UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 2008
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 Registrant 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 2300
Midland, TX 79701
-------------------------------------------------------------
(Address of Principal Executive Offices)
(432-684-3821)
-------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
-------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark 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 | |
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, and non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer", "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | | Accelerated Filer | |
Non-accelerated filer | | (Do not check if a smaller reporting company)
Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes | | No |X|
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes | | No | |
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: 3,777,655 shares outstanding as of November 14,
2008.
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2008 (Unaudited) and
December 31, 2007 (Audited) 1
Consolidated Statements of Operations and Comprehensive Income --
for the three and nine months ended September 30, 2008 and 2007
(Unaudited) 3
Consolidated Statements of Cash Flows-- for the nine months ended
September 30, 2008 and 2007 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4T. Controls and Procedures 32
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33
Item 3 Defaults Upon Senior Securities 33
Item 4 Submission of Matters to a Vote of Security Holders 33
Item 5 Other Information 33
Item 6 Exhibits 33
Signatures 36
Exhibits
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 USC ss. 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss. 1350.
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2008 2007
------------- -------------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and Cash Equivalents $ 3,102,700 $ 1,520,852
Accounts Receivable, net of allowance of
$103,538 and $17,232 at September 30, 2008 and
December 31, 2007, respectively 500,468 1,808,946
Current Available-for-Sale Securities 386,489 3,680,550
Restricted Cash Equivalents 537,000 --
Other Current Assets 121,987 231,260
------------- -------------
Total Current Assets 4,648,644 7,241,608
RESTRICTED CASH EQUIVALENTS -- 2,197,000
PROPERTY AND EQUIPMENT 117,719 177,771
OIL AND GAS INVESTMENTS IN SFF GROUP 8,842,781 10,022,389
OIL AND GAS INVESTMENT IN YARBOROUGH ALLEN FIELD 1,681,000 --
INVESTMENT IN REAL ESTATE 2,357,182 2,311,443
OIL AND GAS ROYALTY INTERESTS 124,478 126,528
LONG-TERM INVESTMENTS 62,350 62,350
OTHER ASSETS
Goodwill 2,916,085 2,916,085
Deferred Costs 6,000 6,000
Deposits and Other Assets 406,317 500,856
------------- -------------
Total Other Assets 3,328,402 3,422,941
------------- -------------
TOTAL ASSETS $ 21,162,556 $ 25,562,030
============== =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2008 2007
------------- -------------
(Unaudited) (Audited)
CURRENT LIABILITIES
Accounts Payable $ 182,883 $ 796,540
Accrued Liabilities 273,549 718,991
Deferred Revenue 65,744 26,519
Income and Franchise Taxes Payable 59,006 32,656
Short-Term Obligations 1,632,559 698,593
Short-Term Related-Party Obligations 1,076,441 5,510,407
Current Portion of Long-Term Obligations 122,213 115,375
Current Portion of Related-Party Obligations 387,313 375,286
------------- -------------
Total Current Liabilities 3,799,708 8,274,367
OTHER LIABILITIES
Long-Term Obligations, less current portion
Financial Institutions and Other Creditors 638,012 730,545
Related-Party Obligations 1,585,979 1,893,540
------------- -------------
Total Other Liabilities 2,223,991 2,624,085
COMMITMENTS and CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value; 5,000,000
shares authorized 429,100 Series "D" shares
issued and outstanding 429 429
Common Stock, $.01 par value; 20,000,000 shares
authorized; 3,777,655 and 3,716,182 shares
issued and outstanding at September 30, 2008
and December 31, 2007, respectively 37,777 37,162
Additional Paid-in Capital 49,875,583 49,445,241
Accumulated Deficit (34,791,294) (35,062,245)
Accumulated Other Comprehensive Income 16,362 242,991
------------- -------------
Total Stockholders' Equity 15,138,857 14,663,578
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,162,556 $ 25,562,030
============== =============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
2
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- ----------------------------
2008 2007 2008 2007
------------ ------------ ------------- ------------
OPERATING REVENUE
Energy Management Fees $ 1,146,305 $ 1,168,635 $ 3,532,763 $ 2,947,097
------------ ------------ ------------- ------------
Total Operating Revenue 1,146,305 1,168,635 3,532,763 2,947,097
------------ ------------ ------------- ------------
OPERATING EXPENSE
Cost of Goods and Services 129,116 237,269 450,188 459,820
General and Administrative 942,682 586,699 2,562,655 1,630,152
Depreciation, Amortization and
Depletion 39,570 33,605 132,353 54,374
Corporate Tithing -- 36,186 112,397 157,569
------------ ------------ ------------- ------------
Total Operating Expenses 1,111,368 893,759 3,257,593 2,301,915
------------ ------------ ------------- ------------
INCOME FROM OPERATIONS 34,937 274,876 275,170 645,182
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE)
Interest Income 3,428 79,316 7,546 155,934
Interest Expense (92,759) (85,126) (311,368) (208,740)
Gain on Sale of Investments 18,063 -- 552,794 --
Income from Real Estate Investment 25,156 8,908 45,739 81,627
Income from SFF Group Investment 574,243 -- 1,420,390 --
Yarborough Allen Field Income 36,534 -- 36,534 --
Other Income 19,485 17,860 62,323 46,320
------------ ------------ ------------- ------------
Total Other Income 584,150 20,958 1,813,958 75,141
------------ ------------ ------------- ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 619,087 295,834 2,089,128 720,323
INCOME TAXES (5,000) -- (74,392) --
MINORITY INTEREST -- -- -- 900
------------ ------------ ------------- ------------
INCOME FROM CONTINUING OPERATIONS 614,087 295,834 2,014,736 721,223
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (251,769) (17,856) (1,470,232) 574,109
------------ ------------ ------------- ------------
NET INCOME 362,318 277,978 544,504 1,295,332
------------ ------------ ------------- ------------
PREFERRED STOCK DIVIDENDS (91,183) -- (273,551) --
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 271,135 $ 277,978 $ 270,953 $ 1,295,332
============ ============ ============= ============
Income from Continuing Operations per
Common Share (Basic) $ 0.16 $ 0.11 $ 0.56 $ 0.29
============ ============ ============= ============
Income from Continuing Operations per
Common Share (Diluted) $ 0.16 $ 0.08 $ 0.55 $ 0.20
============ ============ ============= ============
3
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- ----------------------------
2008 2007 2008 2007
------------ ------------ ------------- ------------
Income (Loss) from Discontinued
Operations per Common Share (Basic) $ (0.07) $ (0.01) $ (0.39) $ 0.23
============ ============ ============= ============
Income (Loss) from Discontinued
Operations per Common Share (Diluted) $ (0.07) $ 0.00 $ (0.38) $ 0.16
============ ============ ============= ============
Net Income per Common Share (Basic) $ 0.09 $ 0.10 $ 0.17 $ 0.52
============ ============ ============= ============
Net Income per Common Share (Diluted) $ 0.09 $ 0.08 $ 0.14 $ 0.36
============ ============ ============= ============
Weighted Average Number of Common Shares
Outstanding - Basic 3,773,326 2,755,031 3,751,858 2,447,104
Weighted Average Number of Common Shares
Outstanding - Diluted 3,847,982 3,708,932 3,828,356 3,692,820
OTHER COMPREHENSIVE INCOME
Net Income $ 271,135 $ 277,978 $ 270,953 $ 1,295,332
Unrealized Gain (Loss) on Investment 16,362 (56,176) 16,362 (57,474)
------------ ------------ ------------- ------------
Comprehensive Income $ 287,497 $ 221,802 $ 287,315 $ 1,237,858
============ ============ ============= ============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
4
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(Unaudited)
2008 2007
------------- -------------
Cash Flows From Operating Activities
Income From Continuing Operations: $ 2,014,736 $ 721,223
Adjustments to Reconcile Income From Continuing
Operations to Net Cash Provided By Continuing
Operations Depreciation, Amortization and
Depletion 132,353 54,374
Gain on Sale of Investments (552,794) --
Equity Income from Real Estate Investment (45,739) (81,627)
Equity Income from SFF Group Investment (1,420,390) --
Minority Interest -- (900)
Changes in Operating Assets and Liabilities
Accounts Receivable 199,714 (117,704)
Other Receivables 20,400 (179)
Other Assets 18,968 16,703
Accounts Payable (58,134) 82,081
Accrued and Other Liabilities 61,299 115,293
Deferred Revenue 39,225 33,774
------------- -------------
Net Cash Provided By Continuing Operations 409,638 823,038
Cash Flows From Discontinued Operations:
Cash Flows (Used By) Provided By Discontinued
Operating Activities (1,001,749) 385,585
------------- -------------
Net Cash (Used By) Provided By Operating
Activities (592,111) 1,208,623
------------- -------------
Cash Flows From Investing Activities
Decrease in Restricted Cash Equivalents 1,660,000 --
Purchases of Property and Equipment (33,128) (55,860)
Purchases of Property and Equipment for
Discontinued Operations -- (27,154)
Impairment of Discontinued Assets 32,939 --
Proceeds from Liquidation of Santa Fe Energy Trust
Investment 3,972,290 --
Purchase of Investments (352,064) (2,186,354)
Purchase of Yarborough Allen Field Assets (1,681,000) --
Investment in Real Estate -- (478,491)
Net Cash Used in Acquisition of Codgill
Enterprises, Inc. -- (6,000)
SFF Group Distributions 2,599,998 --
------------- -------------
Net Cash Provided By (Used In) Investing
Activities 6,199,035 (2,753,859)
------------- -------------
Cash Flows From Financing Activities
Repayments of Notes Payable (3,881,229) (353,371)
Net Proceeds from Exercise of Stock Options 54,700 --
Net Proceeds from Exercise of Warrants 75,004 37,500
Payment of Preferred Dividends (273,551) --
------------- -------------
Net Cash (Used In) Financing Activities (4,025,076) (315,871)
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,581,848 (1,861,107)
Cash and Cash Equivalents at Beginning of Period 1,520,852 4,457,208
------------- -------------
Cash and Cash Equivalents at End of Period $ 3,102,700 $ 2,596,101
============= =============
Cash Paid During Period for:
Interest $ 344,024 $ 184,639
5
2008 2007
------------- -------------
Non-Cash Investing and Financing Activities:
Unrealized Gain (Loss) on Marketable Securities (226,629) (57,474)
Stock Issued for Compensation 301,251 (71,336)
Long Term Investment Financed with Margin Account -- 1,251,205
Acquisition of Cogdill Enterprises and Assumption
of Note Payable -- 456,740
Acquisition of Cogdill Enterprises and Associated
Contract Rights -- (456,740)
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
6
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization
Company Background
o The Company was originally incorporated as DIDAX, Inc, in January
1997
o Until December 2002 the Company operated under the name
Crosswalk.com; its primary businesses were operation of the
Christian web portal crosswalk.com(TM) and a direct mail
advertising service.
