adverse action or
assessment by a regulator, an accumulation of costs significantly in
excess of the amount originally expected to acquire or construct an
asset, and/or a current period operating or cash flow loss combined
with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with an asset
used for the purpose of producing revenue.
The Company considers historical performance and anticipated future
results in its evaluation of potential impairment. Accordingly, when
indicators or impairments are present, the Company evaluates the
carrying value of these assets in reaction to the operating performance
of the business and future discounted and nondiscounted cash flows
expected to result from the use of these assets. Impairment losses are
recognized when the sum of expected future cash flows are less than the
assets' carrying value.
15
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
9. DEFERRED COSTS
Deferred costs primarily consist of deferred financing costs. Deferred
financing costs are amortized as interest expense over the life of the
related debt.
10. STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance
with Accounting Principles Board Opinion (APB) 25, Accounting for Stock
Issued to Employees, which uses the intrinsic value method. As required
by Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has disclosed the
pro forma impact on the consolidated financial statements assuming the
measurement provisions of SFAS No. 123 and additional disclosure
requirements of SFAS No. 148 have been adopted.
11. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"ACCOUNTING FOR INCOME TAXES". Under this method, deferred tax assets
and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
12. MINORITY INTEREST
Minority interest represents the interest of unit holders of TCTB,
other than the Company, in the net earnings and net equity of TCTB. The
unit holder minority interest is adjusted at the end of each period to
reflect the ownership at that time. The unit holder minority interest
in TCTB was approximately 28.7% at December 31, 2004.
13. CONTINGENTLY CONVERTIBLE SECURITIES
The Company has outstanding Series "A" and Series "B" Preferred Stock
whose terms enable the holder, under certain conditions, to convert
such securities into 849,764 shares of the Company's Common Stock as
shown in the following table.
16
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
Number of Number of Common
Series Shares Purchase Price Conversion Rate Shares
------ ------ -------------- --------------- ------
A 80,000 $ 2,000,000 $ 3.2444 616,447
B 50,000 500,000 3.2444 154,111
B 10,000 100,000 3.424 29,206
B 20,000 200,000 4.000 50,000
Conversion of Series "A" and Series "B" is at the option of the holder
thereof, at any time and from time to time, into such number of fully
paid and nonassessable shares of Common Stock as is determined by
dividing the original Series "A" and Series "B" issue price by the
conversion price in effect at the time of conversion. The contingently
convertible securities have not been included in the calculation of
diluted earnings per share where their effect is antidilutive.
14. REVENUE 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 $75,288 of tenant
receivables at December 31, 2003, which was expected to be collected
over the remaining lives of the leases. As of December 31, 2004 there
were no such tenant receivables.
15. ADVERTISING EXPENSE
All advertising costs are expensed when incurred. Advertising expenses
were approximately $5,000 and $7,000 for the years ended December 31,
2004 and 2003, respectively.
16. START-UP COSTS
Start up expenses are associated with certain expenses incurred with W
Power and Light, LP. These expenses include but are not limited to
salary, fees and licenses, travel and legal expense. Start up costs are
expensed as incurred.
17. EARNINGS PER SHARE
Income from operations has been decreased by preferred stock dividends
of approximately $42,000 for the year ended December 31, 2003. There
were no preferred stock dividends for the year ended December 31, 2004
(see note S). 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 (see note S).
17
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
18. ENVIRONMENTAL
The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws regulate asbestos in
buildings that require the Company to remove or mitigate the
environmental effects of the disposal of the asbestos at the buildings.
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Costs are expensed when they relate to an
existing condition caused by past operations and will not contribute to
current or future revenue generation. Liabilities related to
environmental assessments and/or remedial efforts are accrued when
property or services are provided or can be reasonably estimated.
19. NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board (FASB)
issued a revised Interpretation No. 46, CONSOLIDATION OF VARIABLE
INTEREST ENTITIES, replacing the original Interpretation issued in
January 2003. The revised Interpretation provides guidance on when
certain entities should be consolidated or the interests in those
entities should be disclosed by enterprises that do not control them
through majority voting interest. Under the revised Interpretation,
entities are required to be consolidated by enterprises that lack
majority voting interest when equity investors of those entities have
insignificant capital at risk or they lack voting rights, the
obligation to absorb expected losses, or the right to receive expected
returns. Entities identified with these characteristics are called
variable interest entities and the interests that enterprises have in
these entities are called variable interests. These interests can
derive from certain guarantees, leases, loans or other arrangements
that result in risks and rewards that are disproportionate to the
voting interests in the entities. The provisions of the revised
Interpretation must be immediately applied for variable interest
entities created after January 31, 2003 and for variable interests in
entities commonly referred to as "special purpose entities." For all
other variable interest entities, implementation is required by March
31, 2004.
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.
18
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS. SFAS
No. 151 amends the guidance in Accounting Research Bulletin (ARB) No.
43, Chapter 4, INVENTORY PRICING, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This Statement requires that those items be
recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, the Statement requires
that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. The provisions of this Statement are effective for
inventory costs incurred during fiscal years beginning after June 15,
2005, with early application encouraged.
In December 2004, the FASB issued a revised Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. This Statement eliminates the
alternative to use Accounting Principles Board (APB) Opinion No. 25's
intrinsic value method of accounting. This Statement establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of
those instruments. An entity will measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant date fair value of those instruments, except in certain
circumstances. The provisions of this interpretation become effective
as of the beginning of the first annual reporting period that begins
after December 15, 2005.
In December 2004, the FASB issued SFAS No. 152, ACCOUNTING FOR REAL
ESTATE TIME-SHARING TRANSACTIONS. This Statement amends SFAS No. 66 and
SFAS No. 67 to state the guidance for (a) incidental operations and (b)
costs incurred to sell real estate projects does not apply to real
estate time-sharing transactions. The account-ing for those operations
and costs is subject to the guidance in Statement of Position (SOP)
04-2, ACCOUNTING FOR REAL ESTATE TIME-SHARING TRANSACTIONS. This
Statement is effective for financial statements for fiscal years
beginning after June 15, 2005.
In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF
NONMONETARY ASSETS. This Statement amends APB Opinion No. 29, to
eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. The
provisions of this Statement shall be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005.
Management does not believe the new pronouncements will have a material
impact on its financial statements.
20. RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to
conform to the 2004 presentation.
NOTE B - BUSINESS COMBINATIONS
In January 2004, the Company purchased an additional 6.485% limited
partnership interest in TCTB by issuing debt of $250,778 and a cash
payment of $208,346. The allocation of the purchase price resulted in
the Company recording an increase in property, plant and equipment of
$269,843 and reducing the minority interest investment by $189,281.
19
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
NOTE C - DISPOSITION OF ASSETS
On January 4, 2005, the Company announced that, effective December 31,
2004, the TCTB partners agreed to distribute its Lubbock, Texas office
building to the TCTB partners and simultaneously sell their interest in
the asset to an entity partially owned by certain TCTB minority owners.
In accordance with an Agreement to Distribute Assets, effective
December 31, 2004, the Lubbock office building (the "Property") was
distributed to the TCTB partners according to their partnership sharing
ratios. The Property distribution to the TCTB minority interest
partners resulted in an approximate $979,000 reduction in the Company's
property, plant and equipment and a corresponding reduction in minority
interest. The Property and two other Midland, Texas office properties
owned by TCTB are subject to a lien securing TCTB's $6,100,000 note
payable to Wells Fargo Bank Texas, N.A. The Bank agreed to release its
lien on the Property in exchange for a $2,100,000 restricted
certificate of deposit (see note G) pledged by TCTB to the Bank as
additional collateral.
Immediately following the Property distribution, the Company and the
selling minority interest partners agreed to sell their undivided
interest in the Property for a negotiated purchase price of $4,568,614,
in accordance with a Purchase Agreement, to 1500 Broadway Partners,
Ltd., a limited partnership, in which certain TCTB limited partners
(non-selling minority interest partners) are partners and are tenants
in one of TCTB's Midland office buildings. The Company received net
proceeds of $3,688,094 for its undivided interest in the Property that
resulted in a gain of $905,118.
The Company used $1,681,346 of the net proceeds to reduce the principal
amount of certain debt by $1,394,544 and to pay accrued interest of
$286,802. The remaining proceeds will be used for start-up working
capital purposes for W Power and Light, LP, a newly created retail
electric provider.
