UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended March 31, 2004.
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period From
________________to_______________.
Commission file number 000-22847
AMEN Properties, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1831588
---------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 W. Wall Street, Suite 1700
Midland, TX 79701
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(Address of Principal Executive Offices)
(432-684-3821)
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
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Applicable Only to Corporate Issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
Common Stock, $ .01 Par Value: 2,201,356 shares outstanding as of May 3, 2004
Transitional Small Business Disclosure Format (check one):
Yes No X
-------------- --------------
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheet at March 31, 2004 (Unaudited) 1
Consolidated Statement of Operations--for the three months ended
March 31, 2004 and 2003 (Unaudited) 2
Consolidated Statement of Cash Flows--for the three months ended
March 31, 2004 and 2003 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Item 3. Controls and Procedures 16
Part II. OTHER INFORMATION
Items 1-6 Exhibits and Reports on Form 8-K 16
Signatures 18
Exhibits 19
11. Computation of Earnings Per Share.
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USCss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USCss.1350.
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
March 31, 2004
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (notes A3 and C) $ 2,370,984
Accounts receivable (notes A6 and A12), net of allowance of $91,066 36,096
----------------
Total current assets 2,407,080
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $922,944 (notes A7 and A8) 11,856,815
LONG-TERM INVESTMENTS (notes A4 and C) 164,868
OTHER ASSETS
Note receivable (note D) 249,555
Deferred costs (note A9) 175,262
Rents receivable (notes A6 and A12) 76,300
----------------
Total other assets 501,117
----------------
TOTAL ASSETS $ 14,929,880
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term obligations (note G) $ 228,955
Accounts payable 141,111
Accrued liabilities (note E) 71,645
Deferred revenue (note F) 33,356
Other liabilities 194,323
----------------
Total current liabilities 669,390
LONG-TERM OBLIGATIONS, less current portion (note G) 9,060,141
DEFERRED REVENUE (note F) 172,209
MINORITY INTEREST (note A11) 920,799
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY (note I)
Preferred stock, $.001 par value, 5,000,000 shares authorized; 80,000
Series "A" shares issued and outstanding 80
80,000 Series "B" shares issued and outstanding 80
Common stock, $.01 par value, 20,000,000 shares authorized;
2,201,356 shares issued and outstanding 22,014
Common stock warrants 127,660
Additional paid-in capital 42,481,507
Accumulated deficit (38,524,000)
Accumulated other comprehensive (loss) income -
----------------
Total stockholders' equity 4,107,341
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,929,880
================
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31,
(Unaudited)
2004 2003
--------------- ---------------
Rental revenue $ 1,074,301 1,071,271
Operating expenses:
Property operating 80,138 88,999
Sales and marketing 1,231 1,177
General and administrative 34,217 27,517
Depreciation and amortization 106,453 105,863
Insurance 23,039 -
Travel and entertainment 359 227
Utilities 220,276 146,397
Building maintenance 155,195 149,281
Office expense 104,975 105,306
Taxes, except income 59,920 51,600
--------------- ---------------
Total operating expenses 785,803 676,367
--------------- ---------------
Net income from operations 288,498 394,904
Other income (expense):
Interest income 7,548 5,917
Interest expense (133,409) (193,000)
Other income 12,785 41,297
--------------- ---------------
Total other income (expense) (113,076) (145,786)
--------------- ---------------
Net income before income taxes and
minority interest 175,422 249,118
Income taxes (note A10) - -
Minority interest (82,815) (142,636)
--------------- ---------------
(82,815) (142,636)
--------------- ---------------
NET INCOME $ 92,607 106,482
=============== ===============
Net income per common share (basic) $ .04 .05
=============== ===============
Net income per common share (diluted) $ .03 .04
=============== ===============
Weighted average number of common
shares outstanding - basic 2,201,356 1,992,056
Weighted average number of common
shares outstanding - diluted 3,051,079 2,841,779
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
2
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