o During the last quarter of 2002, the Company sold substantially
all of its assets with the exception of the Company's accumulated
Net Operating Loss ("NOL") and changed its name to AMEN
Properties, Inc.
o A revised business plan was approved by the shareholders in 2002,
and called for the Company to grow via the selective acquisition
of cash-generating assets in three categories:
o Commercial real estate in secondary stagnant markets
o Commercial real estate in out of favor growth markets
o Oil and gas royalties
During the time the Company operated as Crosswalk.com, it generated a Net
Operating Loss in excess of $30 million. Provisions in the United States
Federal Tax Code dictate that a significant ownership change (in excess of
50% in a three-year period) would eliminate the Company's ability to use
the NOL to offset its Federal Income Tax liability. It is the Company's
intention to preserve its NOL, which requires funding our growth without
access to many traditional sources of capital which would result in a
significant change in ownership.
Company Organization
In initiating the 2002 business plan the Company, in October 2002, formed
the following entities:
o NEMA Properties LLC, ("NEMA") a Nevada limited liability company
100% owned by AMEN
o AMEN Delaware LP, (the "Delaware Partnership") a Delaware limited
partnership owned 99% by NEMA as the sole limited partner and 1%
by AMEN, as the sole general partner
o AMEN Minerals LP, (the "Minerals Partnership") a Delaware limited
partnership, owned 99% by NEMA as the sole limited partner and 1%
by AMEN, as the sole general partner.
On July 30, 2004, the Company formed W Power and Light LP, (the "W Power
Partnership") a Delaware limited partnership owned 99% by NEMA as the sole
limited partner and 1% by AMEN, as the sole general partner. (See Note R).
On May 18, 2006, the Company acquired 100% of Priority Power Management,
Ltd. and Priority Power Management Dallas, Ltd., (collectively the "PPM
Partnership") effective April 1, 2006. Priority Power is owned 1% by AMEN,
as the sole general partner, and 99% by NEMA, as the sole limited Partner.
Corporate Reorganization
On December 17, 2007, the Company approved a corporate reorganization (the
"Reorganization") effective January 1, 2008. As part of the Reorganization,
the Delaware Partnership, the Minerals Partnership, the PPM Partnership,
and the W Power Partnership were each converted from limited partnerships
into limited liability companies with AMEN owning 100% of the shares and as
the sole managing member of each entity. The converted entities are:
o AMEN Delaware, LLC, ("Delaware")
o AMEN Minerals, LLC, ("Minerals")
o NEMA Properties, LLC , ("NEMA")
o Priority Power Management, LLC ("Priority Power")
o W Power and Light, LLC, ("W Power")
7
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
On May 31, 2008, as part of the Reorganization NEMA was converted from a
Nevada Limited Liability Company to a Texas Limited Liability Company.
Standard Reference
As used herein, the terms "Company" and "AMEN" and references to "we" and
"our" refer to all of AMEN Properties, Inc., NEMA, Delaware, the Delaware
Partnership, Minerals, the Minerals Partnership, and W Power, the W Power
Partnership, Priority Power, and the Priority Power Partnership unless the
context otherwise requires.
2. Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its majority-owned/controlled subsidiaries and affiliates.
Inter-company balances and transactions have been eliminated.
Management uses estimates and assumptions in preparing the consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America. Those estimates and assumptions
affect the reported amounts of assets, liabilities, revenues and expenses
in the consolidated financial statements, and the disclosure of contingent
assets and liabilities. Actual results could differ from these estimates.
3. Cash Equivalents
The Company considers cash on hand, cash on deposit in banks, money market
mutual funds and highly liquid debt instruments purchased with a maturity
of three months or less to be a cash equivalent.
4. Investments
The Company invests in U.S. government bonds and treasury notes, municipal
bonds, certificates of deposit, corporate bonds and other securities.
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, accounts
receivable, notes receivable, and accounts payable approximate fair value
because of the relatively short maturity of these instruments. The fair
value of the fixed rate debt, based upon current interest rates for similar
debt instruments with similar payment terms and expected payoff dates,
would be approximately $2,842,835 as of September 30, 2008. Disclosure
about fair value of financial instruments is based on pertinent information
available to management as of September 30, 2008.
6. Accounts Receivable
Management regularly reviews accounts receivable and estimates the
necessary amounts to be recorded as an allowance for doubtful accounts.
8
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
W Power's unbilled revenue is accrued based on the estimated amount of
unbilled power delivered to customers using the average customer billing
rates. Unbilled revenue also includes accruals for estimated Transmission
and Distribution Service Provider ("TDSP") charges and monthly service
charges applicable to the estimated usage for the period. As of September
30, 2008, W Power no longer has any unbilled revenue. W Power's allowance
for doubtful accounts at September 30, 2008 was $103,538. This amount is
equal to the entire receivable balance. Management believes further
collections from W Power customers are unlikely given the age of the
accounts and the Company's exit from the retail electric business.
Priority Power trade accounts receivable arise from aggregation fees and
other management services. An allowance for doubtful accounts is provided,
when considered necessary by management, for estimated amounts not expected
to be collectible. No allowance was provided or deemed necessary at
September 30, 2008.
At September 30, 2008 accounts receivable consisted of the following:
Billed Aggregation fees $ 372,414
Unbilled Aggregation fees 127,898
Other receivables 156
----------
Accounts receivable, net $ 500,468
==========
7. Other Current Assets
The Company had a relationship with a reseller that marketed W Power's
services on a pre-pay basis. During the third quarter 2007, the reseller's
receivable balance grew to $300 thousand due to cash flow issues caused by
billing issues and customer turnover. The Company previously collateralized
a portion of this receivable balance and increased the allowance for
doubtful accounts by $233 thousand specifically for this account. At June
30, 2008 management determined that the likelihood of collecting the
balance was remote and wrote off the entire remaining balance. In addition,
the Company expensed outstanding TDSP obligations the Company paid on
behalf of the reseller.
At September 30, 2008, Other Current Assets consisted of the following:
Yarborough Allen Field related receivables $ 105,534
Miscellaneous current assets and receivables 16,453
----------
Other Current Assets, net $ 121,987
==========
8. Depreciation, Amortization and Depletion
Property and equipment are stated at cost. Depreciation is determined using
the straight-line method over the estimated useful lives ranging from three
to 10 years. Royalty acquisitions are stated at cost. Depletion is
determined using the units-of-production method based on the estimated oil
and gas reserves.
9. Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value
of its long-lived assets and identifiable intangibles by monitoring and
evaluating changes in circumstances that may indicate that the carrying
amount of the asset may not be recoverable. Examples of events or changes
in circumstances that indicate that the recoverability of the carrying
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 manner 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.
9
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
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 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.
10. Investments in Joint Ventures
In 2006, the Company sold a significant interest in certain real estate and
contributed its retained 18% undivided ownership interest in the real
estate to an investment.
The Company and the other selling partners, the Buyers and affiliates of
the Buyers entered into a Contribution and Assumption Agreement dated March
19, 2007 (the "Contribution Agreement"), whereby the Company and others
contributed their remaining interests, other property interests, and cash
to HPG Acquisition LLC ("HPG") in exchange for membership interests in HPG,
all effective as of March 2, 2007.
The Company's investment in real estate and the SFF Group (see Note Q) is
recorded at cost, adjusted for its equity share of earnings, using the
equity method of accounting, and cash contributions and distributions.
11. Goodwill
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No.
142 requires that goodwill and other intangible assets with investment
lives no longer be amortized. The intangible assets are tested for
impairment annually. If there is impairment, the amount will be expensed
and the intangible assets will be written down accordingly.
12. Stock-Based Compensation
On January 1, 2006 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123(R), Accounting for Stock-Based Compensation, to
account for its stock-based compensation. In December 2004, the Financial
Accounting Standards Board issued SFAS 123(R) effective for small business
issuers after December 15, 2005. The new Statement requires mandatory
reporting of all stock-based compensation awards on a fair value basis of
accounting. Generally, companies are required to calculate the fair value
of all stock awards and amortize that fair value as compensation expense
over the vesting period of the awards.
13. Income and Franchise Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. At September 30, 2008, no federal income tax expense has been
incurred due to the utilization of the Company's net operating losses.
On May 18, 2006, the Texas Governor signed into law a new Texas Margin Tax,
which restructured the state business tax by replacing the taxable capital
and earned surplus components of the tax with a new taxable margin
component. The new franchise tax is effective for returns due on or after
January 1, 2008. The Texas franchise tax is imposed on taxable entities
chartered, organized, or doing business in Texas. While the State of Texas
does not classify the tax as a tax on income, the tax is considered an
income tax for purposes of SFAS No. 109 because the tax is based on a
measure of income. Texas franchise tax expense for the nine months ended
September 30, 2008 and 2007 was estimated to be approximately $59 thousand
and $0, respectively.
10
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
14. Deferred Revenue
Deferred revenue consists of prepaid aggregation fees. Deferred revenue is
amortized over the life of the aggregation contract for prepaid aggregation
fees.
15. Corporate Tithing
The Company shall, to the extent permitted by law, expend from the revenues
of the Company such sums as are deemed prudent by the Board of Directors to
support, encourage, or sustain persons or entities which in the judgment of
the Board of Directors are expected to make significant efforts to
propagate the Gospel of Jesus Christ in any manner not in conflict with the
Statement of Faith. Such expenditures may be made without regard to the tax
status or nonprofit status of the recipient. It is expected that the
expenditures paid out under the provisions of this policy shall approximate
ten percent (10%) of the amount that would otherwise be the net profits of
the Company for the accounting period.
16. 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. In 2007, the
remaining assets of TCTB were distributed to the unit holders thereby
eliminating the minority interest balance at December 31, 2007.
17. Contingently Convertible Securities
On August 31, 2007, the Company converted all then outstanding classes of
its Preferred Stock into 1,349,764 shares of the Company's Common Stock as
shown in the following table:
Number of Number of
Series Shares Purchase Price Conversion Rate Common Shares
------ --------- -------------- --------------- -------------
A 80,000 $ 2,000,000 $ 3.2444 616,447
B 50,000 500,000 3.2444 154,111
B 10,000 100,000 3.424 29,206
B 20,000 200,000 4.000 50,000
C 125,000 2,000,000 4.000 500,000
18. Revenue Recognition
The Company's gross revenues for aggregation and other services to our
customers are recognized upon delivery and include estimated aggregation
fees and other services delivered but not billed by the end of the period.
19. Advertising Expense
All advertising costs are expensed when incurred. Advertising expenses for
the nine months ended September 30, 2008 and 2007 were approximately $11
thousand and $3 thousand, respectively.
20. Income (Loss) Per Share
11
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
In accordance with provisions of SFAS No. 128, Earnings per Share, basic
income per common share is computed on the basis of the weighted-average
number of common shares outstanding during the periods. Diluted income per
common share is computed based upon the weighted-average number of common
shares outstanding plus the assumed issuance of common shares for all
potentially dilutive securities.
21. 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's real estate investments 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.
22. New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
This statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. The provisions of this Statement
shall be effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115. This Statement permits entities to choose to measure
many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. This Statement is expected to expand the use
of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. The
provisions of this Statement shall be effective as of the beginning of each
reporting entity's first fiscal year that begins after November 15, 2007;
this Statement should not be applied retrospectively to fiscal years
beginning prior to the effective date, except as permitted in paragraph 30
for early adoption.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations ("SFAS 141(R)"), which replaces FASB Statement No. 141. SFAS
141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. The Statement also establishes
disclosure requirements that will enable users to evaluate the nature and
financial effects of the business combination. SFAS 141(R) is effective for
acquisitions that occur in an entity's fiscal year that begins after
December 15, 2008. The impact, if any, will depend on the nature and size
of business combinations that Company consummates after the effective date.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 ("SFAS
160"). SFAS 160 requires that accounting and reporting for minority
interests will be recharacterized as noncontrolling interests and
classified as a component of equity. SFAS 160 also establishes reporting
requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations, but
will affect only those entities that have an outstanding noncontrolling
interest in one or more subsidiaries or that deconsolidate a subsidiary.
This statement is effective as of the beginning of an entity's first fiscal
year beginning after December 15, 2008.
12
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Management does not believe the new pronouncements will have a material
impact on its financial statements.
23. Reclassifications
Certain reclassifications of prior period amounts have been made to conform
to the September 30, 2008 presentation.
NOTE B - BUSINESS COMBINATIONS
Cogdill Enterprises
On September 11, 2007 the Company announced the acquisition of 100% of
Cogdill Enterprises, Inc. ("CEI"), effective August 31, 2007 for an
aggregate consideration of $6,000 and a obligation to pay 95% of the total
revenues actually received by the Company each month directly as a result
of the contracts originated by Trenton Cogdill for and on behalf of CEI
prior to August 31, 2007. CEI provides energy consulting services to over
1,200 religious and related organizations in Texas and the Company believes
that CEI's business will integrate with the Company's PPM subsidiary.
NOTE C - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at four financial institutions, which
at times may exceed federally insured limits. The Company had approximately
$3.5 million of uninsured cash and cash equivalents at September 30, 2008.
The Company has not experienced any losses in such accounts and believes
that it is not exposed to any significant credit risks on such accounts.
W Power and Priority Power's revenues are derived principally from
uncollateralized customer electricity billings. The concentration of credit
risk in a limited number of industries affects its overall exposure to
credit risk because customers may be similarly affected by changes in
economic and other conditions.
NOTE D - RESTRICTED CASH EQUIVALENTS
On October 18, 2005, the Company entered into a continuing agreement for
commercial and standby letters of credit (the "Letters of Credit") with
JPMorgan Chase Bank, N.A., Houston, Texas, ("Chase"). Under the agreement
Chase may, but is not obligated to, issue one or more standby or commercial
letters of credit on behalf of W Power. The Letters of Credit are generally
required in the normal course of business operations to support the
Company's obligations to collateralize certain obligations to electric
power providers, TDSPs, and ERCOT. Currently the Letters of Credit bear an
interest rate of seven-tenths of one percent (0.70%) payable quarterly in
advance. In order to support the Letters of Credit, the Company, Chase and
JP Morgan Securities Inc. ("JPMorgan") maintain a tri-party control
agreement that creates a security interest in favor of Chase in a certain
Money Market Fund the Company maintains with JPMorgan. The Company had
deposits with JPMC totaling $537,000 collateralizing outstanding Letters of
Credit at September 30, 2008.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following at September
30, 2008:
Furniture, fixtures and equipment $ 365,390
Less: accumulated depreciation (247,671)
-----------
$ 117,719
===========
13
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Depreciation expense for the nine months ended September 30, 2008 and 2007
was approximately $132 thousand and $54 thousand, respectively.
