SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
May 25, 2006
-------------------------------
Date of Earliest Reported Event
AMEN Properties, Inc.
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(Exact name of registrant as specified in its Charter)
Delaware
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(State or other jurisdiction of incorporation)
000-22847
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(Commission File Number)
54-1831588
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(IRS Employer Identification No.)
2300 W. Wall Street, Suite 2300
Midland, Texas 79701
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(Address of principal executive offices) (Zip Code)
(432) 684-3821
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(Registrant's telephone number, including area code)
NA
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2):
[__] Written communications pursuant to Rule 425 under Securities Act (17 CFR
230.425)
[__] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[__] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-d(b))
[__] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry Into a Material Definitive Agreement.
In connection with the completion of the acquisition described in Item 2.01
below, the registrant's newly acquired subsidiary, Priority Power Management
Ltd., has entered into the following employment agreements:
o Employment and Non-Competition Agreement between Priority Power
Management Ltd. and John J. Bick dated as of June 1, 2006, which
provides for the employment of Mr. Bick for three years with
successive one-year extensions thereafter unless terminated by either
party. The agreement provides for an annual base salary of $140,000
and other benefits including reimbursement of expenses, insurance,
vacation time, an annual bonus based upon performance criteria to be
set each year, and other benefits generally provided by the employer.
The agreement contains a non-compete provision which restricts certain
activities by the employee during the term of the agreement and for a
period of three years after termination of the agreement, and the
employee is required to maintain the confidentiality of the employer's
confidential information. The employment will be terminated upon the
employee's death and may be terminated by the employer upon disability
of the employee, for cause or other than for cause, or by the employee
for good reason upon 30 days notice or for any other reason upon 90
days notice. The employee is not entitled to any severance benefits
unless the employment is terminated by the employer other than for
cause, in which case the company will either release the employee from
the non-compete provisions or continue to pay the employee his
then-current base salary until expiration of the term of the
agreement.
o Employment Agreement between Priority Power Management Ltd. and
Padraig Ennis dated May 24, 2006 to be effective as of June 1, 2006,
which provides for the employment of Mr. Ennis for three years unless
terminated by either party. The agreement provides for an annual base
salary of $140,000 and other benefits including reimbursement of
expenses, insurance, vacation time, and other benefits generally
provided by the employer. The agreement also provides for a one time
bonus of $50,000 in connection with the consummation of the
transaction described in Item 2.01 below, and an annual bonus related
to the net income of Priority Power (as defined below), but not less
than $30,000 per year. The agreement provides that for a period of 18
months after termination of the agreement by the employer for cause
the employee will not solicit any person with whom the employer does
business, interfere in any relationship of the employer or disparage
the employer. The employment will be terminated upon the employee's
death or permanent disability of the employee and may be terminated by
the employer for cause or other than for cause, or by the employee for
good reason. The employee is not entitled to any severance benefits
unless the employment is terminated by the employer other than for
cause or by the employee for good reason, in which case the employee
will be entitled to severance equal to one year of the employee's base
salary, payable either in a lump sum or semi-monthly payments at the
discretion of the employer.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On May 25, 2006, Amen Properties, Inc. (the "Company") completed its acquisition
of all of the outstanding partnership interests in Priority Power Management,
Ltd. and Priority Power Management Dallas, Ltd. (collectively, "Priority Power")
pursuant to a Securities Purchase Agreement by and between the Company and its
subsidiary, NEMA Properties LLC ("NEMA"), and the partners of Priority Power
dated May 18, 2006 (the "Purchase Agreement"). Priority Power is in the business
of providing energy management consulting services, and the Company believes
that Priority Power's business is complimentary to the retail electricity
provider business conducted by the Company's subsidiary, W Power and Light, LP
("W Power"). The total purchase price was $3,730,051.14, comprised of (i)
$500,000 in cash, and (ii) promissory notes with the aggregate principal amount
of $3,230,051.14 from the Company and NEMA and payable to the sellers, which
accrue interest at the annual rate of 7.75% and are payable in equal quarterly
installments of principal and accrued interest beginning at the end of the first
full quarter after closing of the transaction and maturing on December 31, 2013.
The cash portion of the purchase price was paid by the Company and NEMA from
available cash, and no financing was utilized. The purchase price was determined
based upon an appraisal of Priority Power and interim operating results of
Priority Power.
There are several business relationships among Priority Power, its partners, the
Company and its subsidiaries, and their respective affiliates. The Company's
retail electricity provider subsidiary, W Power, has contractual relationships
with Priority Power with respect to providing electricity to less than 0.2% of
Priority Power's clients and the Company believes W Power will not provide
energy to any Priority Power clients in the future. Additionally certain of the
partners of Priority Power are customers of W Power. Listed in Schedule 4.21 of
the Purchase Agreement are certain of the partners of Priority Power who are
customers of Priority Power, none of which are considered significant customers.