2004 2003
--------------- ---------------
Increase (Decrease) in Cash and Cash
Equivalents
Cash flows from operating activities:
Net income $ 92,607 106,482
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 106,453 105,863
Loss on sale of fixed assets - 3,946
Loss on sale of investments 520 -
Minority interest 82,815 142,636
Changes in operating assets and
liabilities:
Accounts receivable 16,891 76,264
Deposits and other assets - -
Deferred costs (18,375) (45,499)
Accounts payable (36,069) (35,656)
Accrued and other liabilities (182,958) (300,244)
Deferred revenue (9,440) (98,785)
--------------- ---------------
Net cash provided by (used in)
operating activities 52,444 (44,993)
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (109,282) (57,972)
Proceeds from sale of property and
equipment - 5,170
Sales and maturity of investments 50,000 20,000
Purchase of investments (102,519) (191,506)
Acquisition of limited partnership
interest (note B) (99,296) -
Repayments of notes receivable 14,216 -
--------------- ---------------
Net cash used in investing
activities (246,881) (224,308)
--------------- ---------------
Cash flows from financing activities:
Repayments of notes payable (46,201) (54,567)
Repayments of capitalized leases - (9,995)
Partner distributions (129,905) -
--------------- ---------------
Net cash used in financing
activities $ (176,106) (64,562)
--------------- ---------------
Net decrease in cash and cash
equivalents $ (370,543) (333,863)
Cash and cash equivalents at
beginning of period 2,741,527 1,541,183
--------------- ---------------
Cash and cash equivalents at end of
period $ 2,370,984 1,207,320
=============== ===============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
3
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization
Pursuant to actions of the stockholders on September 19, 2002,
Crosswalk.com, Inc. changed its name to AMEN Properties, Inc.
("AMEN"). Effective October 2002, AMEN formed NEMA Properties, LLC
("NEMA"), a Nevada limited liability company; AMEN Minerals, LP
("Minerals"), a Delaware limited partnership; and AMEN Delaware, LP
("Delaware"), a Delaware limited partnership, to pursue acquisitions
as authorized by stockholders on September 19, 2002. AMEN Properties,
Inc. and Subsidiaries and affiliates (collectively referred to as the
"Company") is a self-administered and self-managed Delaware
corporation.
The Company's business purpose is to acquire investments in commercial
real estate, oil and gas royalties and stabilized cash flowing
businesses or assets. As of March 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 and Lubbock, Texas comprising an
aggregate of approximately 539,837 square feet of gross leasable area
("GLA"). The investment was obtained through Delaware's acquisitions
of a partnership interest in TCTB Partners, Ltd. ("TCTB") a Texas
limited partnership, totaling approximately 71.3%. Through its
investment in Minerals, AMEN has acquired an investment interest in an
oil and gas royalty trust and other oil and gas royalties. The
operations of the Company are primarily conducted through Delaware of
which AMEN is the sole general partner.
2. Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its majority-owned/controlled subsidiaries and affiliates.
Intercompany balances and transactions have been eliminated.
Management uses estimates and assumptions in preparing the
consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. Those
estimates and assumptions affect the reported amounts of assets,
liabilities, revenues and expenses in the consolidated financial
statements, and the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
3. Cash Equivalents
The Company considers cash on hand, cash on deposit in banks, money
market mutual funds and highly liquid debt instruments purchased with
a maturity of three months or less to be a cash equivalent.
4
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
4. Short and Long-Term Investments
The Company invests in U.S. government bonds and treasury notes,
municipal bonds, and corporate bonds. Investments with original
maturities greater than three months but less than twelve months from
the balance sheet date are short-term investments. Those investments
with original maturities greater than twelve months from the balance
sheet date are long-term investments.
The Company's marketable securities are classified as
available-for-sale as of the balance sheet date, and are reported at
fair value with unrealized gains and losses, net of tax, recorded in
stockholders' equity. Realized gains or losses and permanent declines
in value, if any, on available-for-sale investments are reported in
other income or expense as incurred.
5. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, investments and
accounts receivable approximate fair value because of the relatively
short maturity of these instruments.
6. Tenant Accounts Receivable
Management regularly reviews accounts receivable and estimates the
necessary amounts to be recorded as an allowance for uncollectibility.
These reserves are established on a tenant-specific basis and are
based upon, among other factors, the period of time an amount is past
due and the financial condition of the obligor.
7. Depreciation and Amortization
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.
8. Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying
value of its long-lived assets and identifiable intangibles by
monitoring and evaluating changes in circumstances that may indicate
that the carrying amount of the asset may not be recoverable. Examples
of events or changes in circumstances that indicate that the
recoverability of the carrying amount of an asset should be assessed
include but are not limited to the following: a significant decrease
in the market value of an asset, a significant change in the extent or
matter in which a asset is used or a significant physical change in an
asset, a significant adverse change in legal factors or in the
5
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
business climate that could affect the value of an asset or an adverse
action or assessment by a regulator, an accumulation of costs
significantly in excess of the amount originally expected to acquire
or construct an asset, and/or a current period operating or cash flow
loss combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated
with an asset used for the purpose of producing revenue.
The Company considers historical performance and anticipated future
results in its evaluation of potential impairment. Accordingly, when
indicators or impairments are present, the Company evaluates the
carrying value of these assets in reaction to the operating
performance of the business and future discounted and nondiscounted
cash flows expected to result from the use of these assets. Impairment
losses are recognized when the sum of expected future cash flows are
less than the assets' carrying value.
9. Deferred Costs
Deferred costs primarily consist of deferred financing costs. Deferred
financing costs are amortized as interest expense over the life of the
related debt.
10. Income Taxes
The Company accounts for income taxes using the liability method.
Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
11. Minority Interest
Minority interest represents the interest of unit holders of TCTB,
other than the Company in the net earnings and net equity of TCTB. The
unit holder minority interest is adjusted at the end of each period to
reflect the ownership at that time. The unit holder minority interest
in TCTB was approximately 28.7% at March 31, 2004.
12. Revenue recognition
Leases with tenants are accounted for as operating leases. Minimum
annual rentals are recognized on a straight-line basis over the terms
of the respective leases. As a result of recording rental revenue on a
straight-line basis, accounts receivable include $76,300 of tenant
receivables at March 31, 2004, which is expected to be collected over
the remaining lives of the leases.
13. Earnings Per Share
The effects of Series "A" and "B" convertible Preferred Stock are not
included in the computation of diluted earnings per share for any
periods in which their effect is antidilutive.
6
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
Disclosures regarding shares and share price have been adjusted to
reflect the 1-for-4 reverse stock split dated February 3, 2003 in
accordance with accounting principles generally accepted in the United
States of America.
14. Environmental
The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws regulate asbestos in
buildings that require the Company to remove or mitigate the
environmental effects of the disposal of the asbestos at the
buildings.
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Costs are expensed when they relate to an
existing condition caused by past operations and will not contribute
to current or future revenue generation. Liabilities related to
environmental assessments and/or remedial efforts are accrued when
property or services are provided or can be reasonably estimated.
15. New Accounting Pronouncements
In September 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring. This Statement improves financial reporting by
requiring that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value
only when the liability is incurred. The accounting for similar events
and circumstances will be the same, thereby improving the
comparability and representation faithfulness of reported financial
information. The provisions of this Statement are effective for exit
or disposal activities that are initiated after December 31, 2002,
with early application encouraged.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure, an amendment of
SFAS No. 123, Accounting for Stock-Based Compensation. This Statement
amends SFAS No. 123, to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based compensation and the effect of
the method used on reported results. Certain of the disclosure
modifications are required for fiscal years ending after December 15,
2002 and are included in the notes to these consolidated financial
statements.
In December 2003, the FASB issued a revised Interpretation No. 46,
Consolidation of Variable Interest Entities, replacing the original
Interpretation issued in January 2003. The revised Interpretation
7
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
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.