NOTE D - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at three financial institutions,
which at times may exceed federally insured limits. At December 31,
2004 and 2003, the Company had approximately $3,673,300 and $2,201,200,
respectively, of uninsured cash and cash equivalents. The Company has
not experienced any losses in such accounts and believes that it is not
exposed to any significant credit risks on such accounts.
The Company's revenues are derived principally from uncollateralized
rents from tenants. The concentration of credit risk in a single
industry affects its overall exposure to credit risk because tenants
may be similarly affected by changes in economic and other conditions.
20
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
NOTE E - ROYALTY INTERESTS
In 2004, the Company, through its wholly-owned subsidiary Amen
Minerals, LP, completed the acquisition of two separate royalty
interests, one in the state of Texas and one in the state of Oklahoma.
The total consideration paid by the Company for the royalty interests
was $162,854. Under accounting principles generally accepted in the
United States of America, revenues and expenses are recognized on an
accrual basis. Royalty income is generally received one to two months
following the month of production and the Company uses estimates to
accrue royalty income for the year ended December 31, 2004.
NOTE F - CASH, CASH EQUIVALENTS AND INVESTMENTS
At December 31, 2004 and 2003 the Company's cash and cash equivalents
consist of cash in banks of approximately $4,147,900 and $2,741,527,
respectively.
Securities available-for-sale in the accompanying balance sheet at
December 31, 2004 and 2003 total $62,350 and $112,575, respectively.
The aggregate market value, cost basis, and unrealized gains and losses
of securities available-for-sale, by major security type as of December
31, 2004 and 2003 are as follows:
Gross
Market Cost Unrealized
Value Basis Losses
-------- ------- ---------
As of December 31, 2004:
Other securities $ 62,350 62,350 --
======== ======= ====
-------- ------- ----
Gross
Market Cost Unrealized
Value Basis Losses
-------- ------- ---------
As of December 31, 2003:
U.S. Government Debt Securities $ 50,225 50,520 (295)
Other securities 62,350 62,350 --
-------- ------- ----
Total $112,575 112,870 (295)
======== ======= ====
The Company recorded net realized (losses) gains of $(479) and $120,405
for the years ended December 31, 2004 and 2003, respectively.
NOTE G - RESTRICTED CERTIFICATE OF DEPOSIT
The Company holds a $2,100,000 certificate of deposit with a financial
institution which bears interest of 1.98% and matures on December 28,
2005. The certificate of deposit collateralizes the term note with a
financial institution (see note N) and is restricted. The certificate
of deposit is recorded at cost, which approximates market value. The
certificate is non-negotiable and non-transferable, and may incur
substantial penalties for withdrawal prior to maturity.
21
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
NOTE H - NOTE RECEIVABLE
On December 13, 2002, the Company received a note receivable in the
amount of $275,000, with an annual interest rate of 6.00%, from a
third-party for the sale of substantially all assets associated with a
direct mail advertising service. The note receivable is due in
quarterly installments, beginning April 10, 2003, equal to 20% of the
gross profit from operations for the prior calendar quarter period,
with all remaining unpaid principal and interest due on January 10,
2010. As of December 31, 2004 and 2003, the outstanding principal
balance on the note receivable was $249,555 and $250,763, respectively.
Because the current maturities are not reasonably estimable at December
31, 2004, the entire principal balance is reported as non-current.
NOTE I - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at
December 31, 2004 and 2003:
2004 2003
---------- -------------
Buildings $ 8,447,862 11,742,431
Furniture, fixtures and equipment 90,321 44,147
Tenant improvements 163,300 165,245
Land 158,998 533,438
---------- -------------
8,860,481 12,485,261
Less: accumulated depreciation (873,883) (822,301)
---------- -------------
$ 7,986,598 11,662,960
========== =============
Depreciation expense for 2004 and 2003 was $408,229 and
$387,024, respectively.
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
2004 2003
--------- -------------
Accrued property taxes $ 185,344 248,712
Other liabilities 134,154 9,525
---------- -------------
$ 319,498 258,237
========== =============
NOTE K - 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 was being
amortized over the term of the lease, approximately seven years. On
December 31, 2004 the Lubbock building was sold. As of December 31,
2004 no deferred revenue exists.