In addition, certain of the partners of Priority Power are also five percent or
more stockholders of the Company or affiliates of stockholders of the Company,
including an affiliate of Jon M. Morgan, the President and Chief Operating
Officer of the Company, and Eric L. Oliver, the Chairman of the Board of
Directors and the Chief Executive Officer of the Company. Jon M. Morgan is a
fifty percent owner of Anthem Oil and Gas, Inc which is a limited partner of
Priority Power. Mr. Morgan also owns an interest in the general partner of
Priority Power Management, Ltd. Eric L. Oliver owns a thirty-seven and a half
percent interest in a limited partner of Priority Power, Oakdale Ventures, Ltd.
The full names of all of the sellers under the Purchase Agreement are set forth
in the copy of the Purchase Agreement filed as an Exhibit to the Company's Form
8-K Current Report filed May 24, 2006.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Priority Power Management, Ltd
Consolidated Financial Statements for the
Years Ended December 31, 2005 and 2004 Page 5
Priority Power Management, Ltd
Consolidated Financial Statements for the
Three Months Ended March 31, 2006 and 2005 Page 18
(b) Pro Forma Financial Information.
The following pro forma financial statements of the Registrant are
submitted at the end of this Current Report on Form 8-K and are filed
herewith and incorporated herein by reference:
Summary of Unaudited Pro Forma Financial Statements 27
Pro Forma Balance Sheet as of March 31, 2006 28
Pro Forma Statement of Operations for the three months
ended March 31, 2006 29
Pro Forma Statement of Operations for the year
ended December 31, 2005 30
(c) Exhibits.
Title Exhibit No.
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Employment Agreement between Priority Power 10.1
Management, Ltd and John Bick
Employment Agreement between Priority Power 10.2
Management, Ltd and Padraig Ennis
Securities Purchase Agreement among Amen 10.3
Properties, Inc. and NEMA Properties, LLC,
Priority Power Management, Ltd. and
Priority Power Management Dallas, Ltd.
and their respective partners dated as of
May 18, 2006 (including the forms of
promissory note and assignment delivered
at closing), incorporated by reference to
the Company's Form 8-K Current Reported
filed on May 24, 2006.
Press release regarding the Company's 99.1
completion of acquisition of Priority Power
Management.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMEN PROPERTIES, INC.
(Registrant)
By: /s/ Eric Oliver
----------------------------------
Date: July 15, 2006 Eric Oliver
Chairman of the Board of Directors
and Chief Executive Officer
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
PRIORITY POWER MANAGEMENT, LTD.
DECEMBER 31, 2005 and 2004
5
TABLE OF CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 7
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 8
CONSOLIDATED STATEMENTS OF INCOME 9
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL 10
CONSOLIDATED STATEMENTS OF CASH FLOWS 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12
6
Report of Independent Certified Public Accountants
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To the Partners of
Priority Power Management, Ltd.
We have audited the consolidated balance sheets of Priority Power Management,
Ltd. (the "Partnership"), as of December 31, 2005 and 2004, and the related
consolidated statements of income, partners' capital and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes 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 Partnership's internal control
over financial reporting. According, 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 consolidated position of
Priority Power Management, Ltd., as of December 31, 2005 and 2004, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
JOHNSON MILLER & CO., CPA's PC
Midland, Texas
April 25, 2006
7
Priority Power Management, Ltd.
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
ASSETS
2005 2004
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CURRENT ASSETS
Cash and cash equivalents (Note 2) $ 614,996 600,917
Accounts receivable 402,771 311,237
Prepaid assets 2,153 633
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Total current assets 1,019,920 912,787
Property and equipment (Note 3) 57,123 27,124
Contract rights (Note 4) 66,541 -
---------- ----------
Total assets $1,143,584 939,911
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable, trade $ 66,359 7,526
Accounts payable, related party 18,927 12,470
Accrued liabilities 391,607 180
Deferred revenue 22,175 -
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Total current liabilities 499,068 20,176
Minority interest (Note 2) 81,640 -
Commitments and contingencies (Note 8) - -
Partners' capital 562,876 919,735
---------- ----------
Total liabilities and partners' capital $1,143,584 939,911
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
8
Priority Power Management, Ltd.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2005 and 2004
2005 2004
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Revenues:
Management consulting fees $1,878,805 1,009,852
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Costs and expenses:
General and administrative 871,347 657,533
Cost of services 115,444 -
Depreciation 95,521 8,296
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Total costs and expenses 1,082,312 665,829
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Operating income 796,493 344,023
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Other income (expense):
Interest income 17,566 8,062
Settlement expense (Note 8) (391,327) -
Impairment of contract rights (note 4) (66,514) -
Other 333 5,442
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Total other (expense) income, net (439,942) 13,504
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Total income before minority interest 356,551 357,527
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Minority interest (Note 2) (81,640) -
---------- ----------
Net income $ 274,911 357,527
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
9
Priority Power Management, Ltd.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2005 and 2004
General Limited
Partners Partners Total
-------------- ------------- -------------
Balance, January 1, 2004 $ 5,623 556,585 562,208
Net income 3,575 353,952 357,527
-------------- ------------- -------------
Balance, December 31, 2004 9,198 910,537 919,735