NOTE F - INVESTMENT IN REAL ESTATE
Effective September 27, 2006, the Company entered into an Agreement to
Distribute Assets with and among the partners of TCTB Partners, Ltd.
Contemporaneous with the distribution of the assets, the Company along with
the General Partner and the other Limited Partners of TCTB collectively
agreed to sell and sold 75% of their collective undivided interest in the
assets. This sale resulted in the Company retaining an undivided interest
of approximately 18% in the assets which was subsequently contributed into
HPG Acquisition, LLC.
The Company's Investment in real estate consisted of the following at
September 30, 2008:
Real estate investment $ 2,311,443
Equity earnings 45,739
------------
$ 2,357,182
============
A portion of the Company's real estate investment and equity earnings
results for 2008 are based on the results of HPG Acquisition, LLC and its
subsidiaries. HPG Acquisition, LLC reported the following consolidated
financial information at September 30, 2008:
Total Assets $ 16,967,708
Total Liabilities 758,006
Net Income (for the nine months ended September 30, 2008) 355,255
NOTE G - ROYALTY INTERESTS
The Company, through its wholly-owned subsidiary Amen Minerals, LLC,
currently directly owns two separate oil and gas royalty interests, one in
the state of Texas and one in the state of Oklahoma. The total
consideration paid by the Company for the royalty interests was $162,854.
Under accounting principles generally accepted in the United States of
America, revenues and expenses are recognized on an accrual basis. Royalty
income is generally received one to two months following the month of
production and the Company uses estimates to accrue royalty income for the
quarter ended September 30, 2008 and 2007.
Depletion expense was approximately $2 thousand for the nine months ended
September 30, 2008 and 2007. Accumulated depletion was $38 thousand and $35
thousand, respectively.
The Company also indirectly owns working and royalty interests through its
investment in SFF Royalty, LLC and SFF Production, LLC, as discussed in
Note Q.
NOTE H - GAIN ON LIQUIDATION OF SANTA FE ENERGY TRUST INVESTMENT
On February 29, 2008, the trustees of the Santa Fe Energy Trust made a
distribution of the net proceeds from the sale of the Trust's assets. The
Company, as a unit-holder in the Trust, received a portion of this
distribution. In addition, in 2007 the Company stripped $2,778,300 of U.S.
Treasury Bonds from its units in the Trust. These stripped Treasury Bonds
were sold on January 1, 2008.
14
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
The Company recognized the following gains from the liquidation of these
assets:
Santa Fe Energy Trust Units, at cost $ 659,259
Cash proceeds from Trust distribution 1,189,823
------------
Gain on liquidation of Santa Fe Energy Trust units 530,564
------------
U.S. Treasury Bonds, at cost 2,778,300
Cash proceeds from sale of assets 2,782,467
------------
Gain on liquidation of U.S. Treasury Bonds 4,167
------------
Total gain on liquidation of Santa Fe Trust Investment $ 534,731
============
NOTE I - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 2008:
Accrued sales tax $ 35,294
Accrued corporate tithing 83,447
Accrued officer bonuses 28,491
W Power shutdown costs (See Note R) 100,534
Other liabilities 25,783
------------
$ 273,549
============
NOTE J - INCOME TAXES
There was no federal income tax expense or benefit to report for the nine
months ended September 30, 2008 and 2007. As of September 30, 2008, the
Company has net operating loss carry-forwards totaling approximately $28
million for federal income tax purposes expiring in 2012 through 2027.
On May 18, 2006, the Texas Governor signed into law a new Texas Franchise
Tax, which restructured the state business tax by replacing the taxable
capital and earned surplus components of the tax with a new taxable margin
component. The new franchise tax is effective for returns due on or after
January 1, 2008. While the State of Texas does not classify the tax as a
tax on income, the tax is considered an income tax for purposes of FASB
Statement No. 109, Accounting for Income Taxes, because the tax is based on
a measure of income. The Company's franchise tax liability at September 30,
2008 and 2007 was approximately $59 thousand and $0, respectively.
NOTE K - OPERATING SEGMENTS
The Company's business activities are mainly comprised of two reportable
segments: energy management and real estate operations.
The provision of energy management services is primarily conducted through
Priority Power.
The commercial real estate portfolio consists of the Company's investment
in a real estate joint venture (see note F), consisting of an ownership of
approximately 18% in two office properties located in Midland, Texas
comprising an aggregate of approximately 428,560 square feet of gross
leasable area.
Retail electricity operations were previously included as an operating
segment. They are now included as part of discontinued operations. (See
Note R).
Each segment's accounting policies are the same as those described in the
summary of significant accounting policies and the following tables reflect
totals for the quarters ended September 30, 2008 and 2007, respectively.
15
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Three Months Ended September 30, 2008:
--------------------------------------
Inter-
Energy Company
Real Estate Management Other and Discontinued Transaction Consolidated
Operations Services Corporate Operations Eliminations Total
------------ ------------ ------------- ------------- ------------- -------------
Revenues from
external customers $ -- $ 1,146,305 $ -- $ 567,762 $ -- $ 1,714,067
============ ============ ============= ============= ============= =============
Revenues from other
operating segments $ -- $ 1,660 $ -- $ -- $ (1,660) $ --
============ ============ ============= ============= ============= =============
Depreciation,
amortization and
depletion $ -- $ 35,338 $ 4,232 $ 4,261 $ -- $ 48,331
============ ============ ============= ============= ============= =============
Interest expense $ -- $ 2,549 $ 90,210 $ 3,838 $ -- $ 96,597
============ ============ ============= ============= ============= =============
Segment net income
(loss) $ 19,968 $ 290,202 $ 184,162 $ (251,769) $ 28,572 $ 271,135
============ ============ ============= ============= ============= =============
Segment assets $ 2,383,182 $ 1,431,016 $ 20,697,300 $ 872,142 $ (4,221,084) $ 21,162,556
============ ============ ============= ============= ============= =============
Goodwill $ -- $ -- 2,916,085 -- $ -- $ 2,916,085
============ ============ ============= ============= ============= =============
Expenditures for
segment assets $ -- $ 8,174 $ 1,684,741 $ -- $ -- $ 1,692,915
============ ============ ============= ============= ============= =============
Nine Months Ended September 30, 2008:
-------------------------------------
Inter-
Energy Company
Real Estate Management Other and Discontinued Transaction Consolidated
Operations Services Corporate Operations Eliminations Total
------------ ------------ ------------- ------------- ------------- -------------
Revenues from
external customers $ -- $ 3,532,763 $ -- $ 6,032,226 $ -- $ 9,564,989
============ ============ ============= ============= ============= =============
Revenues from other
operating segments $ -- $ 5,065 $ -- $ -- $ (5,065) $ --
============ ============ ============= ============= ============= =============
Depreciation,
amortization and
depletion $ -- $ 119,089 $ 13,264 $ 18,046 $ -- $ 150,399
============ ============ ============= ============= ============= =============
Interest expense $ -- $ 8,688 $ 302,681 $ 11,779 $ -- $ 323,148
============ ============ ============= ============= ============= =============
Segment net income
(loss) $ 21,841 $ 1,191,756 $ 422,406 $ (1,470,232) $ 98,182 $ 270,953
============ ============ ============= ============= ============= =============
Segment assets $ 2,383,182 $ 1,431,016 $ 20,697,300 $ 872,142 $ (4,221,084) $ 21,162,556
============ ============ ============= ============= ============= =============
Goodwill $ -- $ -- 2,916,085 -- $ -- $ 2,916,085
============ ============ ============= ============= ============= =============
Expenditures for
segment assets $ -- $ 26,550 $ 1,688,071 $ 32,423 $ -- $ 1,747,044
============ ============ ============= ============= ============= =============
16
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Three Months Ended September 30, 2007:
--------------------------------------
Inter-
Energy Company
Real Estate Management Other and Discontinued Transaction Consolidated
Operations Services Corporate Operations Eliminations Total
------------ ------------ ------------- ------------- ------------- -------------
Revenues from
external customers $ -- $ 1,168,635 $ -- $ 3,221,691 $ -- $ 4,390,326
============ ============ ============= ============= ============= =============
Revenues from other
operating segments $ -- $ 7,625 $ -- $ -- $ (7,265) $ --
============ ============ ============= ============= ============= =============
Depreciation,
amortization and
depletion $ -- $ 29,491 $ 4,114 $ 5,394 $ -- $ 38,999
============ ============ ============= ============= ============= =============
Interest expense $ -- $ 1,310 $ 83,816 $ 3,924 $ -- $ 89,050
