UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 2
(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
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
303 West Wall St., Suite 2300
Midland, TX 79701
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(Address or Principal Executive Offices) (Zip Code)
432-684-3821
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Issuer's telephone number, including area code
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
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Title of each class
Check whether the issuer (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
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Documents Incorporated by Reference
Exhibits to certain of the Company's filings are incorporated by reference as
Exhibits to this Report as set forth in Part III, Item 13.
Portions of the Company's definitive proxy statement for its 2005 annual
shareholders meeting filed before April 29, 2005, are incorporated by reference
in Part III.
Explanatory Note
This Amendment No. 2 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 to include an amendment and restatement of Part II
Item 6 Management's Discussion and Analysis or Plan of Operation, Item 7
Financial Statements, and Item 8a Controls and Procedures. This amendment is
being filed to modify the Company's previously reported financial statements and
management's discussion and analysis to show the disposition of the Lubbock
Building as discontinued operations and to clarify management's evaluation of
its controls and procedures.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Company's audited consolidated financial statements and related footnotes
presented in Item 7.
Overview
AMEN Properties, Inc., (the "Company") is a real estate and energy company
engaged in owning and managing real estate, oil and gas royalties, and energy
related business properties. The Company is a holding company and conducts its
operations through Amen Delaware, LP ("Delaware"); Amen Minerals, LP
("Minerals") and W Power and Light, LP ("W Power"), each being a wholly owned
subsidiary of the Company. The Company owns its present real estate holdings
through Delaware. Delaware owns an approximate 71.35% limited interest in TCTB
Partners, Ltd., which currently owns two commercial office buildings in Midland,
TX. The Company's present oil and gas royalty holdings are through Minerals,
which owns two oil and gas royalty properties, one in Nowata County, Oklahoma
and the other in Hemphill County, Texas. In July 2004, the Company entered the
retail electricity market as a retail electric provider serving both retail and
wholesale customers within the state of Texas through W Power.
Application of Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and
contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an ongoing basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities where that
information is available from other sources. Certain estimates are particularly
sensitive due to their significance to the financial statements. Actual results
may differ significantly from management's estimates.
2
We believe that the most significant accounting policies that involve the use
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
- Impairments,
- Acquisition of operating properties,
- Revenue Recognition,
- Gain recognition on sale of real estate assets,
- Consolidation of variable interest entities,
- Allowance for doubtful accounts and
- Stock Options
Impairments
Real estate and leasehold improvements are classified as long-lived assets held
for sale or long-lived assets to be held and used. In accordance with SFAS No.
144, we record assets held for sale at the lower of carrying value or sales
price less costs to sell. For assets classified as held and used, these assets
are tested for recoverability when events or changes in circumstances indicate
that the estimated carrying amount may not be recoverable. An impairment loss is
recognized when expected undiscounted future cash flows from a Property is less
than the carrying value of the Property. Our estimates of cash flows of the
Properties requires us to make assumptions related to future rental rates,
occupancies, operating expenses, the ability of our tenants to perform pursuant
to their lease obligations and proceeds to be generated from the eventual sale
of our Properties. Any changes in estimated future cash flows due to changes in
our plans or views of market and economic conditions could result in recognition
of additional impairment losses.
If events or circumstances indicate that the fair value of an investment
accounted for using the equity method has declined below its carrying value and
we consider the decline to be "other than temporary," the investment is written
down to fair value and an impairment loss is recognized. The evaluation of
impairment for an investment would be based on a number of factors, including
financial condition and operating results for the investment, inability to
remain in compliance with provisions of any related debt agreements, and
recognition of impairments by other investors. Impairment recognition would
negatively impact the recorded value of our investment and reduce net income.
Acquisition of Operating Properties
We allocate the purchase price of acquired properties to tangible and identified
intangible assets acquired based on their fair values in accordance with SFAS
No. 141, "Business Combinations." We initially record the allocation based on a
preliminary purchase price allocation with adjustments recorded within one year
of the acquisition.
In making estimates of fair value for purposes of allocating purchase price,
management utilizes sources, including, but not limited to, independent value
consulting services, independent appraisals that may be obtained in connection
with financing the respective property, and other market data. Management also
considers information obtained about each property as a result of its
pre-acquisition due diligence, marketing and leasing activities in estimating
the fair value of the tangible and intangible assets acquired.
3
The aggregate value of the tangible assets acquired is measured based on the sum
of (i) the value of the property and (ii) the present value of the amortized
in-place tenant improvement allowances over the remaining term of each lease.
Management's estimates of the value of the property are made using models
similar to those used by independent appraisers. Factors considered by
management in its analysis include an estimate of carrying costs such as real
estate taxes, insurance, and other operating expenses and estimates of lost
rentals during the expected lease-up period assuming current market conditions.
The value of the property is then allocated among building, land, site
improvements, and equipment. The value of tenant improvements is separately
estimated due to the different depreciable lives.
The aggregate value of intangible assets acquired is measured based on the
difference between (i) the purchase price and (ii) the value of the tangible
assets acquired as defined above. This value is then allocated among
above-market and below-market in-place lease values, costs to execute similar
leases (including leasing commissions, legal expenses and other related
expenses), in-place lease values and customer relationship values.
Above-market and below-market in-place lease values for acquired properties are
calculated based on the present value (using a market interest rate which
reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease for above-market leases and the initial term plus the term of
the below-market fixed rate renewal option, if any, for below-market leases. We
perform this analysis on a lease by lease basis. The capitalized above-market
lease values are amortized as a reduction to rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial term
plus the term of the below-market fixed rate renewal option, if any, of the
respective leases.
Management estimates costs to execute leases similar to those acquired at the
property at acquisition based on current market conditions. These costs are
recorded based on the present value of the amortized in-place leasing costs on a
lease by lease basis over the remaining term of each lease.
The in-place lease values and customer relationship values are based on
management's evaluation of the specific characteristics of each customer's lease
and our overall relationship with that respective customer. Characteristics
considered by management in allocating these values include the nature and
extent of our existing business relationships with the customer, growth
prospects for developing new business with the customer, the customer's credit
quality, and the expectation of lease renewals, among other factors. The
in-place lease value and customer relationship value are both amortized to
expense over the initial term of the respective leases and projected renewal
periods, but in no event does the amortization period for the intangible assets
exceed the remaining depreciable life of the building.
Should a tenant terminate its lease, the unamortized portion of the in-place
lease value and the customer relationship value and above-market and
below-market lease values would be charged to expense.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are recognized on a straight-line basis over the terms of the respective
leases. 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.
Gain Recognition on Sale of Real Estate Assets
We perform evaluations of each real estate sale to determine if full gain
recognition is appropriate in accordance with SFAS No. 66, "Accounting for Sales
of Real Estate". The application of SFAS No. 66 can be complex and requires us
to make assumptions including an assessment of whether the risks and rewards of
ownership have been transferred, the extent of the purchaser's investment in the
property being sold, whether our receivables, if any, related to the sale are
collectible and are subject to subordination, and the degree of our continuing
involvement with the real estate asset after the sale. If full gain recognition
is not appropriate, we account for the sale under an appropriate deferral
method.
4
Consolidation of Variable Interest Entities
We perform evaluations of each of our investment partnerships, real estate
partnerships and joint ventures to determine if the associated entities
constitute a Variable Interest Entity, or VIE, as defined under Interpretations
46 and 46R, "Consolidation of Variable Interest Entities," or FIN 46 and 46R,
respectively. In general, a VIE is an entity that has (i) an insufficient amount
of equity for the entity to carry on its principal operations, without
additional subordinated financial support from other parties, (ii) a group of
equity owners that are unable to make decisions about the entity's activities,
or (iii) equity that does not absorb the entity's losses or receive the benefits
of the entity. If any one of these characteristics is present, the entity is
subject to FIN 46R's variable interests consolidation model.
Quantifying the variability of VIEs is complex and subjective, requiring
consideration and estimates of a significant number of possible future outcomes
as well as the probability of each outcome occurring. The results of each
possible outcome are allocated to the parties holding interests in the VIE and,
based on the allocation, a calculation is performed to determine which party, if
any, has a majority of the potential negative outcomes (expected losses) or a
majority of the potential positive outcomes (expected residual returns). That
party, if any, is the VIE's primary beneficiary and is required to consolidate
the VIE. Calculating expected losses and expected residual returns requires
modeling potential future results of the entity, assigning probabilities to each
potential outcome, and allocating those potential outcomes to the VIE's interest
holders. If our estimates of possible outcomes and probabilities are incorrect,
it could result in the inappropriate consolidation or deconsolidation of the
VIE.