Contributions - 1,400 1,400
Distributions - (140,000) (140,000)
Acquisition of limited partners' interest (Note 5) - (493,170) (493,170)
Net income 2,749 272,162 274,911
-------------- ------------- -------------
Balance, December 31, 2005 $ 11,947 550,929 562,876
============== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
10
Priority Power Management, Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005 and 2004
2005 2004
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $ 274,911 357,527
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation 12,070 8,296
Amortization of contract rights 83,451 -
Impairment of contract rights 66,514 -
Settlement expense 391,327 -
Minority interest 81,640 -
Change in assets and liabilities:
Increase in accounts receivable (91,534) (92,260)
Increase in prepaid assets (1,520) (91)
Increase (decrease) in accounts payable 65,290 (11,620)
Increase (decrease) in accrued liabilities 100 (3,819)
Increase in deferred revenue 22,175 -
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Net cash provided by operating activities 904,424 258,033
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Cash flows from investing activities:
Purchase of property and equipment (42,069) (11,747)
Purchase of contract rights (216,506) -
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Net cash used in investing activities (258,575) (11,747)
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Cash flows from financing activities:
Partner distributions (140,000) -
Partner contributions 1,400 -
Acquisition of limited partner interest (493,170) -
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Net cash used in financing activities (631,770) -
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Net increase in cash and cash equivalents 14,079 246,286
Cash and cash equivalents at beginning of year 600,917 354,631
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Cash and cash equivalents at end of year $ 614,996 600,917
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
11
Priority Power Management, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Priority Power Management, Ltd. (the "Partnership") was organized January 29,
2001, as a Texas limited partnership. The Partnership is primarily involved in
aggregating electric consumers and negotiates power prices on their behalf with
retail electric providers (REPs) for which the Partnership earns monthly
aggregation fees (ranging from $.0008-$.004 per KWH to fixed fees) based on the
aggregated customers' monthly electric usage.
The Partnership's general partner is Priority Power Management I, L.L.C.
The Partnership is owned 99% by the limited partner and 1% by the general
partner.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
Priority Power Management Dallas, Ltd. ("PPM-Dallas"), a related partnership
engaged in the same business as the Partnership, was organized September 5,
2003, as a Texas limited partnership. In connection with PPM-Dallas' formation,
on September 5, 2003, the Partnership advanced significant operating funds to
PPM-Dallas through a $500,000 revolving line of credit agreement, payable with
interest at 14%, and due September 2005 (subsequently extended to March 3,
2006). In connection with the credit agreement, the Partnership received
warrants to purchase interest up to 75% of general partner and up to 75% of
limited partner interest at a price of $100 per interest. See Note 9 for the
Partnership's exercise of the warrants on January 30, 2006.
The Partnership performed an evaluation of its credit and warrant agreements
with PPM-Dallas to determine if the associated entity constitutes 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.
Based upon the Partnership's interpretation of FIN 46 and 46(R), the Partnership
believes PPM-Dallas should be consolidated with the Partnership due to an
insufficient amount of equity for the entity to carry on its principal
operations without the additional financial support of the Partnership.
The consolidated financial statements include all the accounts of the
Partnership and PPM-Dallas. All significant intercompany accounts and
transactions have been eliminated in consolidation.
12
Priority Power Management, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
The Partnership considers highly liquid debt instruments which have an original
maturity of three months or less to be cash equivalents.
A portion of the Partnership's cash and cash equivalents are maintained in
financial institutions located in the Partnership's area of operations in
amounts that, from time to time, exceed federally insured limits. The
Partnership has not experienced any losses in such amounts and believes it is
not exposed to any significant credit risk.
Accounts Receivable
Management regularly reviews accounts receivable and allowance for doubtful
accounts. This allowance is established on a customer specific basis and is
based upon the period of time an amount is past due and the financial condition
of the obligor, as well as other factors.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. The useful
lives of equipment and other property are 3 to 10 years.
When assets are disposed of, the cost and related accumulated depreciation or
amortization is removed from the accounts and the resulting gain or loss is
recognized in operations. The cost of maintenance and repairs is recognized as
incurred, whereas significant renewals or betterments are capitalized.
Impairment of Long-Lived Assets
The Partnership periodically evaluates the recoverability of the carrying value
of its long-lived assets and identifiable intangibles and whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable.
Examples of events or changes in circumstances that indicate that the
recoverability of the carrying amount of an asset should be assessed include but
are not limited to the following: a significant decrease in the market value of
an asset, a significant change in the extent or matter in which an asset is used
or a significant physical change in an asset, a significant adverse change in
legal factors or in the business climate that could affect the value of an asset
or an adverse action or assessment by a regulator, an accumulation of costs
significantly in excess of the amount originally expected to acquire or
construct an asset, and/or a current period operating or cash flow loss
consolidated 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.