22
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
NOTE L - INCOME TAXES
There was no income tax expense or benefit to report for the years
ended December 31, 2004 and 2003. A reconciliation of income taxes at
the statutory rate to the Company's effective rate is as follows for
the years ended December 31:
2004 2003
------------ -----------
Computed at the expected statutory rate $ 272,000 133,000
Less valuation allowance (272,000) (133,000)
------------ -----------
Income taxes $ -- --
============ ===========
Noncurrent deferred tax assets and liabilities at December 31, 2004 and
2003 were as follows:
2004 2003
------------ -----------
Deferred tax assets
Net operating loss carry-forward $ 10,506,860 10,850,666
Start-up costs 42,977 --
Other 30,963 30,963
------------ -----------
Gross deferred tax assets 10,580,800 10,881,629
Deferred tax liabilities
Rents receivable -- (16,603)
Property, plant and equipment (109,686) (54,641)
Other -- (1,436)
------------ -----------
Gross deferred tax liabilities (109,686) (72,680)
Valuation allowance (10,471,114) (10,808,949)
------------ -----------
Net noncurrent deferred tax assets $ -- --
============ ===========
As of December 31, 2004, the Company has net operating loss
carry-forwards totaling approximately $30,774,000 for federal and state
income tax purposes expiring in 2012 through 2022.
NOTE M - OPERATING SEGMENTS
On July 30, 2004, the Company formed and initiated the development of W
Power. W Power was established to enter into the retail electricity
market in Texas. The formation of W Power resulted in the
diversification of the Company's business activities into two
reportable segments: real estate operations and a retail electricity
provider (REP). The real estate operations consisted of three office
properties, two located in Midland, Texas and one located in Lubbock,
Texas, and comprised an aggregate of approximately 639,259 square feet
of gross leaseable area. The Lubbock, Texas building was sold on
December 29, 2004 (see note C). The REP segment will sell electricity
and provide the related billing, customer service, collection and
remittance services to both residential and commercial customers.
23
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
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 year ending December 31, 2004 and 2003,
respectfully.
December 31, 2004:
Real Estate Other and
REP Operations Corporate Total
----------------- ------------------ ------------- -------------
Revenues from external
customers $ - 4,309,886 - 4,309,886
================= ================== ============= =============
Depreciation, amortization
and depletion 864 430,204 13,692 444,760
================= ================== ============= =============
Interest expense - 579,487 - 579,487
================= ================== ============= =============
Segment net income (loss) (157,705) 1,375,171 (416,211) 801,255
================= ================== ============= =============
Segment assets 159,453 14,001,398 810,413 14,971,264
================= ================== ============= =============
Expenditures for segment
assets $ 25,919 531,461 8,569 565,949
================= ================== ============= =============
December 31, 2003:
Real Estate Other and
REP Operations Corporate Total
----------------- ------------------ ------------- -------------
Revenues from external
customers $ - 4,345,099 - 4,345,099
================= ================== ============= =============
Depreciation, amortization
and depletion - 407,578 757 408,335
================= ================== ============= =============
Interest expense - 612,319 42,000 654,319
================= ================== ============= =============
Segment net income (loss) - 532,428 (140,599) 391,829
================= ================== ============= =============
Expenditures for segment $ - 148,792 2,726 151,518
assets ================= ================== ============= =============
NOTE N - 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 is making monthly payments of
principal and interest in the amount of $53,663 for the term note until
maturity of the note on May 31, 2009. The loan agreement is secured by
substantially all of the assets of TCTB. The loan agreement restricts
cash distributions to TCTB's owners. TCTB shall not declare or pay any
distributions in excess of tax liability due annually (but in any
event, no more than 40% of net income, which is approximately $309,000
at December 31, 2004), 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.
24
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
Delaware entered into nine promissory notes, certain of which are with
related parties, in an aggregate amount of $2,789,087, to purchase the
64.9% ownership interest in TCTB. The notes are due in annual payments
of principal and interest beginning April 1, 2005 with a final maturity
of May 31, 2009. The interest rate is equal to the Wall Street Journal
Prime Lending Rate plus .15% (4.9% at December 31, 2004). The annual
payments are equal to a set percentage, ranging from 1% to 16% of the
future net operating loss benefit of the Company. The net operating
loss benefits are calculated as the dollar value of the federal income
tax benefit to the Company of the net operating loss calculated in
accordance with the Internal Revenue Code, for the calendar year
preceding the date of each annual payment. Due to the distribution and
sale of the Lubbock building (see note C) the Company elected to forgo
the payment as described above and paid one half of the principal
balance along with the entire accrued interest balance in January 2005.