============ ============ ============= ============= ============= =============
Segment net income
(loss) $ 14,762 $ 596,407 $ (269,195) $ (17,857) $ (46,139) $ 277,978
============ ============ ============= ============= ============= =============
Segment assets $ 2,368,304 $ 2,377,664 $ 6,945,516 $ 4,632,298 $ 66,328 $ 16,390,110
============ ============ ============= ============= ============= =============
Goodwill $ -- $ -- 2,916,085 -- $ -- $ 2,916,085
============ ============ ============= ============= ============= =============
Expenditures for
segment assets $ -- $ 6,944 $ 810,568 $ 2,720 $ -- $ 820,232
============ ============ ============= ============= ============= =============
Nine Months Ended September 30, 2007:
-------------------------------------
Inter-
Energy Company
Real Estate Management Other and Discontinued Transaction Consolidated
Operations Services Corporate Operations Eliminations Total
------------ ------------ ------------- ------------- ------------- -------------
Revenues from
external customers $ $ 2,947,097 $ -- $ 8,268,703 $ -- $ 11,215,800
============ ============ ============= ============= ============= =============
Revenues from other
operating segments $ -- $ 20,925 $ -- $ -- $ (20,925) $ --
============ ============ ============= ============= ============= =============
Depreciation,
amortization and
depletion $ -- $ 42,221 $ 12,153 $ 14,145 $ -- $ 68,519
============ ============ ============= ============= ============= =============
Interest expense $ -- $ 1,310 $ 207,430 $ 11,739 $ -- $ 220,479
============ ============ ============= ============= ============= =============
Segment net income
(loss) $ 96,032 $ 1,622,154 $ (925,446) $ 574,058 $ (71,466) $ 1,295,332
============ ============ ============= ============= ============= =============
Segment assets $ 2,368,304 $ 2,377,664 $ 6,945,516 $ 4,632,298 $ 66,328 $ 16,390,110
============ ============ ============= ============= ============= =============
Goodwill $ -- $ -- 2,916,085 -- $ -- $ 2,916,085
============ ============ ============= ============= ============= =============
Expenditures for
segment assets $ -- $ 8,789 $ 2,367,421 $ 27,154 $ -- $ 2,403,364
============ ============ ============= ============= ============= =============
NOTE L - LONG-TERM OBLIGATIONS
NEMA entered into twenty-two promissory notes (the "NEMA Notes") on May 18,
2006, effective April 1, 2006 totaling $3,230,051 to purchase 100%
ownership interest in Priority Power Management, Ltd, a Texas limited
partnership, and Priority Power Management Dallas, Ltd, a Texas limited
partnership (see note B). The notes are due in quarterly installments of
$142,985 beginning on September 30, 2006 with a final maturity of December
31, 2013. The term notes bear interest at a fixed rate per annum of 7.75%.
PPM entered into an agreement effective August 31, 2007 to purchase 100%
ownership interest in Cogdill Enterprises, Inc. As part of the agreement
PPM is obligated to pay 95% of the total revenues actually received by PPM
each month directly as a result of the contracts originated by Trenton
Cogdill for and on behalf of the Company prior to August 31, 2007. The
estimated net present value of the expected future obligation under the
Cogdill agreement is classified as a long-term obligation, less the current
portion (the "Cogdill Note").
17
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Long-term obligations consisted of the following at September 30, 2008:
NEMA Notes $ 2,447,734
Cogdill Note 285,783
-------------
2,733,517
Less: Related Party Portion (1,585,979)
Less: Current Portion (509,526)
-------------
$ 638,012
=============
Related party portion of long-term obligations consisted of the following
at September 30, 2008:
NEMA Notes $ 1,687,509
Cogdill Note 285,783
-------------
1,973,292
Less: Current Portion (387,313)
-------------
$ 1,585,979
=============
Annual maturities of long-term obligations at September 30, 2008 are as
follows:
2008 $ 122,213
2009 131,963
2010 142,491
2011 153,859
2012 166,134
2013 and thereafter 43,565
-------------
$ 760,225
=============
Annual maturities of related party portion of long-term obligations at
September 30, 2008 are as follows:
2008 $ 387,313
2009 361,365
2010 368,788
2011 381,648
2012 377,474
2013 and thereafter 96,704
-------------
$ 1,973,292
=============
NOTE M - RELATED PARTY TRANSACTIONS
Conversion of Preferred Stock
On August 31, 2007, classes A, B & C of Preferred Stock were converted into
Common Stock of the Company. As a part of this conversion, Eric Oliver, Jon
Morgan and Bruce Edgington received shares of Common Stock in the amounts
shown in the table above. Additionally, Mr. Oliver received an additional
9,375 shares of common stock upon exercise of warrants with a strike price
of $4 per share. Mr. Oliver exercised his remaining warrants on March 1,
2008, for which he received an additional 18,751 shares at a price of $4
per share.
18
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Purchase of Cogdill Enterprises
On September 11, 2007 the Company announced the acquisition of 100% of
Cogdill Enterprises, Inc. ("CEI"), effective August 31, 2007 for an
aggregate consideration of $6,000 and a obligation to pay 95% of the total
revenues actually received by the Company each month directly as a result
of the contracts originated by Trenton Cogdill for and on behalf of the CEI
prior to the August 31, 2007. Trenton Cogdill is now an employee of
Priority Power. Assuming the acquisition of CEI occurred on January 1,
2006, its operating results would not have been material to the Company's
operating results for the years ended December 31, 2007 and 2006.
The following table reflects the portion of the Company's long-term debt
payable to related parties as of September 30, 2008:
Total
-----------
Eric Oliver, Chairman of the Board $ 9,337
Jon M. Morgan , CEO 417,071
Padraig Ennis, VP of Priority Power 64,267
John Bick, Managing Principal of Priority Power 166,518
Trenton Cogdill, Priority Power 169,750
5% Shareholders 759,036
------------
Total $ 1,585,979
============
Issuance of Options
During 2008, certain members of the Company's Board of Directors were
issued stock options under the Company's 1998 Stock Option Plan (See Note
O).
Sale of Preferred D and Issuance of Warrants
The Company issued Preferred D stock, promissory notes and warrants to
finance its investment in SFF Royalty and SFF Production, as described in
Note Q. Certain of the Company's Directors participated in this transaction
as shown below:
# Warrants
Received
# Shares Preferred D @$6.02
Preferred D Purchase Promissory Strike
Director Purchased Price Note Amount Price
--------------- ----------- ------------ ------------- ----------
Eric Oliver 164,376 $ 1,643,760 $ 1,037,741 172,382
Bruce Edgington 6,130 61,300 38,700 6,429
Stub Financing
In order to secure the cash required for the Company's investment in SFF
Royalty and SFF Production on December 17, 2007, stub financing was
arranged via the execution of two promissory notes with SoftVest, LP, a
related party, totaling $3.5 million. These notes were due and payable on
December 31, 2007 and carry an annual interest rate of 8.5%. The balance
was paid on March 13, 2008.
19
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
NOTE N - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to claims and lawsuits which arise primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of
the Company.
NOTE O - STOCK OPTION PLAN
Since the inception of the Company, various options have been granted by
the Board of Directors to founders, directors, employees, consultants and
ministry partners. In February 1997, the Company authorized 67,100
additional shares of common stock to underlie additional options reserved
for key employees and for future compensation to members of the Board of
Directors. The Board of Directors also adopted and the Stockholders
approved, the 1997 Stock Option Plan ("1997 Plan"), which provides for the
granting of either qualified or non-qualified options to purchase an
aggregate of up to 514,484 shares of common stock, inclusive of the 67,100
shares mentioned above, and any and all options or warrants granted in
prior years by the Company. As of September 30, 2008, all options available
under the 1997 Plan have been granted: 75,079 options have been exercised,
and 78,510 options are outstanding which are fully vested and range in
price from $3.50 to $61.36.
The 1998 Stock Option Plan ("1998 Plan") was approved by the Board of
Directors in April 1998, with approved amendment in May 2000. The 1998 Plan
gives the Company the authority to issue 300,000 options to purchase AMEN
common stock. If any stock options granted under the 1998 Plan terminate,
expire or are canceled, new stock options may thereafter be granted
covering such shares. In addition, any shares purchased under the 1998 Plan
subsequently repurchased by the Company, if management elects, pursuant to
the terms hereof may again be granted under the 1998 Plan. The shares
issued upon exercise of stock options under the 1998 Plan may, in whole or
in part, be either authorized but unissued shares, or issued shares
reacquired by the Company. As of September 30, 2008, 4,859 options have
been exercised and 155,292 options are outstanding and are fully vested and
range in price from $1.98 to $45.50.