For entities that do not constitute VIEs, we consider other GAAP, as required,
determining (i) consolidation of the entity if our ownership interests comprise
a majority of its outstanding voting stock or otherwise control the entity, or
(ii) application of the equity method of accounting if we do not have direct or
indirect control of the entity, with the initial investment carried at costs and
subsequently adjusted for our share of net income or less and cash contributions
and distributions to and from these entities.
Allowance for Doubtful Accounts
Our accounts receivable balance is reduced by an allowance for amounts that may
become uncollectible in the future. Our receivable balance is composed primarily
of rents and operating cost recoveries due from its tenants. We also maintain an
allowance for deferred rent receivables which arise from the straight-lining of
rents. The allowance for doubtful accounts is reviewed at least quarterly for
adequacy by reviewing such factors as the credit quality of our tenants or
members, any delinquency in payment, historical trends and current economic
conditions. If the assumptions regarding the collectibility of accounts
receivable prove incorrect, we could experience write-offs in excess of the
allowance for doubtful accounts, which would result in a decrease in net income.
Stock Options
The Company accounts for its options granted to employees in accordance with APB
25 and SFAS 148. Stock-based awards to non-employees are accounted for under the
provisions of SFAS 123 based on their fair value as determined by the
Black-Scholes option-pricing model. Had compensation expense been determined
based on the fair value of the options at the grant dates consistent with the
method of accounting under SFAS 123, the Company's net income and net income per
share for the years ended December 31, 2004 and 2003 would have been decreased
by approximately $22,000 and $102,000, respectively. See Footnote T to the
Company's Consolidated Financial Statements included herein.
5
Results of Operations
Full Year 2004 Compared to Full Year 2003
For the year ended December 31, 2004, the Company showed a net loss from
continuing operations of $497,990, or $.23 loss per share as compared to
$104,934, or $.05 loss per share for the same period ended December 31, 2003.
The increase in the net loss of $393,056 from 2003 to 2004 is mainly due to the
Company tithing ten percent of net income for the first time in the Company's
history, of approximately $40,000, which is related to 2003's net income, to two
separate National Christian Organizations, Young Life and Campus Crusade for
Christ and an accrual for 2004's tithing of approximately $89,000 to be tithed
during 2005. The Company's By-Laws state the Company will tithe an amount that
will approximate 10% of net income. Additionally during 2004, the Company
entered into the retail electricity market in Texas by forming a new wholly
owned subsidiary, W Power, to compete in the Texas market. The start-up costs
incurred during 2004 associated with the new wholly owned subsidiary were
approximately $157,000. The remaining increase in the net loss from continuing
operations for 2004 as compared to 2003 is related to an increase in operating
expenses.
Rental revenue increased for the period ending December 31, 2004 over the same
period ending December 31, 2003 by approximately $49,000. The increase is mainly
due to the Company's purchase of a twelve floor multi-tenant office building in
downtown Midland through its 71.348013% limited partnership interest in TCTB,
and is partially offset with a decrease in parking permits issued to tenants in
the surrounding buildings in downtown Midland. During 2004, the Company, through
its limited partnership interest in TCTB, purchased a twelve story high rise
building with 99,422 rentable square feet on July 30, 2004 in downtown Midland.
The rental revenue by the Company received from the newly acquired building for
the year ended December 31, 2004 was approximately $89,000. The building is
approximately 41% occupied at December 31, 2004.
Total operating expenses for the years ended December 31, 2004 and 2003 were
$2,342,083 and $2,004,028, respectively. The increase of $338,055 in operating
expense is related to several factors. As mentioned above, the Company tithed
approximately $129,000 during 2004. Additionally, the Company's purchase of a
twelve story high rise building with 99,422 rentable square feet on July 30,
2004 increased the operating expenses by approximately $88,000. The Company also
paid expenses of approximately $157,000 in start-up costs associated with W
Power (see note M of the Financial Statements). The remaining difference in the
operating costs relate to a decrease in expenses incurred by TCTB to operate the
buildings.
Other income (expense) for the years ended Decembers 31, 2004, and 2003 were
$(500,205) and ($370,424), respectively for a net change of $129,781. For the
year ended December 31, 2004, a decrease in interest rates saved approximately
$75,000. The savings is mainly due to a decline in the interest rate on certain
notes incurred with the Company's initial purchase of its limited partnership
interest in TCTB (see note N to the Financial Statements for further discussion)
from 4.9% to 4.15% for the first nine months for the year ended December 31,
2004. The notes are adjusted every October 1 to equal the prime rate plus 15
basis points. Beginning October 1, 2004, the newly adjusted rate was 4.9%.
Additionally, during the year ended December 31, 2003, the Company incurred
approximately $42,000 in preferred stock dividends. Effective March 31, 2003,
the preferred stock dividends were suspended and effectively eliminated by
shareholder vote at the 2004 stockholder meeting on May 18, 2004. During the
year ended December 31, 2003, the Company owned an investment in a certain
royalty investment trust and received approximately $83,000 in royalty income
and subsequently realized a gain of approximately $120,000 on the sale of this
royalty investment.
6
Minority interest expense for the year ended December 31, 2004 and 2003 was
$117,331 and $142,725, respectively, and reflects the minority interest owners
of TCTB. The decrease in minority interest is related to the Company's purchase
of an additional 6.485533% interest in TCTB effective January 1, 2004.
Discontinued operations are related to the Company selling its undivided
interest in the Lubbock building that was distributed to the TCTB Partners
according to the partnership sharing ratios (see note C of the Financial
Statements). The sale resulted in the Company realizing a gain of $905,118.
Liquidity and Capital Resources
During the years ended December 31, 2004 and 2003, net cash provided by
operating activities was $707,638 and $1,185,321 respectfully. The net decrease
of approximately $480,000 provided by operating activities is mainly associated
with the sale of the Lubbock building, corporate tithing and the Company funding
a new start-up Company. The Company was required to write off approximately
$75,000 in escalated leases associated with the sale of the Lubbock building in
December of 2004. Additionally, utility expense for the Lubbock building during
2004 increased approximately $79,000 due to rising energy costs. In April 2003,
the Company received a one time cash payment of $238,871 from a tenant in the
Lubbock building which represented a prepayment of a build out loan between the
tenant and TCTB, and was structured and recognized as additional rent. Due to
the deferral of the prepayment over the term of the lease the Company included
approximately $180,000 of deferred revenue in the distribution of the Lubbock
building. In 2004, the Company was able to tithe approximately $40,000 as
required by the Company's By-Laws. In 2004, the Company formed its start-up and
development subsidiary, W Power, by funding approximately $157,000 in start-up
costs. The remaining decrease in operating income is mainly due to an increase
in operating expenses associated with the operations of the Midland buildings
and the Lubbock building, which was sold on December 31, 2004. The Company's
commitment to fund its start-up and development of W Power will continue to
require significant amounts of cash.
Net cash provided by investing activities was $938,241 and $214,741 for the
years ended December 31, 2004 and 2003, respectively. The net cash provided by
investing activities in 2004 is mainly due to the proceeds of $3,924,141
received by the Company on the sale of its undivided interest in the Lubbock
building. Purchases of investments for the year ended December 31, 2004 include
a $2,100,000 certificate of deposit with Wells Fargo Bank Texas, N.A This
certificate of deposit was required by Wells Fargo, N.A. in order for the
Company to obtain the Bank's release of its lien on the Lubbock building and is
pledged by TCTB to the bank as additional collateral. During 2004, the Company
paid $436,500 for the new Century Plaza Tower in Midland, Texas. The net cash
provided by in investing activities for 2003 is mainly investments in marketable
securities and bonds.
Net cash used in financing activities was $239,506 and $199,718 for the years
ended December 31, 2004 and 2003, respectively. The net cash used in financing
activities consist primarily of repayments of notes payable of approximately
$224,209 in 2004 and $175,467 in 2003. Minority interest distributions for the
years ended December 31, 2004 and 2003, were $129,905 and $13,967, respectively,
and are related to the minority interest owners in TCTB. Additionally, the
minority interest owners in TCTB made contributions in the amount of $114,608
during 2004.
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $29 million. This NOL is related to the Company's operations prior to
the Company presenting the 2002 business plan to shareholders. Management
believes the present value of this NOL is between at $2.5 to $5 million and has
been diligent in its efforts to ensure its preservation and utilization. The
Company was able to offset 2003's taxable income against the NOL and fully
expects to offset the Company's 2004 income against the NOL.