This payment is in excess of the required payment and is shown in the
current maturities table below for the year 2005.
Delaware entered into a promissory note in the amount of $250,778 to
purchase an additional 6.485% ownership interest in TCTB. The note is
due in quarterly installments of principal and interest beginning on
March 1, 2004 with a final maturity of January 1, 2010. The term note
bears interest at a fixed rate per annum of 5%.
Maturities of long-term debt at December 31, 2004 are as follows:
2005 $ 1,634,935
2006 258,968
2007 276,383
2008 296,336
2009 6,644,467
-------------
Total 9,111,089
Less current portion 1,634,935
-------------
Long-term portion $ 7,476,154
=============
NOTE O - RELATED PARTY TRANSACTIONS
At December 31, 2004 and 2003, related parties leased from TCTB, office
space of approximately 32,000 and 29,000 square feet, respectfully.
TCTB received rental income from these related parties of approximately
$264,000 and $260,000 during the year ended December 31, 2004 and 2003,
respectfully.
25
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
Prior to Amen Properties, Inc. acquiring a limited partnership interest
in TCTB, TCTB had entered into an agreement with Priority Power
Management, Ltd to provide aggregation and consulting services in the
management of TCTB's electricity use and costs. This agreement expired
on December 31, 2004. The Company's Chief Operating Officer has an
indirect 18% ownership in Priority Power Management, Ltd. During
January 2005, TCTB began purchasing electricity through W Power.
During 2004, the Company, through its subsidiary Minerals, purchased a
percentage of two certain royalty interests with certain individuals
and related parties acquiring the remaining percentages. Effective
April 1, 2004, the Company purchased a 25% interest in a Texas oil and
gas royalty for a purchase price of $102,519 along with the Chief
Operating 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 an Oklahoma oil and gas
royalty for a purchase price of $60,335 along with the Chief Operating
Officer directly acquiring a 8.5% interest and the Chief Executive
Officer acquiring an indirect 20% interest (see note E).
NOTE P - COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits which arise primarily in
the ordinary course of business. It is the opinion of management that
the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial
position of the Company.
NOTE Q - RENTAL ARRANGEMENTS
The Company has rented facilities under operating leases. Future
minimum lease payments under non-cancelable operating leases aggregate
$3,939,591 as of December 31, 2004 and are due as follows:
Percentage of
Future Total Space
Minimum Under Lease
Rent Expiring
2005 $ 1,630,371 41%
2006 1,038,191 26%
2007 940,511 24%
2008 214,824 6%
2009 115,669 3%
Thereafter 25 0%
----------- -------------
Total $ 3,939,591 100%
=========== =============
Of the above leases, future minimum lease payments under non-cancelable
operating leases to related parties aggregate $160,417 as of December
31, 2004 and are due as follows:
26
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
2005 $ 123,842
2006 19,950
2007 16,625
-------------
$ 160,417
NOTE R - SIGNIFICANT TENANTS
For the years ended December 31, 2004 and 2003, rent income that
accounted for more than ten-percent of the Company's revenue was
derived from two entities, as follows:
2004 2003
---------------- -------------
Wells Fargo Bank Texas, N.A. $ 662,000 668,000
Bank of America 591,000 594,000
--------------- -------------
$ 1,253,000 1,262,000
=============== =============
Effective December 31, 2004 the Company disposed of the building
containing the Wells Fargo Bank, N.A. lease (see note C).
NOTE S - 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 (see note A13).