During the three months ended September 30, 2008 the Company issued 3,838
options to the following members of the Board of Directors as compensation
for their service to the Company:
-------------------------------------------------------------
Strike
Director Issuance Date # Options Issued Price
-------------------------------------------------------------
Bruce Edgington 9/30/08 988 $8.00
-------------------------------------------------------------
Earl Gjelde 9/30/08 988 8.00
-------------------------------------------------------------
Randy Nicholson 9/30/08 875 8.00
-------------------------------------------------------------
Don Blake 9/30/08 988 8.00
-------------------------------------------------------------
Total 3,838
-------------------------------------------------------------
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model.
The table below summarizes the stock option activity for the quarter ended
September 30, 2008:
20
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Weighted
Options Outstanding Options Outstanding Average Price
------------------------------ ------------------- -------------
Outstanding June 30, 2008 229,964 $ 10.88
Options exercised - -
Options forfeited - -
Options issued 3,838 8.00
------------------- -------------
Outstanding September 30, 2008 233,802 $ 10.83
=================== =============
At September 30, 2008 the 233,802 outstanding options are fully vested and
exercisable. They range in price from $1.98 to $61.36 and have a weighted
average contractual maturity of 4.8 years. The weighted average grant date
fair value for equity options issued during the three months ended
September 30, 2008 was $3.27 per share. Stock options issued after 2006 are
expensed based on the fair value of the options at the grant dates
consistent with the method of accounting under SFAS No. 123. The total
expensed for the three months ended September 30, 2008 was $12,564.
NOTE P - STOCKHOLDERS' EQUITY
Warrant Exercises
Eric Oliver, Chairman of the Company, exercised his remaining warrants
issued in connection with the Preferred C issuance (see Note M) on March 1,
2008, for which he received 18,751 shares at a price of $4 per share.
Option Exercises
12,500 options were exercised on June 9, 2008 at a strike price of $4.376
per share for total proceeds of $54,700.
Conversion of Preferred A, B & C and Warrant Exercises
On August 31, 2007, the Company converted all classes of its Preferred
Stock into 1,349,764 shares of the Company's Common Stock as shown in the
following table:
Number of Number of
Series Shares Purchase Price Conversion Rate Common Shares
------ --------- -------------- --------------- -------------
A 80,000 $ 2,000,000 $ 3.2444 616,447
B 50,000 500,000 3.2444 154,111
B 10,000 100,000 3.424 29,206
B 20,000 200,000 4.000 50,000
C 125,000 2,000,000 4.000 500,000
Also on August 31, 2007, the Company issued 55,210 shares of common stock
upon the exercise of stock warrants with a strike price of $4.
Stock Issuances as Employee Compensation
Pursuant to their employment agreements, certain of the Company's employees
receive common stock as payment for bonuses or a portion of their salary.
11,828 shares of common stock were issued as employee compensation during
the three months ended September 30, 2008.
Issuance of Preferred D Stock
21
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
As described in Note Q, the Company issued 429,100 shares of Class D
Preferred Stock on December 17, 2007 for total proceeds of $4,291,000 to
finance the Company's investment in SFF Royalty and SFF Production. Below
is a summary of the significant characteristics of the Preferred D:
o Pays a coupon of 8.5% annually.
o Has limited voting rights.
o Is not convertible into common stock.
o Is redeemable upon demand by the Company.
Certain of the Company's Directors purchased Preferred D Stock as described
in Note M.
NOTE Q - INVESTMENT IN SFF GROUP
On December 17, 2007, the Company invested $7.6 million in SFF Royalty, LLC
("SFF Royalty") and $2.4 million in SFF Production ("SFF Production") in
exchange for a one-third ownership interest in each entity. Also on
December 17, 2007, SFF Royalty and SFF Production acquired the following
properties from Santa Fe Energy Trust (the "Trust") and Devon Energy
Production Company, LP ("Devon"):
Acquired from the Trust Acquired from Devon
------------------------------- -------------------------------
Acquiring Purchase Purchase Total
Entity Description Amount Description Amount Purchase
------ ----------- ------ ----------- ------ --------
Net profits Royalty interests
interests in subject to Trust's
SFF Royalty royalty interests net profits
owned by Devon $ 21,077,688 interests $ 2,254,662 $ 23,332,350
Net profits Working interests
interests in subject to Trust's
SFF Production working interests net profits
owned by Devon 6,072,125 interests 649,531 6,721,656
------------ ----------- ------------
Totals $ 27,149,813 $ 2,904,193 $ 30,054,006
============ =========== ============
To secure the $10 million required for the investments in SFF Royalty and
SFF Production, the Company issued Preferred Stock and short-term
promissory notes and secured stub financing.
Class D Preferred Stock
429,100 shares of Class D Preferred Stock ("Preferred D") were issued at a
share price of $10 for total proceeds of $4,291,000. Below is a summary of
the significant characteristics of the Preferred D:
o Pays a coupon of 8.5% annually.
o Has limited voting rights.
o Is not convertible into common stock.
o Is redeemable upon demand by the Company.
Promissory Notes
The Company also signed promissory notes with the recipients of the
Preferred D totaling $2,709,000. Below is a summary of the significant
characteristics of the promissory notes:
o Due and payable on June 30, 2009.
o Interest rate of Prime plus 1%. (6.00% at September 30, 2008).
22
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
The holders of the promissory notes were issued warrants to purchase a
total of 450,000 shares of the Company's common stock at a strike price of
$6.02 per share. These warrants expire on June 30, 2009 and the proceeds
from their issuance will be used to retire the related promissory notes. No
value has been assigned to these warrants as shareholder approval is
required before the warrants can be exercised.
Certain of the Company's Directors participated in this transaction and
received shares of Preferred D stock, promissory notes and warrants, as
described in Note M.
Stub Financing
In order to secure the cash required for the Company's investment in SFF
Royalty and SFF Production on December 17, 2007, stub financing was
arranged via the execution of two promissory notes with SoftVest, LP
totaling $3.5 million. These notes were due and payable on December 31,
2007 and carry an annual interest rate of 8.5%. The balance was paid on
March 13, 2008.
As discussed in Note M, Mr. Eric Oliver, the Company's Chairman of the
Board, is the Managing Partner of SoftVest, LP.
The Company's Investment in SFF Group consisted of the following at
September 30, 2008:
Oil and Gas Investment in SFF Group $ 10,000,000
Equity earnings 1,442,780
Distributions (2,599,999)
--------------
$ 8,842,781
==============
SFF Royalty reported the following consolidated financial information at
September 30, 2008:
SFF Royalty
--------------
Total Assets $ 18,226,264
Total Liabilities 208,808
Net Income (for the nine months ended September 30, 2008) 764,648
SFF Production reported the following consolidated financial information at
September 30, 2008:
SFF Production
--------------
Total Assets $ 8,905,067
Total Liabilities 394,186
Net Income (for the nine months ended September 30, 2008) 3,496,522
NOTE R - DISCONTINUED OPERATIONS
Businesses to be Disposed of Other than by Sale
On June 25, 2008 the Company approved a plan to discontinue the operations
of W Power. Management recommended this plan to the Board based on
significant adverse changes in the business climate of the Texas retail
electricity market. These conditions were exacerbated by the heightened
volatility in commodity costs. The Company settled W Power's existing
supply contracts and transferred its customers and their contracts to
another retail electricity provider in the third quarter.
23
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
As a result of this plan all retail electric provider ("REP") operations
will be eliminated from the Company's ongoing operations and the Company
will not have any significant continuing involvement in the REP business.
Given the current conditions in the Texas retail power market the Company
does not believe there is a market to sell W Power and, as such, does not
have an active program to locate a buyer of the business. The Company will
not dispose of W Power's assets or liabilities by sale. Subsequent to the
end of the third quarter the Company submitted notice to the Public Utility
Commission of Texas that W Power intends to relinquish its REP license.
The Company believes it has accrued for all material costs related to the
shutdown of W Power and has recorded an expense and liability for that
amount. This expense was based on the Company's mark-to-market liquidation
cost for its forward power contracts, retail power contracts, and other
associated disposal costs. In addition, the company expensed an additional
$400 thousand related to changes in estimated unbilled revenue as the
result of an increase of 1% in W Power's allowance for line-loss. Line-loss
is energy waste resulting from the transmission of electrical energy across
power lines. These losses occur due to the conversion of electricity to
heat and electromagnetic energy. A small amount of loss occurs even in the
most efficiently engineered systems. The company also impaired
substantially all of the remaining assets and all of the accounts
receivable for W Power.