At December 31, 2004, the Company had working capital and investments of
$1,933,918 comprised of cash of $4,147,900, accounts receivable of $72,735,
other current assets of $77,399, and long-term investments of $62,350, less
current liabilities if $2,426,466. The long-term investments of $62,350
primarily relate to the Company's ownership of 10,000 units of a royalty trust.
7
On January 4, 2005, the Company paid principal and interest totaling $1,681,346
on promissory notes. The promissory notes were originally issued as part of the
Company's purchase of its interest in TCTB. On February 28, 2005, the Company
entered into a loan agreement with Western National Bank, Midland, Texas. The
loan agreement is a certain Revolving Line of Credit in an amount of $5,000,000.
Under the loan agreement the Bank may, but is not obligated to, advance more
than $2,500,000 and borrowings under the loan agreement are subject to a
borrowing base equal to the lesser amount of: (a) $5,000,000 or (b) seventy-five
percent (75%) of the eligible customer receivables of the Company and its
subsidiary W Power. The loan agreement is secured by a security agreement to all
of the accounts receivable of W Power. In addition, the loan agreement is
guaranteed by certain accredited investors whose guarantees are partially
secured by letters of credit. On March 1, 2005, the Company closed the sale and
issuance of the Series C Preferred stock and Warrants pursuant to a Securities
Purchase Agreement for a total purchase price of $2,000,000 in cash and limited
guaranties from the investors in favor of Western National Bank covering the
certain Revolving Line of Credit entered into by and between the Company and
Western National Bank. The Company believes this level of working capital plus
cash flow from operations will be sufficient to meet the Company's anticipated
needs over the next twelve months. See the discussion below in 2005 Outlook for
further detail of expected cash flow. There can be no assurance that current
working capital will be sufficient to meet the Company's needs or that
additional financing will be available to the Company or that such financing
will be available on acceptable terms.
The Series C Preferred Stock discussed above ranks equally to the Company's
outstanding Series A Preferred Stock and Series B Preferred Stock, and the
issuance of the Series C required the consent of the holders of the Company's
Series A and B Preferred Stock, which was obtained in January 2005. The consent
document also included an amendment of each such holder's Stock Purchase
Agreement eliminating certain securities registration obligations of the
Company. The Series C Preferred Stock is convertible into a total of 500,000
shares of the Company's Common Stock and the Warrants are exercisable into a
total of 250,000 shares of the Company's Common Stock, both subject to
adjustment pursuant to anti-dilution provisions. However, in compliance with the
Marketplace Rules of the NASDAQ Stock Market, the conversion and exercise rights
related to the Series C Preferred and the Warrants are restricted and limited to
a number of shares of the Company's Common Stock equal to 20% of the number of
shares of Common Stock outstanding on the closing date of the transaction unless
and until the issuance and sale of the Series C Preferred and the Warrants are
approved by the stockholders of the Company. Also in compliance with the NASDAQ
Rules, the officers and directors of the Company who purchased shares of the
Series C Preferred Stock and the Warrants, Eric Oliver, Jon Morgan and Bruce
Edgington, are further restricted from converting or exercising those securities
until the transaction is approved by the stockholders of the Company or they
exchange those securities for similar securities with a greater
conversion/exercise price. The Company intends to solicit such stockholder
approval in accordance with the NASDAQ Rules at the Company's next annual
stockholders meeting. Additional information relating to this transaction is set
forth in the Company's Current Report on Form 8-K filed on March 4, 2005, and in
Note V to the consolidated financial statements included herein.
2005 OUTLOOK
The following information is presented based upon the Company's knowledge of our
current real estate operations and our projections for W Power. This information
is not presented in accordance with generally accepted accounting principles,
which require us to fully consolidate TCTB, showing 100% of its revenues and
expenses and subtracting the minority interest in TCTB. Instead, the following
reflects information net to AMEN's interest. The net effect to AMEN, however,
should be approximately the same.
Anticipated operations for W Power - The Company's business model for W Power in
2005, anticipates capital requirements of approximately $2,200,000 to finance
start-up costs, electricity procurements and capital requirements. The Company's
business model leads management to expect earnings from operations, before
income tax, depreciation and amortization, to be positive for 2005. The Company
believes that it has positioned itself to meet the expected capital requirements
of W Power with (1) the use of the proceeds from the sale of the Lubbock
building, (2) the use of proceeds from the issuance of the Series C Preferred
Stock and (3) borrowings under the loan agreement with Western National Bank,
8
Midland, Texas. Under the loan agreement, the Bank may, but is not obligated, to
advance more than $2,500,000. Borrowings under the loan agreement are subject to
a borrowing base equal to the lesser amount of $5,000,000 or seventy-five (75%)
of the eligible customer receivables of the Company and its subsidiary W Power.
W Power's projected accounts receivable balances for 2005 will allow the Company
to utilize the loan agreement with Western National Bank. Utilization of the
loan when coupled with W Power's anticipated monthly cash receipts are expected
to facilitate W Power in funding electricity procurement and capital
requirements. The Company believes its sources of funding will be adequate to
meet W Power's future growth and cash flow requirements through 2005.
Management's business model for W Power anticipates gross billings for retail
electricity to be approximately $8,800,000 in 2005 with cash receipts
approximating $6,825,000. Additionally, the projection for the total delivered
commodity cost is approximately $7,683,000. Cash expenditures for general and
administrative costs related to W Power are estimated to be approximately
$840,000. Additionally, W Power is required to meet certain credit requirements
with wholesale electricity providers, management estimates these collateral
requirements to be approximately $497,000, resulting in a net cash outlay for
2005 to be approximately $2,195,000.
Current real estate operations - Based primarily upon historical performance of
the Bank of America Tower in Midland Texas, the Company anticipates TCTB
operating results in 2005 to produce approximately $286,978 in positive cash
flow from operations, net to AMEN's 71.348% ownership. As discussed above,
generally accepted accounting principles require us to fully consolidate TCTB,
showing 100% of its revenues and expenses and subtracting the minority interest
in TCTB. Instead, the following reflects information net to the Company's
interest of 71.348%. The net effect to the Company, however, should be
approximately the same. TCTB's cash flow is generated from tenant leases and the
expected gross receipts for 2005 are expected to be approximately $1,700,000.
TCTB's real estate operating expenses for 2005 are expected to be approximately
$638,000. TCTB's general and administrative costs are expected to be $213,000,
current annual interest expense related to the Wells Fargo Note approximates
$320,000 and property taxes are anticipated to be $135,000. TCTB estimates
spending approximately $107,000 in capital improvements on the Midland buildings
in 2005, and these expenditures are expected to be mainly associated with tenant
improvements and/or build outs. TCTB is expected to produce approximately
$287,000 in positive cash flow.
Regarding anticipated cash outflows in 2005 for the corporate expenses, we are
estimating total cost to maintain our public company status to be approximately
$250,000 annually, which includes NASDAQ fees, audit fees, legal expenses,
public filing fees, directors and officers insurance and costs related to the
annual shareholders meeting. Because the majority of our officers have agreed
not to take a salary, our corporate general and administrative cash outlays are
expected to be $210,000. This amount is mainly cash outlays for salary and
benefits for our Chief Financial Officer and the Company's corporate tithing.
The Wells Fargo Note prohibits distributions, without the consent of the bank,
from TCTB to limited partners, except for the limited partners' tax liability.
Currently, the Company does not anticipate TCTB making any distributions in 2005
for the limited partner's 2004 tax liability. Taking into account the Company's
net beginning working capital and investments of $1,933,918; adding $2,000,000
from the private placement of the Series C Preferred Stock; expected draws of
approximately $1,850,000 on the Company's line of credit secured by W Power's
accounts receivable, and subtracting the net cash outlays of approximately
$2,368,022 the Company estimates it will have approximately $3,415,896 in net
working capital at the end of 2005.
The expected 2005 results discussed above, contemplate our current operations in
our real estate operations performing consistent with their historical
performance and our anticipated W Power operations are dependent upon
management's W Power business model. While management of the Company believes
that its current views and expectations are based upon reasonable assumptions,
there are significant risks and uncertainties that could significantly affect
expected results. Important factors that could cause actual results to differ
materially from those in the projections and estimates include, without
limitation, the risk factors referenced below under "Risk Factors", and many of
those factors are beyond the Company's control. The foregoing information is
9
expressly qualified in its entirety by such factors. You should expect the
assumptions and related estimates to change as additional information becomes
available. However, the Company does not intend to update or otherwise revise
the projections and estimates provided to reflect events or circumstances after
the date of this report. Actual results may differ materially from the
projections and estimates provided.