13
Priority Power Management, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
No provision for income taxes is made in the Partnership's financial statements
because the taxable income or loss of the Partnership is includable in the
income tax returns of the individual partners.
Minority Interest
The Partnership allocates net losses of PPM-Dallas to minority interest to the
extent of the carrying amount of the minority interest with any excess absorbed
by the Partnership. The Partnership allocates net earnings of PPM-Dallas to
minority interest after recovery of any excess losses absorbed. The following is
a summary of PPM-Dallas' minority interest (deficit) activity for the years
ended December 31:
2005 2004
------------- -------------
PPM-Dallas partners' equity:
Balance, beginning or year $ (191,138) (12,584)
Net earnings (loss) 272,778 (178,554)
------------- -------------
Balance, end of year $ 81,640 (191,138)
============= =============
Minority interest in earnings (loss):
Net earnings (loss) $ 272,778 (178,554)
(Earnings) loss absorbed (recouped)
by Partnership (191,138) 178,554
------------- -------------
Minority interest in earnings $ 81,640 -
============= =============
Revenue Recognition
The Partnership's aggregation fee revenue is recognized when the underlying
electricity consumption has occurred.
Deferred revenues relate to unearned prepaid aggregation fees.
Consulting and service income and related cost are recognized as the work is
performed.
LAAR (Load acting as a reactor) revenue is the Partnership's share of fees
derived from agreements between certain electric customers and the REPs whereby
the customers have consented to reduce their electric power usage during certain
time for benefit of the REP. In exchange, the customer receives certain fees
from REPs.
14
Priority Power Management, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
In May 2004, the FASB issued SFAS No. 154, Accounting Charges and Error
Corrections. This Statement replaces APB Opinion 20 and FASB Statement No. 3 and
changes the requirements for the accounting and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. The provisions of
this Statement shall be effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.
Management does not believe these new standards will have a material impact on
its financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
The Partnership's property and equipment at December 31, are as follows:
2005 2004
------------- -------------
Office furniture $ 32,526 24,786
Computer software and office equipment 61,824 27,494
------------- -------------
94,350 52,280
Less accumulated depreciation (37,227) (25,156)
------------- -------------
$ 57,123 27,124
============= =============
Depreciation expense was $12,070 and $8,296 for 2005 and 2004, respectively.
15
Priority Power Management, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
NOTE 4 - CONTRACT RIGHTS
On May 27, 2005, the Partnership acquired the contractual rights to certain
future aggregation fees to be received through April 2009, for $216,507. For the
year ended December 31, 2005, the Partnership received aggregation fees of
$46,823 and recorded amortization expense of $83,451. At December 31, 2005, due
to the cancellation of certain customers subject to the contractual rights,
management of the Partnership determined that the remaining carrying value of
the contract rights was impaired by $66,514 and thus reduced to $66,541.
NOTE 5 - ACQUISITION OF PARTNERS' CAPITAL
On November 28 and December 9, 2005, the Partnership acquired 15,000 and 9,375
limited partnership units for $285,000 and $208,170, respectively. The
consolidated purchase price of $493,170 was recorded as a reduction in limited
partners' capital. At December 31, 2005, the Partnership had 100,000 limited
partnership units.
NOTE 6 - RELATED PARTY TRANSACTIONS
At December 31, 2005 and 2004, the Partnership leased office space from an
affiliated entity. The Partnership paid rental fees to this affiliated entity of
approximately $20,000 and $16,700 during the years ended December 31, 2005 and
2004, respectively.
Future minimum lease annual payments under a non-cancelable operating lease for
the years ending December 31 are as follows:
2006 $ 19,406
2007 16,171
------------
$ 35,577
============
NOTE 7 - EMPLOYEE BENEFIT PLAN
In May 2002, the Partnership adopted a defined contribution safe harbor 401(k)
plan, which covers substantially all of its eligible employees. The Partnership
is required to contribute to the 401(k) plan so that its "safe harbor" status
may be maintained. The Partnership made contributions of approximately $5,200
and $5,400 for 2005 and 2004, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
During 2005, the Partnership entered into a contract on behalf of Citation Oil
and Gas for the purchase of gas and electricity. Under the terms of Citation's
consulting agreement, the Partnership was only an agent for the purchase of
electricity. As a result of entering into the contract for the purchase of gas,
the Partnership incurred an obligation to pay Citation $391,327.
The Partnership is subject to claims and lawsuits which arise primarily in the
ordinary course of business. It is the opinion of management that the
16
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position of the
Partnership.
NOTE 9 - SUBSEQUENT EVENT
On January 30, 2006, the general partner of the Partnership acquired 65% of the
partnership of Priority Power Management Dallas, Ltd for $13,000.
17
PRIORITY POWER MANAGEMENT, Ltd.