Management does not believe the new pronouncements will have a
material impact on its financial statements.
16. Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the 2004 presentation.
NOTE B - BUSINESS COMBINATIONS
Effective January 1, 2004, Delaware completed the acquisition of
approximately 6.5% of additional limited partnership interest in TCTB
for an aggregate consideration of approximately $459,124 including
approximately $208,346 of cash paid. This acquisition has been
8
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
accounted for under the purchase method of accounting. The purchase
price has been allocated based on the estimated fair values of the
approximate 6.5% acquired interest at the acquisition date as follows:
Fair value of assets acquired $ 1,028,255
Liabilities assumed (448,277)
Notes payable to sellers (250,778)
Minority interest (120,854)
-----------
Cash used for the acquisition 208,346
Less: cash acquired 109,050
-----------
Net cash paid $ 99,296
===========
For purposes of financial reporting, the Company has accounted for the
acquisition as if it occurred on January 1, 2004, the effective date
of the transaction. Management considers this acquisition to be
immaterial to the financial statements taken as a whole.
NOTE C - CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
The Company invests in cash in banks, U.S. government bonds, oil and
gas royalty trust funds and various other investments. All highly
liquid instruments with original maturities of three months or less
are considered cash equivalents; those with original maturities
greater than three months but less than twelve months from the balance
sheet date are considered short-term investments; and those with
original maturities greater than twelve months from the balance sheet
date are considered long-term investments. The Company's marketable
securities are classified as available-for-sale as of the balance
sheet date and are reported at fair value, with unrealized gains and
losses, net of tax, recorded shareholders' equity. Realized gains and
losses and permanent declines in value, if any, on available-for-sale
securities are reported in other income or expense as incurred. The
cost of securities sold is determined by the specific identification
method.
At March 31, 2004 the Company's cash and cash equivalents consist of
the following:
Cash in banks $ 2,370,984
Short-term investments -
---------------
$ 2,370,984
===============
Securities available-for-sale in the accompanying balance sheet at
March 31, 2004 total $164,868. The aggregate market value, cost basis,
and unrealized gains and losses of securities available-for-sale, by
major security type as of March 31, 2004 are as follows:
9
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
Gross
Market Cost Unrealized
Value Basis Gains
------------ ---------- ----------
Oil and Gas Royalty Trust Fund $ 62,350 62,350 -
Oil and Gas Royalty 102,518 102,518 -
------------ ---------- ----------
Total $ 164,868 164,868 -
============ ========== ==========
The current and long-term portions at March 31, 2004 are as follows:
Gross
Market Cost Unrealized
Value Basis Gains
------------ ---------- ----------
Short-term investments $ - - -
Long-term investments 164,868 164,868 -
------------ ---------- ----------
$ 164,868 164,868 -
============ ========== ==========
NOTE D - NOTE RECEIVABLE
On December 13, 2002, the Company received a note receivable in the
amount of $275,000, with an annual interest rate of 6.00%, from a
third-party for the sale of substantially all assets associated with
the Offline Business line (see note B). The note receivable is due in
quarterly installments, beginning April 10, 2003, equal to 20% of the
gross margin of the Offline Business operations for the prior calendar
quarter period, with all remaining unpaid principal and interest due
on January 10, 2010. As of March 31, 2004, the outstanding principal
balance on the note receivable was $249,555. Because the current
maturities are not reasonably estimable at March 31, 2004, the entire
principal balance is reported as non-current.
NOTE E - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at March 31, 2004:
Accrued property taxes $ 62,174
Other liabilities 9,471
-----------
$ 71,645
===========
10
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
NOTE F - DEFERRED REVENUE
In April 2003, the Company received a one time cash payment of
$238,871 from a tenant in the Lubbock building. This represents a
prepayment of a buildout loan between the tenant and TCTB, which was
structured and recognized as additional rent. The payment was deferred
and is being amortized over the term of the lease, approximately seven
years.