In accordance with SFAS No. 144, the Company has included W Power in
discontinued operations and recognized the loss associated with disposal in
income (loss) from continuing operations.
The following is a summary of historical financial information about W
Power for the nine months ended September 30:
2008 2007
------------- -----------
Revenue $ 5,939,264 8,146,174
------------- -----------
Income (Loss) before income taxes (1,450,017) 793,425
Income taxes - -
------------- -----------
Income (Loss) from discontinued operations $ (1,450,017) 793,425
============= ===========
No income tax benefit is provided as a result of the Company's net
operating loss carry forward.
In the third quarter the Company entered into agreements to liquidate its
supply contacts and transfer its existing customer base. On July 9, 2008 W
Power liquidated all of its forward positions in fixed price and floating
price forward energy contracts dated after July 2008. The liquidation
mark-to-market expense was approximately $500 thousand.
On July 16, 2008, W Power entered into an asset purchase agreement with
Green Mountain Energy Company ("Green Mountain") whereby Green Mountain
purchased all but a few of the retail electricity customer agreements of W
Power. This agreement was executed as part of the plan to discontinue the
operations of W Power. The remainder of W Power's customers switched away
or were transferred to another REP for a nominal cost.
Under the terms of the agreement, the parties transferred the acquired
residential and commercial customers to Green Mountain. W Power's few
remaining customers are being transitioned to other retail providers. At
closing, W Power paid a mark-to-market payment to Green Mountain of
$190,762 for the purpose of covering the expected excess energy-related
costs that Green Mountain will incur to provide electricity service to
certain fixed price customers for the term of those customer agreements.
24
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
SFAS No. 144 requires the assets and liabilities of a disposal group
classified as "held for sale" to be presented separately in the asset and
liability sections of a Company's consolidated balance sheet. As the
Company has not approved a plan to sell the W Power's assets and does not
have an active program to locate a buyer of the business, the assets and
liabilities of the segment are consolidated with the Company's other
balances. The following summarizes the assets and liabilities associated
with W Power at September 30, 2008:
Assets
------------
Cash and Cash Equivalents $ 289,171
Restricted Cash Equivalents 537,000
Other Current Assets 2,921
------------
Total Current Assets 829,092
Deposits and Others Assets 43,050
------------
Total Non Current Assets 43,050
Total Assets $ 872,142
=============
Liabilities
------------
Accounts Payable $ 53,360
Accrued Liabilities 135,829
------------
Total Current Liabilities 189,189
Total Liabilities $ 189,189
=============
Businesses Held for Sale
In the first quarter of 2008, the Company adopted a plan to sell its online
electricity brokering business, ChooseEnergy.com. Its primary business, as
previously described, is to provide competitive electricity pricing
alternatives for residential and small commercial electricity consumers.
The Company completed the sale of ChooseEnergy.com subsequent to the end of
the quarter.
In accordance with SFAS No. 144, the Company has reflected the operating
results as discontinued operations in the consolidated statements of
operations for all periods presented. There are no capitalized assets or
depreciation expenses to be reflected on the consolidated balance sheet as
held for sale.
The following is a summary of historical financial information about
ChooseEnergy.com for the nine months ended September 30:
2008 2007
---------- -----------
Revenue $ 92,962 122,528
---------- -----------
Loss before income taxes (20,215) (219,316)
Income taxes - -
---------- -----------
Loss from discontinued operations $ (20,215) (219,316)
========== ===========
25
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
No income tax benefit is provided as a result of the Company's net
operating loss carry forward.
SFAS No. 144 requires the assets and liabilities of a disposal group
classified as "held for sale" to be presented separately in the asset and
liability sections of a Company's consolidated balance sheet.
ChooseEnergy.com has no material long-lived assets or associated disposal
group items to be classified as "held for sale" on the presented balance
sheets.
NOTE S - RESTATEMENT OF PREFERRED DIVIDEND
In each quarter of 2008 to date the Company has paid a dividend of
approximately $91 thousand to holders of Preferred Series D Stock. In the
first two quarters of 2008 the Company erroneously recorded these dividend
payments as interest expense. The following is a summary of the adjustment
for the first two quarters of 2008.
Three Three Six
Months Months Months
Ended Ended Ended
3/31/08 6/30/08 6/30/08
----------- ----------- ------------
Income from continuing operations, as
previously reported $ 878,321 $ 339,961 $ 1,218,282
Dividends reported as interest expense 91,184 91,184 182,368
----------- ----------- ------------
Income from continuing operations, as
restated 969,505 431,145 1,400,650
----------- ----------- ------------
Net income (loss), as previously reported 977,091 (977,272) (181)
Dividends reported as interest expense 91,184 91,184 182,368
----------- ----------- ------------
Net income (loss), as restated 1,068,275 (886,088) 182,187
----------- ----------- ------------
Preferred stock dividend, as restated (91,184) (91,184) (182,368)
----------- ----------- ------------
Net income (loss) applicable to common
shareholders, as restated $ 977,091 $ (977,272) $ (181)
=========== =========== ============
Earnings per Share:
Income from continuing operations per
share (Basic), as previously reported $ 0.24 $ 0.09 $ 0.32
Adjustment for dividends reported as
interest expense 0.02 0.02 0.04
----------- ----------- ------------
Income from continuing operations per
share (Basic), as adjusted $ 0.26 $ 0.11 $ 0.36
=========== =========== ============
Income from continuing operations per
share (Diluted), as previously reported $ 0.23 $ 0.09 $ 0.32
Adjustment for dividends reported as
interest expense 0.02 0.02 0.04
----------- ----------- ------------
Income from continuing operations per
share (Diluted), as adjusted $ 0.25 $ 0.11 $ 0.36
=========== =========== ============
Net income (loss) per share (Basic), as
previously reported $ 0.26 $ (0.26) $ 0.00
Adjustment for dividends reported as
interest expense 0.02 0.02 0.04
----------- ----------- ------------
Net income (loss) per share (Basic), as
adjusted $ 0.28 $ (0.24) $ 0.04
=========== =========== ============
Net income (loss) per share (Diluted), as
previously reported $ 0.26 $ (0.26) $ 0.00
Adjustment for dividends reported as
interest expense 0.02 0.02 0.04
----------- ----------- ------------
----------- ----------- ------------
Net income (loss) per share (Diluted), as
adjusted $ 0.28 $ (0.24) $ 0.04
=========== =========== ============
26
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements and related footnotes
presented in Item 1 and the Company's December 31, 2007 Form 10-KSB.
Overview
AMEN Properties, Inc. (the "Company") is in the business of acquiring
profitable, cash-generating businesses with proven track records and the ability
to create sustained value. The Company is a holding company and conducts its
business through the following subsidiaries:
o AMEN Delaware, LLC ("Delaware") - real estate investments
o AMEN Minerals, LLC ("Minerals") - oil and gas royalties, other
investments
o W Power & Light, LLC ("W Power") - retail electricity provider in the
State of Texas
o Priority Power Management, LLC. ("Priority Power") - energy
management, consulting and aggregation
Application of Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and
contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an ongoing basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities where that
information is available from other sources. Certain estimates are particularly
sensitive due to their significance to the financial statements. Actual results
may differ significantly from management's estimates.
We believe that the most significant accounting policies that involve the use of
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
- Impairments,
- Business combinations,
- Revenue recognition,
- Gain recognition on sale of real estate assets,
- Consolidation of variable interest entities,
- Allowance for doubtful accounts and
- Stock options
Impairments
Real estate and leasehold improvements are classified as long-lived assets held
for sale or long-lived assets to be held and used. In accordance with SFAS No.
144, we record assets held for sale at the lower of carrying value or sales
price less costs to sell. For assets classified as held and used, these assets
are tested for recoverability when events or changes in circumstances indicate
that the estimated carrying amount may not be recoverable. An impairment loss is
recognized when expected undiscounted future cash flows from a Property is less
than the carrying value of the Property. Our estimates of cash flows of the
Properties requires us to make assumptions related to future rental rates,
occupancies, operating expenses, the ability of the properties' tenants to
perform pursuant to their lease obligations and proceeds to be generated from
the eventual sale of our investment in the Properties. Any changes in estimated
future cash flows due to changes in our plans or views of market and economic
conditions could result in recognition of additional impairment losses.
If events or circumstances indicate that the fair value of an investment
accounted for using the equity method has declined below its carrying value and
we consider the decline to be "other than temporary," the investment is written
down to fair value and an impairment loss is recognized. The evaluation of
impairment for an investment would be based on a number of factors, including
financial condition and operating results for the investment, inability to
remain in compliance with provisions of any related debt agreements, and
recognition of impairments by other investors. Impairment recognition would
negatively impact the recorded value of our investment and reduce net income.