As mentioned above, we have not abandoned our 2002 business plan, and should an
acquisition present itself to management, expenditures and required resources
could change significantly. The Company's ability to raise funds required to
make any contemplated acquisition is somewhat hindered, due to NOL utilization
rules contained in Section 382 of the Internal Revenue Code and the anticipated
capital needs of a growing W Power. However, if management determines that an
opportunity would be more valuable to the shareholders than the NOL or the
leverage we could obtain with W Power, we would recommend pursuing the deal and
would consider issuing equity to do so.
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 summarized below.
Risk Factors
Lack of Operating History
In recent years, the Company has substantially changed its business plan. As a
result, the Company's operating history under its current business plan is
limited. In addition, one of the Company's subsidiaries is a recent start-up
electricity retail business. Such limited operating history of the Company and
its subsidiaries may not provide sufficient information for Purchasers to base
an evaluation of likely performance.
Dependence On Key Personnel
The Company depends to a large extent on the services of its executive officers
and the officers and managers of its subsidiaries. Particularly, the Company's
newest subsidiary, an electricity retail business, is heavily dependent upon the
knowledge and expertise of the President of the subsidiary. The loss of the
services of any of those persons could have a material adverse effect on the
Company and its subsidiaries.
Competition
The Company and its subsidiaries encounter substantial competition in acquiring
rental property and oil and gas royalties, leasing rental space, and securing
trained personnel. Most competitors have substantially larger financial
resources, staffs and facilities than the Company and its subsidiaries, and the
Company and its subsidiaries may be at a significant disadvantage in many
competitive situations. See also "Reliance Upon New Business - The Retail
Electricity Market is Highly Competitive."
10
Adverse Market Conditions
The economic performance and value of the Company's properties are subject to
all of the risks associated with owning and operating real estate, including
-- changes in the national, regional and local economic climate
-- the attractiveness of our properties to tenants
-- the ability of tenants to pay rent
-- competition from other available properties
-- changes in market rental rates
-- the need to periodically pay for costs to repair, renovate and
re-let space
-- changes in operating costs, including costs for maintenance,
insurance and real estate taxes
-- changes in laws and governmental regulations, including those
governing usage, zoning, the environment and taxes
Failure By Tenants To Make Rental Payments
The performance of the Company's real estate investments will depend on our
ability to collect rent from tenants. At any time our tenants may experience a
change in business conditions or a downturn in their business that may
significantly weaken their financial condition. As a result, our tenants may
delay a number of lease commencements, decline to extend or renew a number of
leases upon expiration, fail to make rental payments when due under a number of
leases, close a number of offices or declare bankruptcy. Any of these actions
could result in the termination of the tenants' leases and the loss of rental
income.
Acquisitions Of Properties May Not Yield Expected Returns
Newly acquired properties may fail to perform as expected. Management may
underestimate the costs necessary to bring acquired properties up to standards
established for their intended market position. In addition, we may not achieve
expected cost savings and planned operating efficiencies. Acquired properties
may not perform as well as we anticipate due to various factors, including
changes in macro-economic conditions and the demand for office space or oil and
gas royalties. As the Company grows, we have to invest further in overhead to
assimilate and manage a portfolio of potentially unrelated properties.
We may face significant competition for acquisitions of properties, which may
increase the costs of acquisitions. We may compete for acquisitions of, and
investments in, properties with an indeterminate number of investors, including
investors with access to significant capital such as domestic and foreign
corporations and financial institutions, publicly traded and privately held
REITs, private institutional investment funds, investment banking firms, life
insurance companies and pension funds. This competition may increase prices for
the types of properties in which we invest. In addition, the cost and
availability of capital necessary to increase our asset base and revenue
generating capability is difficult to predict and in and of itself may be a
barrier to pursuing future acquisitions.
The Company's Asset Investments Are Illiquid
Real estate property investments and oil and gas royalties generally cannot be
disposed of quickly. The Company's recent start-up electricity retail business
is also illiquid. Therefore, we may not be able to vary our mix of assets or
achieve potentially required liquidity in response to economic or other
conditions promptly or on favorable terms.
Some Potential Losses May Not Be Covered By Insurance
The Company carries insurance on our properties that we consider appropriate and
consistent with industry practices. Though we plan to assure to the best of our
ability that policy specifications and insured limits of these policies are
adequate and appropriate, there may be however, certain types of losses,
11
including lease and other contract claims, acts of war, acts of terror and acts
of God that generally may not be insured. Should an uninsured loss or a loss in
excess of insured limits occur, we could lose all or a portion of the capital we
have invested in a property, as well as the anticipated future revenue from the
property. If that happened, we might nevertheless remain obligated for any
mortgage debt or other financial obligations related to the property. Though we
plan to maintain insurance policies with carriers with sufficient assets and
capital to cover all insured perils, there may be however, failures or
receiverships of carriers providing insurance to the Company. If this occurs,
the Company could be essentially without coverage for perils and losses.
Ability To Service Long-Term Debt
Certain of the Company's activities are subject to risks normally associated
with debt financing. The timing and amount of cash flows could be insufficient
to meet required payments of principal and interest. We may not be able to
refinance acquired debt, which in virtually all cases requires substantial
principal payments at maturity, and, even if we can, refinancing might not be
available on favorable terms. If principal payments due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions,
including new equity capital, cash flow may not be sufficient in all years to
repay all maturing debt. Prevailing interest rates or other factors at the time
of refinancing, including the possible reluctance of lenders to make commercial
real estate loans, may result in higher interest rates and increased interest
expenses.
Potential Environmental Liabilities
Under various environmental laws, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances, including asbestos-containing materials that are located on
or under the property. Specific asbestos remediation has taken place in certain
of our rental buildings. Environmental laws often impose liability whether the
owner or operator knew of, or was responsible for, the presence of those
substances. In connection with our ownership and operation of properties, we may
be liable for these costs, which could be substantial. Also, our ability to
arrange for financing secured by that real property might be adversely affected
because of the presence of hazardous or toxic substances or the failure to
properly remediate any contamination. In addition, we may be subject to claims
by third parties based on damages and costs resulting from environmental
contamination at or emanating from our properties.
Non-Compliance With The Americans With Disabilities Act ("ADA")
Under the ADA, all public accommodations are required to meet certain federal
requirements related to physical access and use by disabled persons. While we
believe our properties comply in all material respects with these physical
requirements or would be eligible for applicable exemptions from material
requirements because of adaptive assistance provided, a determination that we
are not in compliance with the ADA could result in the imposition of fines or an
award of damages to private litigants. If we were required to make modifications
to comply with the ADA, our ability to meet financial obligations could be
adversely affected.
Potential Adverse Effects On Our Net Operating Loss ("NOL")
There are significant limitations of utilization of the NOL under applicable tax
law as it relates to a change in ownership among five-percent (5%) owners
exceeding fifty percent (50%), and a business continuity test. If we are unable
to meet these standards, utilization of the NOL could be limited or reduced to
zero.
12
Volatility Of Oil And Gas Prices
Anticipated results from our oil and gas royalty investments are substantially
dependent on prices of oil and gas. Prices for oil and gas are subject to large
fluctuations in response to relative minor changes in the supply of, and demand
for, oil and gas, market uncertainty and a variety of additional factors beyond
our control. These factors include weather conditions, the economy, actions of
the government regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial extended decline in the
price of oil and gas could have an adverse impact on our revenue generating
capability.
Uncertainty Of Estimated Oil and Gas Reserves
Estimates of economically recoverable oil and gas reserves are based upon a
number of variable factors and assumptions, which are speculative and not under
our control. Actual production and reserve data used to value future
acquisitions will be estimates only and will be subject to uncertainties.
Estimated quantities of oil and natural gas may differ considerably from amounts
actually recovered and thus future cash flows could be impaired or accelerated
beyond management's expectations.
Availability of Capital Resources
Currently, the Company's capital resources are expected to be limited to the
recent sale proceeds obtained through the sale of the Purchased Securities, net
proceeds from the sale of real estate, borrowings under its new credit facility
with Western National Bank and the net income from operations of the Company and
its Subsidiaries. In the event our current capital resources are insufficient to
fund our operations and capital expenditures, the Company may be forced to seek
other sources of financing, including without limitation, incurrence of debt and
issuances of additional equity securities. There can be no assurance that such
financing will be available on terms acceptable to the Company or on any terms.
If additional financing is not available, it will have a material adverse effect
on our operations.