-------------------------------
Consolidated Financial Statements
Three Months Ended March 31, 2006 and 2005
18
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at March 31, 2006
(Unaudited) 20
Consolidated Statement of Operations--for the three months
ended March 31, 2006 and 2005 (Unaudited) 21
Consolidated Statement of Cash Flows-- for the three months
ended March 31, 2006 and 2005 (Unaudited) 22
Notes to Combined Financial Statements (Unaudited) 23
19
PRIORITY POWER MANAGEMENT, LTD.
CONSOLIDATED BALANCE SHEETS
March 31, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note A3) $ 783,152
Accounts receivable (note A4) 427,922
Prepaid assets 1,497
-------------
Total current assets 1,212,571
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $56,345 (note A5 and C) 40,123
CONTRACT RIGHTS (note D) 30,782
-------------
Total other assets 70,905
-------------
TOTAL ASSETS $ 1,283,476
=============
LIABILITIES AND PARTNERS'S CAPITAL
CURRENT LIABILITIES
Accounts payable, trade $ 60,197
Deferred revenue (note A9) 73,692
Accrued liabilities (note E) 391,965
-------------
Total current liabilities 525,854
MINORITY INTEREST (note A8) 136,250
PARTNERS' CAPITAL 621,372
-------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,283,476
=============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
20
PRIORITY POWER MANAGEMENT, LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31,
(Unaudited)
2006 2005
------------- -------------
Revenues:
Management consulting fees $ 649,004 327,256
------------- -------------
Total revenues 649,004 327,256
------------- -------------
Cost and Expenses:
General and administrative 291,573 178,283
Cost of Services 51,643 8,975
Depreciation 19,118 2,518
------------- -------------
Total cost and expenses 362,334 189,776
------------- -------------
Operating income 286,670 137,480
------------- -------------
Other income (expense):
Interest income 4,006 3,655
Other 50 (186)
------------- -------------
Total other income 4,056 3,469
------------- -------------
Income before income taxes and minority interest 290,726 140,949
Minority interest (54,610) -
------------- -------------
NET INCOME $ 236,116 140,949
============= =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
21
PRIORITY POWER MANAGEMENT, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
2006 2005
------------- -------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income $ 236,116 140,949
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 19,118 2,518
Minority interest 54,610 -
Changes in operating assets and liabilities:
Accounts receivable (25,151 ) 66,500
Prepaid assets 657 216
Accounts payable (25,089 ) (385 )
Accrued liabilities 358 297
Deferred revenue 51,516 -
------------- -------------
Net cash provided by operating activities 312,135 210,095
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (2,118) (4,740)
Collection of purchased contract rights 35,759 -
------------- -------------
Net cash provided by (used in) investing activities 33,641 (4,740)
------------- -------------
Cash flows from financing activities:
Priority Power Management, Ltd Partner distributions (180,000) (140,000 )
Partner Contributions 2,380 -
------------- -------------
Net cash used in financing activities (177,620) (140,000)
------------- ------------
Net decrease in cash and cash equivalents 168,156 65,355
Cash and cash equivalents at beginning of period 614,996 600,917
------------- -------------
Cash and cash equivalents at end of period $ 783,152 666,272
============= =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
22
PRIORITY POWER MANAGEMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization
Priority Power Management, Ltd. (the "Partnership") was organized January
29, 2001, as a Texas limited partnership. The Partnership is primarily
involved in aggregating electric consumers and negotiates power prices on
their behalf with retail electric providers ("REPS") for which the
Partnership earns monthly aggregation fees (ranging from $.0008 - $.004 per
KWH to fixed fees) based on the aggregated customer's monthly electric
usage.
The Partnership's general partner is Priority Power Management I, L.L.C.
The Partnership is owned 99% by the limited partners and 1% by the general
partner.
2. Basis of Consolidation
Priority Power Management Dallas, Ltd. ("PPM-Dallas"), a related
partnership engaged in the same business as the Partnership, was organized
September 5, 2003, as a Texas limited partnership. In connection with
PPM-Dallas' formation, on September 5, 2003, the Partnership advanced
significant operating funds to PPM-Dallas through a $500,000 revolving line
of credit agreement, payable with interest at 14%, and due September 2005
(subsequently extended to March 3, 2006). In connection with the credit
agreement, the Partnership received warrants to purchase interest up to 75%
of general partner and up to 75% of limited partner interest at a price of
$100 per interest. See Note B for the Partnership's exercise of the
warrants on January 30, 2006.
The Partnership performed an evaluation of Priority Power Management
Dallas, Ltd. to determine if the associated entity constitutes a Variable
Interest Entity, or VIE, as defined under Interpretations of 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 mode.
Based upon the Partnership's interpretation of FIN 46 and 46R, the
Partnership believes Priority Power Management Dallas, Ltd. should be
combined with Priority Power Management, Ltd. due to an insufficient amount
of equity for the entity to carry on its principal operations without the
additional financial support of Priority Power Management, Ltd.
The combined financial statements include all the accounts of Priority
Power Management, Ltd. and Priority Power Management Dallas, Ltd. All
significant inter-company accounts and transactions have been eliminated in
combination.