NOTE T - STOCK OPTION PLAN
Since the inception of the Company, various options have been granted
by the Board of Directors to founders, directors, employees,
consultants and ministry partners. In February 1997, the Company
authorized 67,100 additional shares of common stock to underlie
additional options reserved for key employees and for future
compensation to members of the Board of Directors. The Board of
Directors also adopted and the Stockholders approved, the 1997 Stock
Option Plan ("1997 Plan"), which provides for the granting of either
qualified or non-qualified options to purchase an aggregate of up to
514,484 shares of common stock, inclusive of the 67,100 shares
mentioned above, and any and all options or warrants granted in prior
years by the Company. As of December 31, 2004, all options available
under the 1997 Plan have been granted: 373,609 options are outstanding,
43,160 warrants are outstanding to directors included in the plan, and
62,579 options have been exercised.
27
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
The 1998 Stock Option Plan ("1998 Plan") was approved by the Board of
Directors in April 1998, with approved amendment in May 2000. The 1998
Plan gives the Company the authority to issue 300,000 options to
purchase AMEN common stock. If any stock options granted under the 1998
Plan terminate, expire or are canceled, new stock options may
thereafter be granted covering such shares. In addition, any shares
purchased under the 1998 Plan subsequently repurchased by the Company,
if management elects, pursuant to the terms hereof may again be granted
under the 1998 Plan. The shares issued upon exercise of stock options
under the 1998 Plan may, in whole or in part, be either authorized but
unissued shares, or issued shares reacquired by the Company. As of
December 31, 2004, 81,384 options from the 1998 Plan have been granted
and are outstanding.
At December 31, 2004 and 2003, the Company had outstanding options to
sell 130,671 shares of common stock, respectively, to various current
officers and directors of the Company at exercise prices ranging from
$35.24 to $1.98 per share. As of December 31, 2004 and 2003, options
for 85,748 shares are vested, respectively. The options expire ten
years from the date granted.
At December 31, 2004 and 2003, the Company had outstanding options to
sell 10,188 and 10,992 shares of common stock, respectively, to various
outside consultants at exercise prices ranging from $61.36 to $6.67 per
share. As of December 31, 2004 and 2003, options for 10,188 and 10,992
were vested, respectively. The options expire ten years from the date
granted.
At December 31 2004 and 2003, the Company had outstanding options
granted to employees, ex-employees and previous directors for 357,294
shares of common stock at exercise prices ranging from $61.00 to $3.20
per share. As of December 31, 2004 and 2003, options for 345,967 shares
are vested. The options expire through 2012.
The table below summarizes the stock option activity for the years
ending 2004 and 2003, followed by summary table. The figures herein, as
above, reflect the impact of a 1-for-4 stock split approved by
stockholders on January 30, 2003. See note S.
Number of Per Unit
Options Outstanding Shares Exercise Price
-------------------- --------- --------------
Outstanding, December 31, 2002 492,220 $ 3.52 -61.36
-------- -------------
Options granted 14,450 $ 1.98
Options forfeited (50,872) $ 3.50 -45.00
-------- -------------
Outstanding, December 31, 2003 455,798 $ 1.98 -61.36
-------- -------------
Options forfeited (805) $ 31.50-45.50
-------- -------------
Outstanding, December 31, 2004 454,993 $ 1.98 -61.36
======== =============
28
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
At December 31, 2004 the weighted average price of options granted
outstanding was $14.52 and the weighted average contractual maturity of
options granted outstanding was 3.61 years.
The Company accounts for its options granted to employees in accordance
with APB 25. Stock-based awards to non-employees are accounted for
under the provisions of SFAS No. 123 based on their fair value as
determined by the Black-Scholes option-pricing model. Had compensation
expense been determined based on the fair value of the options at the
grant dates consistent with the method of accounting under SFAS No.
123, the Company's net income and net income per share for the years
ended December 31, 2004 and 2003 would have been decreased to the
proforma amounts indicated below:
2004 2003
--------- ----------
Net income, as reported $ 801,255 391,829
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method (21,576) (102,124)
--------- -----------
Net income, pro forma $ 779,679 289,705
======== ===========
Net income per common share
Basic
As reported .36 .19
Pro forma .35 .14
Diluted
As reported .26 .13
Pro forma .26 .10
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model.
For the year ended December 31, 2004, the following assumptions were
used: dividend yield of 0%; risk-free interest rates based on the
Treasury bond yield at the date of grant for three- to five-year bonds,
depending on the expected term; volatility range approximating 121.0%
depending on the grant date; and an expected term of ten years. For the
year ended December 31, 2003, the following assumptions were used:
dividend yield of 0%; risk-free interest rates based on the Treasury
bond yield at the date of grant for three- to five-year bonds,
depending on the expected term; volatility range approximating 64.9%,
depending on the grant date; and an expected term of ten years.