Reliance Upon New Business
The Company recently formed a new Subsidiary, W Power and Light, LP, to commence
operations in the electricity retail business. In addition to the general risks
discussed above, this new business is subject to additional risks including
those discussed below.
The Retail Electricity Market Is Highly Competitive.
The market for retail electricity customers is very competitive. In certain
markets, our principal competitors include the local regulated electric utility
or its non-regulated affiliate. In other markets, we face competition from
independent electric providers, independent power producers and wholesale power
providers. In most cases, our competitors have the advantage of long-standing
relationships with customers, longer operating histories and/or larger and
better capital resources. As a result, it may not be profitable for us to enter
into some markets and our ability to increase market share may be hindered.
In general, we compete on the basis of price, our commercial and marketing
skills relative to other market participants, service and our financial
position. Other factors affecting our competitive position include our ability
to obtain electricity for resale and related transportation/transmission
services. Since many of our energy customers, suppliers and transporters require
financial guarantees and other assurances regarding contract performance, our
access to letters of credit, surety bonds and other forms of credit support is
another factor affecting our ability to compete in the market.
Our Business Is Subject to Market Risks.
Unlike a traditional regulated electric utility, we are not guaranteed a rate of
return on our capital investments. Our results of operations, financial
condition and cash flows depend, in large part, upon prevailing market prices
for electricity in our markets and the impact of regulatory decisions on prices
13
charged to our retail customers. Market prices may fluctuate substantially over
relatively short periods of time, potentially adversely affecting our business.
Changes in market prices for electricity may result from the following factors
among others:
-- weather conditions;
-- seasonality;
-- demand for energy commodities;
-- general economic conditions;
-- forced or unscheduled interruptions in electricity available;
-- disruption of electricity transmission or transportation,
infrastructure or other constraints or inefficiencies;
-- financial position of market participants;
-- changes in market liquidity;
-- natural disasters, wars, embargoes, acts of terrorism and
other catastrophic events; and
-- governmental regulation and legislation.
Dependence Upon Third Party Providers.
The Company does not own any generating resources to supply electricity for our
retail business in this market. As a result, we must purchase all of the
generation capacity necessary to supply our retail energy business from third
parties. In addition, we depend on power transmission and distribution
facilities owned and operated by utilities and others to deliver energy products
to our customers. If transmission or distribution is inadequate or disrupted,
our ability to sell and deliver our products may be hindered. Any infrastructure
failure that interrupts or impairs delivery of electricity could have an adverse
effect on our business.
We are dependent on the transmission and distribution utilities for reading our
customers' energy meters. We also rely on the local transmission and
distribution utility or, in some cases, the independent system operator, to
provide us with our customers' information regarding energy usage; and we may be
limited in our ability to confirm the accuracy of the information. If we receive
incorrect or untimely information from the transmission and distribution
utilities, we could have difficulty properly billing our customers and
collecting amounts owed to us. Failure to receive correct and timely information
could have an adverse effect on our business.
Regulation of Electricity Retail Business.
The Company's electricity retail business operates in a regulatory environment
that is undergoing significant changes as a result of varying restructuring
initiatives at both the state and federal levels. We cannot predict the future
direction of these initiatives or the ultimate effect that this changing
regulatory environment will have on our business. Moreover, existing regulations
may be revised or reinterpreted and new laws and regulations may be adopted or
become applicable to our facilities or our commercial activities. Such future
changes in laws and regulations may have an adverse effect on our business.
Regulators, regional transmission organizations and independent system operators
have imposed and may continue to impose price limitations, bidding rules and
other mechanisms in an attempt to address price volatility and other issues in
power markets. If the trend toward competitive restructuring of the power market
is reversed, discontinued or delayed, our business growth prospects and
financial results could be adversely affected.
Reliance on ERCOT.
ERCOT is responsible for handling scheduling and settlement for all electricity
supply volumes in the ERCOT Region. ERCOT plays a vital role in the collection
and dissemination of metering data from the transmission and distribution
utilities to the retail electric providers. We and other retail electric
providers schedule volumes based on forecasts, which are based, in part, on
information supplied by ERCOT. To the extent that these amounts are not accurate
or timely, we could have incorrectly estimated our scheduled volumes and supply
costs.
14
In the event of a default by a retail electric provider of its payment
obligations to ERCOT, the portion of the obligation that is unrecoverable by
ERCOT is assumed by the remaining market participants in proportion to each
participant's load ratio share. We would pay a portion of the amount owed to
ERCOT should such a default occur if ERCOT is not successful in recovering such
amount. The default of a retail electric provider in its obligations to ERCOT
could have an adverse effect on our business.
Our Strategic Plans May Not Be Successful.
The Company's retail energy business operates in the deregulated segments of the
electric power industry. The success of our long-term strategic plans are
predicated upon the continuation of the trend toward greater competitive markets
in this industry. If the trend towards competitive restructuring of the electric
power industry is reversed, discontinued or delayed, our business could be
adversely affected.
Non-Performance By Counterparties.
Our operations are exposed to the risk that counterparties who owe us money or
commodities and services will not perform their obligations. When such parties
fail to perform their obligations, we might be forced to replace the underlying
commitment at then-current market prices. In this event, we could incur reduced
operating results or losses.
THE FOREGOING SUMMARY OF CERTAIN CONSIDERATIONS AND RISKS DO NOT PURPORT TO BE A
COMPLETE EXPLANATION OF THE RISKS INVOLVED IN THIS INVESTMENT. PROSPECTIVE
INVESTORS SHOULD READ SEC FILINGS AND OTHER INFORMATION PROVIDED BY THE COMPANY
BEFORE DETERMINING TO INVEST IN THE SECURITIES.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements prepared in accordance with Regulation S-B are included
in this report commencing on page 22.
ITEM 8a. CONTROLS AND PROCEDURES
The Company has carried out an evaluation under the supervision of management,
including the Chairman and Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
Chairman and Chief Executive Officer and Chief Financial Officer have concluded
that, as of December 31, 2004, the Company's disclosure controls and procedures
were effective to ensure that information required to be disclosed by the
Company in the reports filed or submitted by it under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC, and include
disclosure controls and procedures designed to ensure that information required
to be disclosed by the Company in such reports is assembled and reported to the
Company's management, including the Chairman and Chief Executive Officer and the
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.
Based on that evaluation, the Company's Chairman and Chief Executive Officer
and Chief Financial Officer have concluded that, and have reported to the Audit
Committee of the Company's Board of Directors that, management has identified
certain deficiencies in the disclosure controls and procedures. The deficiencies
noted were (a) a lack of documented control procedures (b) the lack of
segregation of duties and (c) insufficient supervision of the Company's
accounting personnel. The Company believes such deficiencies were primarily
attributable to the transition the Company went through during the end of 2002
and 2003, changes in personnel within the accounting department and the Company
15
currently having one full time employee at the corporate level. Management
believes that the deficiencies noted above do not materially interfere with the
Company's timely disclosure of information required to be disclosed by the
Company in reports filed or submitted under the Exchange Act 1934, as amended,
because accounting personnel and a member of management have first-hand
knowledge of the daily transactions of the Company and that first-hand knowledge
enables such personnel to accumulate and communicate such information to the
Company's management, including its principal executive and principal financial
officers as appropriate to allow timely decisions regarding disclosure.
Therefore, the Company believes that its disclosure controls and procedures are
sufficient to provide reasonable assurance that the information required to be
disclosed by the Company in reports filed or submitted by it under the
Securities Exchange Act of 1934, as amended is recorded, processed, summarized
and reported with in the time period specified in the rules and forms of the
SEC, notwithstanding the deficiencies noted above.
There have not been any changes in the Company's disclosure controls and
procedures during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's
disclosure controls and procedures over financial reporting.
As described in notes A2 and C to the Company's Consolidated Financial
Statements included in this report, the Company restated it's previously issued
Consolidated Financial Statements for the year ended December 31, 2004 and 2003,
to reflect the reclassification of the operations of a discontinued business
component related to its real estate operations. Previously, management of the
Company did not consider its Lubbock, Texas real estate operations to be clearly
distinguishable from the remainder of its real estate operations as defined by
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" or as an asset group as defined in SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". Management of the Company
believes that such a determination requires substantial judgment based on
interpretations of various accounting standards. In response to a letter from
the Securities and Exchange Commission, dated August 31, 2005, concerning our
reporting of the discontinued Lubbock, Texas operations in our previously issued
Form 10-KSB for the year ended December 31, 2004, the Company has restated its
previously issued Consolidated Financial Statements to reclassify the
discontinued Lubbock, Texas operations as a discontinued business component. The
reclassification had no effect on the Company's previously reported total
assets, working capital, stockholders' equity, net income (loss), and net cash
flow (used in) provided by operating activities, investing activities or
financing activities.