3. Cash Equivalents
The Partnership considers highly liquid debt instruments which have an
original maturity of three months or less to be cash equivalents.
A portion of the Partnership's cash and cash equivalents are maintained in
financial institutions located in the Partnership's area of operations in
23
PRIORITY POWER MANAGEMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
amounts that, from time to time, exceed federally insured limits. The
Partnership has not experienced any losses in such amounts and believes it
is not exposed to any significant credit risk.
4. Accounts Receivable
Management regularly reviews accounts receivable and allowance for doubtful
accounts. This allowance is established on a customer specific basis and is
based upon the period of time an amount is past due and the financial
condition of the obligor, as well as other factors.
5. Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets. The
useful lives of equipment and other property are 3 to 10 years.
When assets are disposed of, the cost and related accumulated depreciation
or amortization is removed from the accounts and the resulting gain or loss
is recognized in operations. The cost of maintenance and repairs is
recognized as incurred, whereas significant renewals or betterments are
capitalized.
6. Impairment of Long-Lived Assets
The Partnership periodically evaluates the recoverability of the carrying
value of its long-lived assets and identifiable intangibles by monitoring
and evaluating changes in circumstances that may indicate that the carrying
amount of the asset may not be recoverable. Examples of events or changes
in circumstances that indicate that the recoverability of the carrying
amount of an asset should be assessed include but are not limited to the
following: a significant decrease in the market value of an asset, a
significant change in the extent or matter in which an asset is used or a
significant physical change in an asset, a significant adverse change in
legal factors or in the business climate that could affect the value of an
asset or an adverse action or assessment by a regulator, an accumulation of
costs significantly in excess of the amount originally expected to acquire
or construct an asset, and/or a current period operating or cash flow loss
combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with an asset used
for the purpose of producing revenue.
The Partnership considers historical performance and anticipated future
results in its evaluation of potential impairment. Accordingly, when
indicators or impairments are present, the Partnership evaluates the
carrying value of these assets in reaction to the operating performance of
the business and future discounted and non-discounted 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.
7. Income Taxes
No provision for income taxes is made in the Partnership's financial
statements because the taxable income or loss of the Partnership is
includable in the income tax returns of the individual partners.
8. Minority Interest
Minority interest represents the interest of unit holders in Priority Power
Management, Dallas, Ltd other than the Partnership in net earnings and net
equity of Priority Power Management Dallas, Ltd.
24
PRIORITY POWER MANAGEMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
9. Revenue Recognition
The Partnership's aggregation fee revenue is recognized when the underlying
electricity consumption has occurred.
Deferred revenues relate to unearned prepaid aggregation fees.
10. Use of estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United Sates of America, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
11. Recent Accounting Pronouncements
In May 2004, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. This Statement replaces APB Opinion 20 and FASB Statement No.3
and changes the requirements for the accounting for and reporting of a
change in accounting principle. This Statement applies to all voluntary
changes in accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement
includes specific transition provisions, those provisions should be
followed. The provisions of this Statement shall be effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and
140. This Statement amends FASB Statement No.133, Accounting for Derivative
Instruments and Hedging Activities, and No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, "Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets." The provisions of this Statement shall be
effective for financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140. This Statement
amends FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, with respect to the
accounting for separately recognized servicing assets and servicing
liabilities. The provisions of this Statement shall be effective as of the
beginning of an entity's first fiscal year that begins after September 15,
2006.
Management does not believe the new pronouncements will have a material
impact on its financial statements.
NOTE B - BUSINESS COMBINATIONS
Effective January 30, 2006, Priority Power Management, Ltd completed the
acquisition of approximately 65% of the limited partnership interest in
Priority Power Management, Dallas, Ltd for an aggregate consideration of
approximately $13,000.
25
PRIORITY POWER MANAGEMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
The following summary compares the Partnership's operating results for the
three months ended March 31, 2006 as reported, to a pro forma of those
results prepared on the assumption that the purchase had taken place on
January 1, 2006.
As
Reported Proforma
------------- -------------
Revenues $ 649,004 694,004
============= =============
Net income $ 236,116 236,116
============= =============
NOTE C - PROPERTY AND EQUIPMENT
The Partnership's property and equipment at March 31, 2006 is as follows:
Computer software $ 24,618
Office furniture 32,526
Office equipment 39,324
-------------
96,468
Less: accumulated depreciation (56,345)
-------------
$ 40,123
Depreciation expense for the three months ended March 31, 2006 and 2005 was
$19,118 and 2,518, respectively.
NOTE D - CONTRACT RIGHTS
On May 27, 2005 the Partnership acquired the contractual rights to certain
future aggregation fees to be received through April 2009, for $216,507.
For the period ended March 31, 2006, the Partnership received aggregation
fees of $ 35,759.