29
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
NOTE U - EMPLOYEE BENEFIT PLAN
In January 1998, the Company adopted a defined contribution 401(k) plan
which covers substantially all of its eligible employees. The maximum
employee contribution allowed is 15% of compensation or $13,000 in 2004
or $12,000 in 2003, whichever is lower. The Company is not required to
contribute to the 401(k) plan. The Company made discretionary
contributions of approximately $10,000 and $2,000 for 2004 and 2003,
repectively.
NOTE V - SUBSEQUENT EVENTS
On February 28, 2005 the Company entered into a loan agreement (the
"Note") with Western National Bank, Midland, Texas. The Note is a
certain Revolving Line of Credit in an amount of $5,000,000. Under the
Note, the Bank may, but is not obligated to advance more than
$2,500,000. Borrowings under the Note are subject to a borrowing base
equal to the lessor amount of: (a) $5,000,000 or (b) seventy-five
percent (75%) of the eligible customer receivables of the Company and
its subsidiary W Power. The Note bears a variable interest rate equal
to the Prime Rate, defined as the prime rate in the money rate table of
THE WALL STREET JOURNAL, a Dow Jones publication, as of each business
day. Interest is computed on the unpaid principal balance of the Note
and is due and payable as it accrues monthly, commencing March 31,
2005, and thereafter on the last day of each and every succeeding month
until maturity, March 31, 2008, when the entire amount of the Note,
principal and accrued, unpaid interest, shall be due and payable. The
Note is secured by a security agreement to all of the accounts
receivable of W Power. In addition, the Note is guaranteed by certain
accredited investors which guarantees are partially secured by letters
of credit. The loan agreement also contains other customary conditions
and events of default, the failure to comply with, or occurrence of,
would prevent any further borrowings and would generally require the
repayment of any outstanding borrowings along with accrued interest
under the loan agreement. The proceeds from the Note are intended to be
used to fund potential capital requirements in order to facilitate the
growth of the Company's retail electric provider subsidiary, W Power,
and for general corporate purposes.
On February 3, 2005, the Company finalized an agreement involving a
private placement under Regulation D of a new series of preferred stock
(the "Series C Preferred") and common stock purchase warrants (the
"Warrants") to accredited investors (the "Purchase Agreement"). The
Company closed the sale and issuance of 125,000 Series C Preferred and
250,000 Warrants pursuant to the Purchase Agreement, as amended by the
Second Amendment (the "Amended Purchase Agreement"), on March 1, 2005.
The purchase price consisted of a total of $2 million in cash and
limited guaranties from the investors in favor of Western National Bank
covering the credit facility described above. No underwriting discounts
or commissions were paid in connection with this issuance. Certain
facts related to the exemption from registration of the issuance of the
securities under securities law are set forth in the Amended Purchase
Agreement as representations of the investors, including without
limitation their investment intent, their status as accredited
investors, the information provided to them, the restricted nature of
the securities, and similar matters.
30
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
The Series C Preferred ranks equally to the Company's outstanding
Series A Preferred Stock (the "Series A Preferred") and the outstanding
Series B Preferred Stock (the "Series B Preferred") and prior to the
Common Stock, par value $.01 per share, of the Company (the "Common
Stock") upon liquidation of the Company. The Series A Preferred, Series
B Preferred, Series C Preferred and the Common Stock are equal as to
the payment of dividends. Each share of Series C Preferred is
convertible into four shares of Common Stock, for a total of 500,000
shares, subject to adjustment pursuant to anti-dilution provisions. The
Warrants are exercisable into a total of 250,000 shares of Common Stock
at an initial exercise price of $4.00 (also subject to adjustment
pursuant to anti-dilution provisions), and expire three years from the
date of issuance. The complete terms of the securities are set forth in
the Certificate of Designation and form of Warrant, which are attached
hereto as exhibits.