The Company's management and Audit Committee have discussed the restatement
issue with Johnson, Miller & Co., its independent registered public accounting
firm. After reviewing the restatement issue, the Company's management and Audit
Committee believes that, although the restatement may be considered to be a
deficiency in the Company's disclosure process, the circumstances leading to the
restatement of the discontinued business component are isolated and rare and do
not constitute a continuing deficiency in the Company's disclosure controls and
procedures. Accordingly, management of the Company does not plan to implement
any further changes in its disclosure controls and procedures with respect to
the restatement of the discontinued business component.
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
16
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.4 ~ Certificate of Designation for Series A Preferred Stock
3.4(a) ~~ Amended Certificate of Designation for Series A Preferred Stock
3.5 ~~ Certification of Designation for Series B Preferred Stock
3.6*** Certificate of Amendment of Certificate of Incorporation
dated May 26, 2004
3.7@ Certificate of Designation for Series C Preferred Stock
4.1+ Warrant Certificate between the Company and Robert Varney
dated July 10, 1996
4.2+ Warrant Certificate between the Company and Robert Varney
dated September 26, 1996
4.3+ Warrant Certificate between the Company and Bruce Edgington
dated July 30, 1996
4.4+ Warrant Certificate between the Company and Bruce Edgington
dated October 30, 1996
4.5@ Form of Warrant Certificate dated March 1, 2005
10.1// Asset Purchase Agreement between the Company and Blue Hill
Media, Inc. dated December 13, 2002
10.2+ Form of Stock Option Agreement
10.3+ 1997 Stock Option Plan
10.4* 1997 Stock Option Plan, as amended April 6, 1998
10.5* 1998 Stock Option Plan
10.6** 1998 Stock Option Plan, as amended February 26, 1999
10.7## 1998 Stock Option Plan, as amended March 3, 2000
10.8++ Stock Purchase Agreement between the Company and A. Scott
Dufford for Series A Preferred Stock dated September 29, 2000
10.9++ Stock Purchase Agreement between the Company and John R.
Norwood for Series A Preferred Stock dated September 29, 2000
10.10++ Stock Purchase Agreement between the Company and J.M.
Mineral and Land Co. for Series A Preferred Stock dated
September 29, 2000
10.11++ Stock Purchase Agreement between the Company and Jon M.
Morgan Pension Plan for Series A Preferred Stock dated
September 29, 2000
10.12++ Stock Purchase Agreement between the Company and Stallings
Properties, Ltd. for Series A Preferred Stock dated September
29, 2000
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
17
10.15++ Stock Purchase Agreement between the Company and Dodge
Jones Foundation for Series A Preferred Stock dated September
29, 2000
10.16++ Stock Purchase Agreement between the Company and Soft Op,
L.P. for Series A Preferred Stock dated September 29, 2000
10.17++ Stock Purchase Agreement between the Company and
Lighthouse Partners, L.P. for Series A Preferred Stock dated
September 29, 2000
10.18++ Stock Purchase Agreement between the Company and Ray McGlothlin,
Jr. for Series A Preferred Stock dated September 29, 2000
10.19++ Stock Purchase Agreement between the Company and Gary J. Lamb
for Series A Preferred Stock dated September 29, 2000
10.20++ Stock Purchase Agreement between the Company and Frosty Gilliam,
Jr. for Series A Preferred Stock dated September 29, 2000
10.21++ Stock Purchase Agreement between the Company and Bruce Edgington
for Series B Preferred Stock dated December 31, 2001
10.22++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series B Preferred Stock dated December 31, 2001
10.23++ Stock Purchase Agreement between the Company and Earl E. Gjelde
for Series B Preferred Stock dated December 31, 2001
10.24++ Stock Purchase Agreement between the Company and Jon M. Morgan
for Series B Preferred Stock dated December 31, 2001
10.25++ Stock Purchase Agreement between the Company and Soft Op, L.P.
for Series B Preferred Stock dated December 31, 2001
10.26++ Annex to the Stock Purchase Agreement for Series A Preferred
Stock dated September 29, 2000
10.27# Agreement to Suspend Dividends and Consent of the Holders of
Series A Preferred Stock of Amen Properties, Inc. dated May 30,
2003.
10.28# Agreement to Suspend Dividends and Consent of Holders of Series
B Convertible Preferred Stock of Amen Properties, Inc. dated
May 30, 2003.
10.29@@@ Consent, Waiver and Amendment of the holders of Series A
Preferred Stock dated January 2005 (identical copy executed by
each holder)
10.30@@@ Consent, Waiver and Amendment of the holders of Series B
Preferred Stock dated January 2005 (identical copy executed by
each holder)
10.31++ Annex to the Stock Purchase Agreement for Series B Preferred
Stock dated December 31, 2001
10.32// Agreement and Transfer of Limited Partnership Interest between
the Company and the Selling Partners of TCTB Partners, Ltd.
dated October 31, 2002
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.
18
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
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
19
~ 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.
@@@ 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.
20
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.
December 19, 2005 By: /s/ Eric L. Oliver
--------------------------------------
Eric L. Oliver, Chairman of the Board of Directors and Chief Executive
Officer
December 19, 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.
December 19, 2005 By: /s/ Jon Morgan
----------------------------------
Director and Chief Operating Officer
December 19, 2005 By: /s/ Bruce Edgington
---------------------------------------
Director
December 19, 2005 By: /s/ Randy G. Nicholson
------------------------------------------
Director
21
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 23
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 24
CONSOLIDATED STATEMENTS OF INCOME 25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 26
CONSOLIDATED STATEMENTS OF CASH FLOWS 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29
22
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.
As discussed in Note A2 to the consolidated financial statements, the
accompanying consolidated balance sheets and consolidated statements of income
and cash flows have been restated to reclassify the operations of and gain on
sale of assets related to a certain discontinued business component.
JOHNSON, MILLER & CO.