NOTE E - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at March 31, 2006:
Accrued contract obligation $ 391,327
Other liabilities 638
-------------
$ 391,965
=============
NOTE F - RELATED PARTY TRANSACTIONS
At March 31, 2006 and 2005 the Partnership leased office space from an
affiliated entity. The Partnership paid rental fees to this affiliated
entity of approximately $ 5,411 and $3,011 for the period ended March 31,
2006 and 2005, respectively.
26
PRIORITY POWER MANAGEMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
NOTE G - EMPLOYEE BENEFIT PLAN
In May 2002, the Partnership adopted a defined contribution safe harbor
401(k) plan, which covers substantially all of its eligible employees. The
Partnership is required to contribute to the 401(k) plan so that its "safe
harbor" status may be maintained. The Partnership made contributions of
approximately $1,300 for the period ended March 31, 2006 and 2005,
respectively.
27
AMEN Properties, Inc. and Subsidiaries
SUMMARY OF UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
This unaudited pro forma information should be read in conjunction with the
financial statements and notes of Amen Properties, Inc. (the "Registrant")
included in its annual report filed on Form 10-KSB for the year ended December
31, 2005 and its quarterly report filed on Form 10-QSB for the period ended
March 31, 2006.
The following unaudited pro forma balance sheet as of March 31, 2006 have been
prepared to give effect to the acquisition of the undivided interest in Priority
Power Management, Ltd by NEMA Properties, LLC, a wholly owned subsidiary of the
Registrant, as if the acquisition occurred on March 31, 2006.
The following unaudited pro forma statements of operations for the three months
ended March 31, 2006 and the year ended December 31, 2005 have been prepared to
give effect to the acquisition of the Priority Power Management, Ltd. by NEMA
Properties, LLC as if the acquisition had occurred on January 1, 2005.
These unaudited pro forma financial statements are prepared for informational
purposes only. These unaudited pro forma statements of operations are not
necessarily indicative of future results or of actual results that would have
been achieved had the acquisition occurred as of January 1, 2005.
28
AMEN PROPERTIES, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 2006
Priority Power
Management,
Amen Properties, Ltd. Combined
Inc. Consolidated Financial Pro Forma
Financials (a) Statements (b) Adjustments Total
------------------ ------------------- ------------------- ---------------
ASSETS:
Cash and cash equivalents 2,005,370 783,152 (500,000) (c) 2,288,522
Accounts receivable 858,891 427,922 - 1,286,813
Other current assets 199,680 1,497 201,177
Restricted cash and short-term
investments 4,303,104 - - 4,303,104
Goodwill - - 2,916,085 (d) 2,916,085
Property, plant and equipment
(net of accumulated depreciation) 8,020,510 40,123 56,344 (e) 8,116,977
Royalty interests 133,423 - - 133,423
Long-term investments 62,350 - - 62,350
Other assets 40,498 30,782 - 71,280
------------------ ------------------- ------------------- ---------------
Total assets 15,623,826 1,283,476 2,472,429 19,379,731
================== =================== =================== ===============
Liabilities and equity
Current liabilities 1,782,532 525,854 245,912 (f) 2,554,298
Long-term obligations 7,146,890 - 2,984,139 (g) 10,131,029
Minority interest 365,868 136,250 (136,250) (h) 365,868
Equity 6,328,536 621,372 (621,372) (i) 6,328,536
------------------ ------------------- ------------------- ---------------
Total liabilities and equity 15,623,826 1,283,476 2,472,429 19,379,731
================== =================== =================== ===============
(a) Historical financial information has been obtained from the
Registrant's quarterly report filed on Form 10-QSB for the period
ended March 31, 2006.
(b) Reflects the Combined Balance Sheets of Priority Power Management, Ltd
and Priority Power Management Dallas, Ltd. for the period ended March
31, 2006.
(c) Reflects the net cash paid at closing on the purchase of Priority
Power Management, Ltd and Priority Power Management Dallas, Ltd.
(d) Reflects the excess cost over the sum of the amounts assigned to
tangible assets, acquired liabilities and the debt assumed.
(e) Reflects the increase in the tangible assets to their fair market
value.
(f) Reflects the current portion of the long-term debt assumed.
(g) Reflects the long-term portion of the debt assumed.
(h) Reflects the decrease in the minority interest as 100% of Priority
Power Management, Ltd and Priority Power Management Dallas, Ltd. was
purchased.
(i) Reflects the partnership capital accounts of Priority Power
Management, Ltd and Priority Power Management Dallas, Ltd.