To assure that the Company is in full compliance with Nasdaq
marketplace rules, (i) the conversion of the Series C Preferred and the
exercise of the Warrants are subject to a cap in the number of shares
of Common Stock issuable upon such conversion or exercise equal to
twenty percent (20%) of the number of shares of Common Stock
outstanding on March 1, 2005 unless and until the issuance and sale of
the Series C Preferred and the Warrants are approved by the
stockholders of the Company under such rules of the Nasdaq Stock
Market, (ii) the officers and directors purchasing securities under the
Amended Purchase Agreement (being Eric Oliver, Jon Morgan and Bruce
Edgington) are further restricted from converting or exercising the
purchased securities until the transaction is approved by the
stockholders of the Company or they exchange the purchased securities
for similar securities with a greater conversion/exercise price, and
(iii) the voting rights of the Series C Preferred are limited and
restricted as set forth in the Certificate of Designation.
31
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
NOTE W - QUARTERLY FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - QUARTERLY (UNAUDITED)
2004
Quarter Ended
March 31 June 30 September 30 December 31 Total
------------ ---------- ----------- ---------- ----------
Rental revenue $ 1,074,301 1,073,582 1,107,570 1,054,433 4,309,886
Operating expenses, excluding
start-up costs 785,803 839,083 840,326 1,012,655 3,477,867
Start-up costs -- -- 79,660 77,181 156,841
----------- ---------- ---------- ---------- ----------
785,803 839,083 919,986 1,089,836 3,634,708
----------- ---------- ---------- ---------- ----------
Net income from operations 288,498 234,499 187,584 (35,403) 675,178
Gain on sale of assets -- -- -- 905,118 905,118
Interest expense (133,409) (147,183) (146,518) (152,377) (579,487)
Other income (expense) 20,333 18,197 18,628 22,126 79,284
----------- ---------- ---------- ---------- ----------
(113,076) (128,986) (127,890) 774,867 404,915
----------- ---------- ---------- ---------- ----------
Net income before income taxes
and minority interest 175,422 105,513 59,694 739,464 1,080,093
Income taxes -- -- -- -- --
Minority interest (82,815) (76,420) (73,062) (46,541) (278,838)
----------- ---------- ---------- ---------- ----------
NET INCOME $ 92,607 29,093 (13,368) 692,923 801,255
=========== ========== ========== ========== ==========
Net income per share - basic $ 0.04 0.01 (0.01) 0.32 0.36
=========== ========== ========== ========== ==========
Net income per share - diluted $
0.03 0.01 (0.01) 0.23 0.26
=========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding - basic 2,201,356 2,201,356 2,201,356 2,201,356 2,201,356
=========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding -
diluted 3,051,079 3,051,079 2,201,356 3,051,120 3,051,120
=========== ========== ========== ========== ==========
32
AMEN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004 AND 2003
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - QUARTERLY (UNAUDITED)
2003
Quarter Ended
March 31 June 30 September 30 December 31 Total
------------ ---------- ----------- ---------- ----------
Rental revenue $ 1,071,271 1,088,162 1,091,741 1,093,925 4,345,099
Operating expenses, excluding
start-up costs 676,367 826,683 788,812 875,601 3,167,463
----------- ---------- ---------- ---------- ----------
Net income from operations 394,904 261,479 302,929 218,324 1,177,636
Interest expense (193,000) (154,264) (153,562) (153,493) (654,319)
Other income (expense) 47,214 34,275 49,704 153,133 284,326
----------- ---------- ---------- ---------- ----------
(145,786) (119,989) (103,858) (360) (369,993)
----------- ---------- ---------- ---------- ----------
Net income before income taxes
and minority interest 249,118 141,490 199,071 217,964 807,643
Income taxes -- -- -- -- --
Minority interest (142,636) (96,549) (102,191) (74,438) (415,814)
----------- ---------- ---------- ---------- ----------
NET INCOME $ 106,482 44,941 96,880 143,526 391,829
=========== ========== ========== ========== ==========
Net income per share - basic $ 0.05 0.02 .04 0.08 0.19
=========== ========== ========== ========== ==========
Net income per share - diluted $
0.04 0.02 .03 0.04 0.13
=========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding - basic 1,992,056 2,047,256 2,201,356 2,111,328 2,111,328
=========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding -
diluted 2,841,779 2,896,979 3,051,079 2,961,051 2,961,051
=========== ========== ========== ========== ==========
33