Midland, Texas
March 15, 2005 (November 11, 2005 as to the effects
of the restatement described in Note A2)
23
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
As Restated
2004 2003
---- -----------
CURRENT ASSETS
Cash and cash equivalents (notes A4, D and F) $ 4,147,900 2,741,527
Accounts receivable (notes A7 and A15), net of allowance of $91,066 -
in 2004 and 2003, respectively 72,735 50,820
Short-term investments (notes A5 and F) - 50,225
Other current assets 77,399 70,044
Assets related to discontinued business component (note A2) - 9,502
---------- ----------
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 $607,718 in 2004 and 2003,
respectively (notes A8, A9, and I) 7,986,598 7,457,387
ROYALTY INTERESTS, at cost net of accumulated depletion
of $12,484 (notes A8 and E) 150,370 -
LONG-TERM INVESTMENTS (notes A5 and F) 62,350 62,350
OTHER ASSETS
Note receivable (note H) 249,555 250,763
Deferred costs (note A10) 52,357 74,022
Deposits and other assets 72,000 4,348
Non-current assets related to discontinued business component (note A2) - 4,285,903
---------- ----------
Total other assets 373,912 4,615,036
---------- ----------
TOTAL ASSETS $ 14,971,264 15,056,891
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 115,104 97,056
Accrued liabilities (note J) 319,498 148,441
Deferred revenue (note K) 70,127 38
Accrued interest payable 286,802 175,702
Current portion of long-term obligations (note N) 1,634,935 186,156
Current liabilities related to discontinued business component (note A2) - 198,983
---------- ----------
Total current liabilities 2,426,466 806,376
LONG-TERM OBLIGATIONS, less current portion (note N) 7,476,154 8,898,364
NON-CURRENT LIABILITIES RELATED
TO DISCONTINUED BUSINESS COMPONENT (note A2) - 1,449,528
MINORITY INTEREST (notes A2, A3, A13) 252,655 (111,816)
COMMITMENTS AND CONTINGENCIES (notes A19, 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 A14) 80 80
80,000 Series "B" shares issued and outstanding, convertible into
a total of 233,317 shares of common stock at the option of the holders (note A14) 80 80
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
24
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
As Restated As Restated
2004 2003
------------ ------------
Rental revenue $ 2,461,629 2,412,243
Operating expenses:
Sales and marketing 4,580 7,351
General and administrative 495,624 402,100
Depreciation, amortization and depletion 300,342 267,936
Insurance 74,530 47,350
Travel and entertainment 230 150
Utilities 474,102 441,733
Building maintenance 406,690 327,872
Office expense 266,583 374,315
Taxes, except income 162,561 135,221
Start-up costs (note A17) 156,841 -
------------ ------------
Total operating expenses 2,342,083 2,004,028
------------ ------------
Income from operations 119,546 408,215
Other income (expense):
Interest income 11,946 31,020
Interest expense (579,487) (654,319)
Other income 67,336 252,875
------------ ------------
Total other income (expense) (500,205) (370,424)
------------ ------------
Income (loss) from continuing operations
before income taxes and minority interest (380,659) 37,791
Income taxes (notes A12 and L) - -
Minority interest (117,331) (142,725)
------------ ------------
Net loss from continuing operations (497,990) (104,934)
------------ ------------
Net income from discontinued business component (note A2) 394,127 496,763
Gain on sale of assets of discontinued business component (note A2) 905,118 -
------------ ------------
Net income from business component 1,299,245 496,763
------------ ------------
NET INCOME $ 801,255 391,829
============ ============
Net income (loss) per common share (basic)
Net loss from continuing operations $ (.23) (.05)
Net income from discontinued business component .18 .24
Gain on sale of discontinued business component .41 -
------------ ------------
Net income $ .36 .19
============ ============
Net income (loss) per common share (diluted)
Net loss from continuing operations $ (.16) (.04)
Net income from discontinued business component .13 .17
Gain on sale of discontinued business component .29 -
------------ ------------
Net income $ .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
25
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 adeferral 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
26
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
As Restated As Restated
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 300,342 267,936
Loss on sale of fixed assets - 9,125
Gain on sale of assets of discontinued business component (905,118) -
Loss (gain) on sale of investments 479 (120,405)
Minority interest 117,331 142,724
Changes in operating assets and liabilities:
Accounts receivable (97,195) 117,864
Deposits and other assets (763) 13,763
Deferred costs 615 (530)
Accounts payable 36,520 (30,480)
Accrued and other liabilities 316,122 (175,721)
Deferred revenue 121,819 (107,648)
Discontinued business component 16,231 676,864
------------ ------------
Net cash provided by operating activities 707,638 1,185,321
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (561,151) (137,707)
Proceeds from sale of discontinued business component 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
Purchases of property and equipment of discontinued
business component (4,798) (13,811)
------------ ------------
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)
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
============ ============
The accompanying summary of accounting policies and footnotes are an integral part of these consolidated financial statements
27
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31,
As Restated As Restated
2004 2003
------------ ------------
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 related to discontinued business component
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 other comprehensive income (loss) - 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
28
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
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. Restatement of Previously Issued Financial Statements
The Company's consolidated financial statements as of December 31, 2004 and
2003 have been restated to reflect reclassification of the operations of
and the gain on the sale of assets related to a certain discontinued
business component, see Note C.
The effects of the restatement on the Consolidated Statement of Income for
the years ended December 31, 2004 are as follows:
As previously As
reported restated
------------ ------------
Rental revenue $ 4,309,886 2,461,629
Operating expenses 3,634,708 2,342,083
------------ ------------
Income from operations 675,178 119,546
Other income (expense) 404,915 (500,205)
Minority interest (278,838) (117,331)
------------ ------------
Net loss from continuing operations - (497,990)
Net income from discontinued business component - 394,127
Gain on sale of assets of discontinued business component - 905,118
------------ ------------
Net income 801,255 801,255
============ ============
The accompanying summary of accounting policies and footnotes are an integral part of these consolidated financial statements
29
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
The effects of the restatement on the Consolidated Balance Sheet and
Consolidated Statement of Income as of and for the year ended December 31,
2003, are as follows:
As previously As
reported restated
------------ ------------
Consolidated Balance Sheet
Accounts receivable $ 51,859 50,820
Other current assets 78,507 70,044
Assets related to discontinues business component - 9,502
Property plant and equipment 11,662,960 7,457,387
Deferred costs 79,064 74,022
Non-current rents receivable 75,228 -
Non-current assets related to discontinued
business component - 4,585,903
Accounts payable 151,818 97,056
Accrued liabilities 258,237 148,441
Deferred revenues 34,463 38
Current liabilities related to discontinued
business component - 198,983
Non-current deferred revenues 180,542 -
Minority interest 1,157,170 (111,816)
Non-current liabilities related to discontinued
business component $ - 1,449,528
Consolidated Statement of Income
Rental revenue $ 4,345,099 2,412,243
Operating expenses 3,167,463 2,004,028
------------ ------------
Income from operations 1,177,636 408,215
Other income (expense) (369,993) (370,424)
Minority interest (415,814) (142,725)
------------ ------------
Net loss from continuing operations - (104,934)
Net income from discontinued business component - 496,763
Net income $ 391,829 391,829
============ ============
3. 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.
4. Cash Equivalents
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
30
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
5. 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 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.
6. 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.
7. 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.
8. 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.
9. 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
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
31
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
10. 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.
11. 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.
12. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
13. Minority Interest
Minority interest represents the interest of unit holders of TCTB, other
than the Company, in the net earnings and net equity of TCTB. The unit
holder minority interest is adjusted at the end of each period to reflect
the ownership at that time. The unit holder minority interest in TCTB was
approximately 28.7% and 35.1% at December 31, 2004 and 2003, respectively.
14. Contingently Convertible Securities
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
32
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
Number of Purchase Conversion Number of Common
Series Shares Price 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.
15. 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.
16. 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.
17. Start-up Costs
Start up expenses are associated with certain expenses incurred with W
Power and Light, LP. These expenses include but are not limited to salary,
fees and licenses, travel and legal expense. Start up costs are expensed as
incurred.
18. Earnings (Loss) Per Share
Income from continuing 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).
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
33
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
19. Environmental
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws regulate asbestos in buildings that
require the Company to remove or mitigate the environmental effects of the
disposal of the asbestos at the buildings.
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Costs are expensed when they relate to an
existing condition caused by past operations and will not contribute to
current or future revenue generation. Liabilities related to environmental
assessments and/or remedial efforts are accrued when property or services
are provided or can be reasonably estimated.
20. New Accounting Pronouncements
In 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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
34
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.
21. 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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
35
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
NOTE C - DISPOSITION OF ASSETS OF DISCONTINUED BUSINESS COMPONENT
On January 4, 2005, the Company announced that, effective December 31,
2004, the TCTB partners agreed to distribute its Lubbock, Texas office
building to the TCTB partners and simultaneously sell their interest in the
asset to an entity partially owned by certain TCTB 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 gross proceeds of $3,924,141
(net proceeds of $3,688,094) for its undivided interest in the Property
that resulted in a gain on sale of assets of discontinued business
component 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.
NOTE E - ROYALTY INTERESTS
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
36
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
37
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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 7,810,031
Furniture, fixtures and equipment 90,321 44,147
Tenant improvements 163,300 98,987
Land 158,998 111,940
------------- -------------
8,860,481 8,065,105
Less: accumulated depreciation (873,883) (607,718)
------------- -------------
$ 7,986,598 7,457,387
============= =============
Depreciation expense for 2004 and 2003 was $266,165 and $247,630,
respectively.
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
2004 2003
------------- -------------
Accrued property taxes $ 185,344 145,060
Other liabilities 134,154 3,381
------------- -------------
$ 319,498 148,441
============= =============
NOTE K - DEFERRED REVENUE
Deferred revenue mainly consists of prepaid rent.
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 $ - -
============= =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
38
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
39
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
December 31, 2004:
Continuing Real Discontinued
Estate Real Estate Other and
REP Operations Component Corporate Total
--------------- --------------- ------------ ----------- -----------
Revenues from external
customers $ - 2,461,629 1,848,257 - 4,309,886
=============== =============== ============ =========== ===========
Depreciation,
amortization and
depletion 864 285,786 144,418 13,692 444,760
=============== =============== ============ =========== ===========
Interest expense - 579,487 - - 579,487
=============== =============== ============ =========== ===========
Segment net income
(loss) (157,705) 75,926 1,299,245 (416,211) 801,255
=============== =============== ============ =========== ===========
Segment assets 159,453 14,001,398 - 810,413 14,971,264
=============== =============== ============ =========== ===========
Expenditures for
segment assets $ 25,919 526,663 4,798 8,569 565,949
=============== =============== ============ =========== ===========
December 31, 2003:
Continuing Real Discontinued
Estate Real Estate Other and
REP Operations Component Corporate Total
--------------- --------------- ------------ ----------- -----------
Revenues from external
customers $ - 2,412,243 1,932,856 - 4,345,099
=============== =============== ============ =========== ===========
Depreciation,
amortization and
depletion - 267,179 140,399 757 408,335
=============== =============== ============ =========== ===========
Interest expense - 612,319 - 42,000 654,319
=============== =============== ============ =========== ===========
Segment net income
(loss) - 35,665 496,763 (140,599) 391,829
=============== =============== ============ =========== ===========
Segment assets - 9,361,802 4,295,405 1,399,684 15,056,891
=============== =============== ============ =========== ===========
Expenditures for
segment assets $ - 134,981 13,811 2,726 151,518
=============== =============== ============ =========== ===========
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.