29
AMEN PROPERTIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
Amen Properties, Priority Power
Inc. Consolidated Management Pro Forma
Financials (a) Ltd. (b) Adjustments Total
------------------ ------------------ --------------- ---------------
Operating revenue:
Rental revenue $ 751,605 - (5,411) (c) 746,194
Retail electricity revenue 3,168,707 - 3,168,707
Management consulting fees - 649,004 649,004
------------------ ------------------ --------------- ---------------
Total revenue 3,920,312 649,004 (5,411) 4,563,905
------------------ ------------------ --------------- ---------------
Operating expense:
Cost of goods and services 2,820,418 51,643 - 2,872,061
Rental property operations 478,386 - - 478,386
General and administrative 236,692 291,573 (5,411) (c) 522,854
Depreciation, amortization and depletion 102,276 19,118 - 121,394
------------------ ------------------ --------------- ---------------
Total operating expense 3,637,772 362,334 (5,411) 3,994,695
------------------ ------------------ --------------- ---------------
Net income from operations 282,540 286,670 - 569,210
------------------ ------------------ --------------- ---------------
Other income (expense):
Interest income 49,701 4,006 - 53,707
Interest expense (140,662) - (57,818) (d) (198,480)
Other income (expense) 22,945 50 - 22,995
------------------ ------------------ --------------- ---------------
Total other income (expense) (68,016) 4,056 (57,818) (121,778)
------------------ ------------------ --------------- ---------------
Net income (loss) before income taxes and
minority interest 214,524 290,726 (57,818) 447,432
Income taxes - - - -
Minority interest (21,870) (54,610) 54,610 (21,870)
------------------ ------------------ --------------- ---------------
NET (LOSS) INCOME $ 192,654 236,116 (3,208) 425,562
================== ================== =============== ===============
Net income per common share - basic $ .09 .19
================== ===============
Net income per common share - diluted $ .05 .12
================== ===============
Weighted average number of common shares
outstanding - basic 2,206,215 2,206,215
================== ===============
Weighted average number of common shares
outstanding - diluted 3,555,979 3,555,979
================== ===============
(a) Historical financial information has been obtained from the
Registrant's quarterly report filed on Form 10-QSB for the period
ended March 31, 2006.
(b) Reflects the combined operating results of Priority Power Management,
Ltd and Priority Power Management Dallas, Ltd. for the period ended
March 31, 2006.
(c) Reflects the inter-company rental fees for Priority Power Management,
Ltd's leased office space.
(d) Reflects the interest expense associated with the note payable to the
selling partners of Priority Power Management, Ltd and Priority Power
Management Dallas, Ltd.
30
AMEN PROPERTIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
Amen Properties, Priority Power
Inc. Consolidated Management Pro Forma
Financials (a) Ltd. (b) Adjustments Total
------------------ ------------------ --------------- ---------------
Operating revenue:
Rental revenue $ 3,008,669 - (20,000) (c) 2,988,669
Retail electricity revenue 7,172,223 - - 7,172,223
Management consulting fees - 1,878,805 - 1,878,805
------------------ ------------------ --------------- ---------------
Total revenue 10,180,892 1,878,805 (20,000) 12,039,697
------------------ ------------------ --------------- ---------------
Operating expense:
Cost of goods and services 6,923,619 115,444 - 7,039,063
Rental property operations 1,941,620 - (20,000) (c) 1,921,620
General and administrative 929,653 871,347 - 1,801,000
Depreciation, amortization and depletion 387,669 95,521 - 483,190
------------------ ------------------ --------------- ---------------
Total operating expense 10,182,561 1,082,312 (20,000) 11,244,873
------------------ ------------------ --------------- ---------------
Net income from operations (1,669) 796,493 - 794,824
------------------ ------------------ --------------- ---------------
Other income (expense):
Interest income 71,017 17,566 - 88,583
Interest expense (552,567) - (245,625) (d) (798,192)
Impairment of note receivable (186,555) - - (186,555)
Impairment of contract rights - (66,514) - (66,514)
Settlement expense (391,327) - (391,327)
Other income (expense) 56,553 333 - 56,886
------------------ ------------------ --------------- ---------------
Total other income (expense) (611,552) (439,942) (245,625) (1,297,119)
------------------ ------------------ --------------- ---------------
Net income (loss) before income taxes and
minority interest (613,221) 356,551 (245,625) (502,295)
Income taxes - - - -
Minority interest (91,341) (81,640) 81,640 (91,341)
------------------ ------------------ --------------- ---------------
NET (LOSS) INCOME $ (704,562) 274,911 (163,985) (593,636)
================== ================== =============== ===============
Net income per common share - basic $ (.32) (.27)
================== ===============
Net income per common share - diluted $ (.32) (.27)
================== ===============
Weighted average number of common shares
outstanding - basic 2,203,073 2,203,073
================== ===============
Weighted average number of common shares
outstanding - diluted 2,203,073 2,203,073
================== ===============
(a) Historical financial information has been obtained from the
Registrant's annual report filed on Form 10-KSB for the year ended
December 31, 2005.
(b) Reflects the combined operating results of Priority Power Management,
Ltd and Priority Power Management Dallas, Ltd. for the year ended
December 31, 2005.
(c) Reflects the inter-company rental fees for Priority Power Management,
Ltd's leased office space.
(d) Reflects the annual interest expense associated with the note payable
to the selling partners of Priority Power Management, Ltd and Priority
Power Management Dallas, Ltd.
31