NOTE G - LONG-TERM OBLIGATIONS
On June 5, 2002, TCTB entered into a loan agreement with a financial
institution for a term note of $6,800,000. The term note bears
interest at a fixed rate per annum of 7.23%. TCTB was required to
start making monthly payments of principal and interest in the amount
of $53,663 for the term note until maturity of the note on May 31,
2009. The loan agreement is secured by substantially all of the assets
of TCTB. The loan agreement restricts cash distributions to TCTB's
owners. TCTB shall not declare or pay any distributions in excess of
tax liability due annually (but in any event, no more than 40% of net
income), either in cash or any property to any owners. The loan
agreement also contains other customary conditions and events of
default, the failure to comply with, or occurrence of, would prevent
any further borrowings and would generally require the repayment of
any outstanding borrowings along with accrued interest under the loan
agreement. Such events of default include (a) non-payment of loan
agreement debt and interest thereon, (b) non-compliance with the terms
of the credit agreement covenants, (c) cross-default with other debt
in certain circumstances, (d) bankruptcy and (c) a final judgment or
order for the payment of money in excess of $100,000.
Delaware entered into nine promissory notes, in an aggregate amount of
$2,789,087, to purchase the 64.9% ownership interest in TCTB (see note
C). The notes are due in annual payments of principal and interest
beginning April 1, 2005 with a final maturity of May 31, 2009. The
interest rate is equal to the Wall Street Journal Prime Lending Rate
plus 1.5%. The annual payments are equal to a set percentage, ranging
from 1% to 16% of the future net operating loss benefit of the
Company. The net operating loss benefits are calculated as the dollar
value of the federal income tax benefit to the Company of the net
operating loss calculated in accordance with the Internal Revenue
Code, for the calendar year preceding the date of each annual payment.
Delaware entered into a promissory note in the amount of $250,778 to
purchase approximately 6.5% additional ownership interest in TCTB. The
note is due in quarterly installments of principal and interest
beginning on April 1, 2004 with a final maturity of October 1, 2009.
The term note bears interest at a fixed rate per annum of 5%.
11
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004
(Unaudited)
NOTE H - RELATED PARTY TRANSACTIONS
At March 31, 2004, related parties leased approximately 29,000 square
feet. TCTB received rental income from these related parties of
approximately $67,256 during the quarter ended March 31, 2004.
NOTE I - 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.
In addition, the Preferred Shareholders agreed to amend the
designations to effect the terms of the agreement.
12
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and related footnotes included in the
Annual Report on Form 10-KSB.
Forward Looking Statements
Certain information in this section may contain "forward-looking statements"
within the meaning of Section 21e of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including, but
not limited to, any projections of earnings, revenues or other financial items,
any statements of the plans and objectives of management for future operations,
any statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, "forward-looking
statements" can be identified by the use of terminology such as "may," "will,"
"expects," "believes," "plans," "anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in its forward-looking
statements are reasonable, it can give no assurance that such expectations or
any of its "forward-looking statements" will prove to be correct, and actual
results could differ materially from those projected or assumed in the Company's
"forward-looking statements." Our financial condition and results, as well as
any other "forward-looking statements," are subject to inherent risks and
uncertainties, including but not limited to those risk factors disclosed in the
Company's definitive Schedule 14A dated August 27, 2002 and year end December
31, 2003 Annual Report on Form 10-KSB.
Background
Through the third quarter ended September 30, 2002, AMEN Properties, Inc. and
its subsidiaries ("AMEN" or "the Company") consisted primarily of the operations
of crosswalk.com(TM), an interactive website, which provided information and
resources that the Company believed generally appeal to the English speaking
Christian and family-friendly community (the "Online Business"). The Company
primarily generated advertising revenue from this service.
Through December 12, 2002, the Company also provided direct mail advertising
services (the "Offline Business") whereby six times per year the Company mailed
packets of advertiser product information (the "card deck") to approximately
225,000 churches per mailing. In support of this business, the Company
maintained a proprietary database of about 140,000 churches and rented lists to
meet the remaining distribution commitment. The Company generated advertising
revenue from this service.