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
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
40
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
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).
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
41
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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:
2005 $ 123,842
2006 19,950
2007 16,625
-------------
$ 160,417
=============
NOTE R - SIGNIFICANT TENANTS
For the years ended December 31, 2004 and 2003, the Company had two
customers that accounted for more than ten-percent of the Company's revenue
as follows:
2004 2003
--------------- -------------
Pioneer Natural Resources 356,000 356,000
Bank of America 591,000 594,000
--------------- -------------
Total $ 947,000 950,000
=============== =============
For the years ended December 31, 2004 and 2003, the Company had one
significant tenant applicable to its discontinued business component as
follows:
2004 2003
--------------- -------------
Wells Fargo Bank Texas, N.A. $ 662,000 668,000
=============== =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
42
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
Effective December 31, 2004, the Company disposed of the building
containing the Wells Fargo Bank Texas, 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.
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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
43
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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
============ ============
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:
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
44
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
2004 2003
------------- -------------
Net loss from continuing operations,
as reported $ (497,990) (104,934)
Deduct: Total stock-based
employee compensation
expense determined
under fair value based
method (21,576) (102,124)
------------- -------------
Net loss from continuing operations, pro forma (519,566) (207,058)
Net income from discontinued
business component 394,127 496,763
Gain on sale of assets of discontinued
business component 905,118 -
------------- -------------
Net income, pro forma $ 779,679 289,705
============= =============
As reported: Net income (loss) per common share (basic):
Net loss from continuing operations $ (.23) (.05)
Net income from discontinued
business component .18 .24
Gain on sale of assets of discontinued
business component .41 -
------------- -------------
As reported $ .36 .19
============= =============
Pro forma: Net income per common share (basic):
Net loss from continuing operations $ (.24) (.10)
Net income from discontinued
business component .18 .24
Gain on sale of assets of discontinued
business component .41 -
------------- -------------
Pro forma $ .35 .14
============= =============
As reported: Net income per common share (diluted):
Net loss from continuing operations $ (.16) (.04)
Net income from discontinued
business component .13 .17
Gain on sale of assets of discontinued
business component .29 -
------------- -------------
As reported $ .26 .13
============= =============
Pro forma: Net income per common share (diluted):
Net loss from continuing operations $ (.17) (.07)
Net income from discontinued
business component .13 .17
Gain on sale of assets of discontinued
business component .29 -
------------- -------------
As reported $ .25 .10
============= =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
45
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
46
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004 and 2003
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.
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.
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
47
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 $ 591,022 588,687 627,426 654,494 2,461,629
----------- ----------- ----------- -------------- ------------
Operating expenses, excluding
start-up costs 472,605 519,732 514,031 678,874 2,185,242
Start-up costs - - 79,660 77,181 156,841
----------- ----------- ----------- -------------- ------------
Total operating expense 472,605 519,732 593,691 756,055 2,342,083
----------- ----------- ----------- -------------- ------------
Income (loss) from continuing
operations 118,417 68,955 33,735 (101,561) 119,546
----------- ----------- ----------- -------------- ------------
Interest income 3,451 2,604 2,641 3,250 11,946
Interest expense (133,409) (147,183) (146,518) (152,377) (579,487)
Other income (expense) 16,882 15,593 15,987 18,874 67,336
----------- ----------- ----------- -------------- ------------
Total other income (expense) (113,076) (128,986) (127,890) (130,253) (500,205)
----------- ----------- ----------- -------------- ------------
Income (loss) from continuing
operations before
income taxes and minority interest 5,341 (60,031) (94,155) (231,814) (380,659)
Income taxes - - - - -
Minority interest (33,506) (28,411) (28,404) (27,010) (117,331)
----------- ----------- ----------- -------------- ------------
Net (loss) from continuing
operations (28,165) (88,442) (122,559) (258,824) (497,990)
----------- ----------- ----------- -------------- ------------
Net income from discontinued
business component 120,772 117,535 109,191 46,629 394,127
Gain on sale of assets of
discontinued business component - - - 905,118 905,118
----------- ----------- ----------- -------------- ------------
Net income from discontinued
business component 120,772 117,535 109,191 951,747 1,299,245
----------- ----------- ----------- -------------- ------------
NET INCOME (LOSS) $ 92,607 29,093 (13,368) 692,923 801,255
=========== =========== =========== ============== ============
Net income (loss) per common share
(basic)
Loss from continuing operations $ (.01) (.04) (.06) (.12) (.23)
Discontinued business component .05 .05 .05 .03 .18
Gain on sale of assets of
discontinued business component - - - .41 .41
----------- ----------- ----------- -------------- ------------
Net income $ .04 .01 (.01) .32 .36
=========== =========== =========== ============== ============
Net income (loss) per common share
(diluted)
Net loss from continuing operations $ (.01) (.03) (.04) (.08) (.16)
Discontinued business component .04 .04 .03 .02 .13
Gain on sale of discontinued
business component - - - .29 .30
----------- ----------- ----------- -------------- ------------
Net income $ .03 .01 (.01) .23 .26
=========== =========== =========== ============== ============
Weighted average number of common
shares outstanding - basic 2,201,356 2,201,356 2,201,356 2,201,356 2,201,356
=========== =========== =========== ============== ============
Weighted average number of common
shares outstanding - diluted 3,051,079 3,051,079 3,051,079 3,051,120 3,051,120
=========== =========== =========== ============== ============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
48
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 $ 585,265 603,771 610,758 612,449 2,412,243
----------- ----------- ----------- -------------- ------------
Operating expenses, excluding
start-up costs 415,506 511,980 488,064 588,478 2,004,028
Start-up costs - - - - -
----------- ----------- ----------- -------------- ------------
Total operating expense 415,506 511,980 488,064 588,478 2,004,028
----------- ----------- ----------- -------------- ------------
Income from continuing operations 169,759 91,791 122,694 23,971 408,215
----------- ----------- ----------- -------------- ------------
Interest income 5,240 6,413 7,700 11,667 31,020
Interest expense (193,279) (153,984) (153,561) (153,495) (654,319)
Other income (expense) 42,254 27,582 41,570 141,469 252,875
----------- ----------- ----------- -------------- ------------
Total other income (expense) (145,785) (119,989) (104,291) (359) (370,424)
----------- ----------- ----------- -------------- ------------
Income (loss) from continuing
operations before income taxes and
minority interest 23,974 (28,198) 18,403 23,612 37,791
Income taxes - - - - -
Minority interest (62,880) (36,279) (38,063) (5,503) (142,725)
----------- ----------- ----------- -------------- ------------
Net (loss) from continuing
operations (38,906) (64,477) (19,660) 18,109 (104,934)
----------- ----------- ----------- -------------- ------------
Net income from discontinued
business component 145,388 109,418 116,540 125,417 496,763
Gain on sale of assets of
discontinued business component - - - - -
----------- ----------- ----------- -------------- ------------
Net income from discontinued
business component 145,388 109,418 116,540 125,417 496,763
----------- ----------- ----------- -------------- ------------
NET INCOME $ 106,482 44,941 96,880 143,526 391,829
=========== =========== =========== ============== ============
Net income (loss) per common share
(basic)
Net loss from continuing operations $ (.02) (.03) (.01) .01 (.05)
Discontinued business component .07 .06 .05 .06 .24
Gain on sale of assets of
discontinued business component - - - - -
----------- ----------- ----------- -------------- ------------
Net income $ .05 .03 .04 .07 .19
=========== =========== =========== ============== ============
Net income (loss) per common share
(diluted)
Net loss from continuing operations $ (.02) (.02) (.01) .01 (.04)
Discontinued business component .05 .04 .04 .04 .17
Gain on sale of discontinued
business component - - - - -
----------- ----------- ----------- -------------- ------------
Net income $ .04 .02 .03 .05 .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
=========== =========== =========== ============== ============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements
49