The Company sold substantially all of the assets used, required, useful, or
otherwise relating to the ownership, development and operations of the Online
Business to Salem Communications Corporation ("Salem") for approximately $4.1
million in cash (the "Asset Sale"). The Asset Sale closed on October 4, 2002. In
addition, on December 12, 2002 the Company divested the Offline Business to Blue
Hill Media, Inc. and received a $275,000 note receivable bearing 6% interest and
a 3.5% net profits interest in the business's gross margin.
Taking into consideration the Company's material remaining value of
approximately $4.1 million in cash from the asset sale, a public company
13
foundation, and a net operating tax loss carryforward (NOL) in excess of $29
million, the Company presented to shareholders a business plan (the "Business
Plan") to grow the Company and exploit the NOL through the judicious acquisition
of cash generating assets, consisting primarily of office buildings in secondary
stagnant markets, office buildings in out of favor growth markets and oil and
gas royalties. In addition, management intends to pursue other types of property
and business endeavors, including but not limited to, real estate investment
trusts and partnership interests, for which there is a reasonable degree of
accuracy in ascertaining the risks associated with their future. In particular,
we are interested in existing businesses with management in place that have
stable cash flow history. On September 19, 2002, the shareholders approved this
Business Plan, and immediately thereafter, the board of directors appointed
current directors Eric Oliver and Jon Morgan as Chairman and Chief Executive
Officer, and President and Chief Operating Officer, respectively. Effective
October 9, 2002, the name of the Company was changed from Crosswalk.com, Inc. to
AMEN Properties, Inc., and the Company relocated its headquarters from
Chantilly, Virginia to Midland, Texas.
The first step in the new Business Plan was completed on October 31, 2002 when
the Company entered into an Agreement with certain limited partners ("the
Selling Partners") of TCTB Partners, Ltd. ("TCTB") to purchase 64.86248% of the
LP Interest in TCTB effective October 1, 2002. Effective January 1, 2004 the
Company entered into an agreement with certain limited partners of TCTB in which
the Company acquired an additional 6.485533% limited partnership interest in
TCTB. This additional interest purchased combined with the initial limited
partnership interest purchased in 2002 gives the Company a total of 71.348013%
limited partnership interest in TCTB. The assets of TCTB are two secondary
office market properties in Midland and Lubbock, Texas, collectively referred to
as "the Properties". These properties are described further in the Company's
Annual Report on Form 10-KSB as of December 31, 2003.
The Company makes available, free of charge, its Annual Report on Form 10-K or
10-KSB, Quarterly Reports on Form 10-Q or 10-QSB, Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file or furnish them to the Securities Exchange
Commission. These reports may also be obtained directly from the SEC via an
Internet site (http://www.sec.gov) and at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Results of Operations
For the quarter ended March 31, 2004, the Company reported net income of $92,607
as compared to $106,482 during the same quarter in 2003. The net decrease of
$13,875 is mainly due to the sale of the Company's oil and gas royalty trust
investment in 2003. Due to the sale of the investment the Company did not
receive comparative investment income for the period ending March 31, 2004.
Total rental revenue was $1,074,301 and $1,071,271 for the quarter ending March
31, 2004 and 2003, respectively. The revenue represents rental income from
tenants occupying the commercial real estate buildings owned by TCTB.
Total operating expenses were $785,803 and $676,367 during the first quarter of
2004 and 2003, respectively. The increase of $109,436 is mainly due to the
14
increase of reported utility and insurance expense during the first quarter of
2004 as compared to the same period in 2003. Both the utility and insurance
expenses for 2004 are expected to be comparative to 2003 on an annual basis.
General and administrative expenses were $34,217 and $27,517 during the first
quarter of 2004 and 2003, respectively. The increase of $6,700 over the same
period in 2003 is primarily a result of an additional expense in 2004 in TCTB
related to the preparation of the 2003 tax return.
Total interest expense was $133,409 and $193,000 for the quarters ending March
31, 2004 and 2003. The decrease of approximately $60,000 is mainly comprised of
the suspension of the Preferred A and Preferred B dividend accrual. On May 30,
2003 the Company entered into agreements 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.
Liquidity and Capital Resources
During the three months ending March 31, 2004 and 2003, net cash provided by /
(used in) operating activities, was $52,444 and ($44,993), respectively.
Included in the amount for the quarter ending March 31, 2004 and 2003 was
approximately $ 248,000 and $220,000, respectively, of property taxes paid in
the first quarter that related to 2003 and 2002 taxes on the TCTB buildings.
Net cash used by investing activities was $246,881 for the first three months of
2004, and $224,308 for the same period of 2003. During the first three months of
2004 the Company used approximately $99,296 in the purchase of the additional
6.485533% of TCTB limited partnership interest. Additionally the company used
approximately $102,000 during the first quarter of 2004 in the purchase of
investments as compared to approximately $191,000 during the same period in
2003.
Net cash used by financing activities for the three months ended March 31, 2004
was $176,106 and $64,562 in 2003. The difference of $111,544 is mainly due to
the partnership distributions at TCTB paid during the first quarter of 2003
totaling $129,905.
Management is actively seeking acquisition opportunities that meet our criteria
in accordance with the Business Plan. Should an acquisition be made,
expenditures and required resources could change significantly. The Company's
ability to raise funds is somewhat hindered as we are limited in our ability to
issue new equity due to IRC Section 382 restrictions on utilization of the NOL.
However, if an opportunity presents itself that would be more valuable to the
shareholders than the present value we have assigned the NOL, we will strongly
consider pursuing the deal and would consider issuing equity to do so. Absent
this, we intend on using certain limited partnership structures and traditional
bank borrowings to implement the Business Plan and meet our growth targets. No
assurances can be made that such financing will be available on terms considered
acceptable to the Company.
15
ITEM 3. Controls and Procedures
The Company's management, under the supervision and with the participation of
the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
performed an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of March 31, 2004 before the
filing date of this quarterly report. Based on that evaluation, the CEO and CFO
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
their evaluation.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Change in Securities
None to report.
ITEM 3. Defaults Upon Senior Securities
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None to report.
ITEM 5. Other Information
None to report.
ITEM 6. Exhibits, List and Reports on Form 8-K
(a) EXHIBITS:
Exhibit
Number Description
11. Computation of Earnings Per Share.
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USCss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USCss.1350.
16
(b) Reports on Form 8-K
On February 24 2004, the Company filed an Item 2 Form 8-K to disclose that the
Company and certain other limited partners of TCTB Partnership, Ltd ("TCTB")
entered into an Agreement and Tranasfer of Limited Partnership Interest, subject
to a back-in interest to Anthem Oil and Gas, Inc, with a selling partner of
TCTB. Pursuant to the Agreement the Selling Partner agreed to sell his limited
partnership interest (the "LP Interest") in TCTB to the Company and certain
other limited partners effective January 1, 2004, resulting in the Company
acquiring an additional 6.485533% of TCTB. The Company funded the acquisition
with $208,346.20 in cash and $250,778.27 by a Promissory Note (the "Note"). The
note is payable in quarterly installments over the next five years and bears an
interest rate of 5%. The first quarterly installment is due April 1, 2004.
17
SIGNATURES
In accordance with the requirements of Securities Act of 1934, AMEN Properties,
Inc., the registrant, has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMEN Properties, Inc.
May 7, 2004 By: /s/ Eric Oliver
---------------
Eric Oliver
Chairman and Chief Executive Officer
May 7, 2004 By: /s/ John M. James
-----------------
John M. James
Chief Financial Officer and Secretary
18
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
11. Computation of Earnings Per Share.
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USCss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USCss.1350.
19