27
Business Combinations
We allocate the purchase price of acquired businesses to tangible and identified
intangible assets acquired based on their fair values in accordance with SFAS
No. 141, "Business Combinations." We initially record the allocation based on a
preliminary purchase price allocation with adjustments recorded within one year
of the acquisition.
In making estimates of fair value for purposes of allocating purchase price,
management utilizes sources, including, but not limited to, independent value
consulting services, independent appraisals that may be obtained in connection
with financing the respective business, and other market data. Management also
considers information obtained about each business as a result of its
pre-acquisition due diligence in estimating the fair value of the tangible and
intangible assets acquired.
The aggregate value of the tangible assets acquired is measured based on the sum
of (i) the value of the property and (ii) the present value of the amortized
in-place tenant improvement allowances over the remaining term of each lease.
Management's estimates of the value of the property are made using models
similar to those used by independent appraisers. Factors considered by
management in its analysis include an estimate of carrying costs such as real
estate taxes, insurance, and other operating expenses and estimates of lost
rentals during the expected lease-up period assuming current market conditions.
The value of the property is then allocated among building, land, site
improvements, and equipment. The value of tenant improvements is separately
estimated due to the different depreciable lives.
The aggregate value of intangible assets acquired is measured based on the
difference between (i) the purchase price and (ii) the value of the tangible
assets acquired as defined above. This value is then allocated among
above-market and below-market in-place lease values, costs to execute similar
leases (including leasing commissions, legal expenses and other related
expenses), in-place lease values and customer relationship values.
Above-market and below-market in-place lease values for acquired properties are
calculated based on the present value (using a market interest rate which
reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease for above-market leases and the initial term plus the term of
the below-market fixed rate renewal option, if any, for below-market leases. We
perform this analysis on a lease by lease basis. The capitalized above-market
lease values are amortized as a reduction to rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial term
plus the term of the below-market fixed rate renewal option, if any, of the
respective leases.
Management estimates costs to execute leases similar to those acquired at the
property at acquisition based on current market conditions. These costs are
recorded based on the present value of the amortized in-place leasing costs on a
lease by lease basis over the remaining term of each lease.
The in-place lease values and customer relationship values are based on
management's evaluation of the specific characteristics of each customer's lease
and our overall relationship with that respective customer. Characteristics
considered by management in allocating these values include the nature and
extent of our existing business relationships with the customer, growth
prospects for developing new business with the customer, the customer's credit
quality, and the expectation of lease renewals, among other factors. The
in-place lease value and customer relationship value are both amortized to
expense over the initial term of the respective leases and projected renewal
periods, but in no event does the amortization period for the intangible assets
exceed the remaining depreciable life of the building.
Should a tenant terminate its lease, the unamortized portion of the in-place
lease value and the customer relationship value and above-market and
below-market lease values would be charged to expense.
Revenue Recognition
The Company's gross revenues for energy management services provided to our
customers are recognized upon delivery and include estimated aggregation fees
and other services delivered but not billed by the end of the period.
Accrued unbilled aggregation revenues are based on our estimates of customer
electricity usage since the date of the last meter reading provided by the
independent system operators or electric distribution companies. Volume
estimates are based on average daily volumes, estimated customer usage and
applicable customer aggregation rates. Unbilled aggregation revenues are
calculated by multiplying volume estimates by our estimated rates by customer.
Estimated amounts are adjusted when actual usage and rates are known and billed.
28
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.
Consolidation of Variable Interest Entities
We perform evaluations of each of our investment partnerships, real estate
partnerships and joint ventures to determine if the associated entities
constitute a Variable Interest Entity, or VIE, as defined under Interpretations
46 and 46R, "Consolidation of Variable Interest Entities," or FIN 46 and 46R,
respectively. In general, a VIE is an entity that has (i) an insufficient amount
of equity for the entity to carry on its principal operations, without
additional subordinated financial support from other parties, (ii) a group of
equity owners that are unable to make decisions about the entity's activities,
or (iii) equity that does not absorb the entity's losses or receive the benefits
of the entity. If any one of these characteristics is present, the entity is
subject to FIN 46R's variable interest consolidation model.
Quantifying the variability of VIEs is complex and subjective, requiring
consideration and estimates of a significant number of possible future outcomes
as well as the probability of each outcome occurring. The results of each
possible outcome are allocated to the parties holding interests in the VIE and,
based on the allocation, a calculation is performed to determine which party, if
any, has a majority of the potential negative outcomes (expected losses) or a
majority of the potential positive outcomes (expected residual returns). That
party, if any, is the VIE's primary beneficiary and is required to consolidate
the VIE. Calculating expected losses and expected residual returns requires
modeling potential future results of the entity, assigning probabilities to each
potential outcome, and allocating those potential outcomes to the VIE's interest
holders. If our estimates of possible outcomes and probabilities are incorrect,
it could result in the inappropriate consolidation or deconsolidation of the
VIE.
For entities that do not constitute VIEs, we consider other GAAP, as required,
determining (i) consolidation of the entity if our ownership interests comprise
a majority of its outstanding voting stock or otherwise control the entity, or
(ii) application of the equity method of accounting if we do not have direct or
indirect control of the entity, with the initial investment carried at costs and
subsequently adjusted for our share of net income or less and cash contributions
and distributions to and from these entities.
Allowance for Doubtful Accounts
Our accounts receivable balance is reduced by an allowance for amounts that may
become uncollectible in the future. Our receivable balance is composed primarily
of billed and unbilled customer retail electricity usage flowed for a given
period and billed and unbilled customer management fees based on electricity
usage flowed for a given period. The allowance for doubtful accounts is reviewed
at least quarterly for adequacy by reviewing such factors as the credit quality
of our customers, any delinquency in payment, historical trends and current
economic conditions. If the assumptions regarding our ability to collect
accounts receivable prove incorrect, we could experience write-offs in excess of
the allowance for doubtful accounts, which would result in a decrease in net
income. The Company does not believe further collection on W Power's accounts is
likely. As such, the allowance for doubtful accounts related to W Power's billed
account receivables is equal to the entire outstanding receivable balance at
September 30, 2008. Priority Power's trade accounts receivable arise from
aggregation fees and other management services. An allowance for uncollectible
accounts receivable is provided for amounts not expected to be collectible. As
of September 30, 2008 the Company considers Priority Power's accounts receivable
to be fully collectible; accordingly, no allowance for doubtful accounts is
required.
Stock Options
The Company accounts for its stock-based compensation in accordance with SFAS
No. 123R, Accounting for Stock-Based Compensation. In December 2004, the
Financial Accounting Standards Board issued SFAS 123(R) effective for small
business issuers after December 15, 2005. The new Statement requires mandatory
reporting of all stock-based compensation awards on a fair value basis of
accounting. Generally, companies are required to calculate the fair value of all
stock awards and amortize that fair value as compensation expense over the
vesting period of the awards.
Results of Operations
Overview
--------
29
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- --------------------------
2008 2007 2008 2007
----------- ---------- ------------- ------------
Income from Continuing $ 614,087 $ 295,834 $ 2,014,736 $ 721,223
Operations
Per Share Income from
Continuing Operations 0.16 0.11 0.56 0.29
Income (Loss) from
Discontinued Operations (251,769) (17,856) (1,470,232) 574,109
Per Share Income (Loss)
from Discontinued Ops (0.07) (0.01) (0.39) 0.23
Net Income (Loss) 362,318 277,978 544,504 1,295,332
Per Share Net Income
(Loss) 0.10 0.10 0.15 0.53
3Q08 vs. 3Q07
-------------
o The change in 3rd quarter earnings from continuing operations from
2007 to 2008 was caused primarily by increased investment income from
the Company's investment in the SFF Group. The Company recorded
approximately $574 thousand in investment income related to SFF Group
for the quarter.
o Priority Power generated approximately $302 thousand in income for the
quarter ended September 30, 2008 as compared to approximately $596
thousand for the same quarter in 2007. This decrease in earnings was
caused by flat revenue and an increase in payroll expenses related to
the addition of sales staff.
o W Power incurred a loss of approximately $252 thousand for the quarter
ended September 30, 2008 as compared to income of approximately $34
thousand for the same quarter in 2007. The sharp decrease in earnings
at W Power was caused primarily by charges related to the
discontinuation of the business. The Company does not expect further
material expenses related to W Power. (See Note R).
In the second quarter of 2008 W Power and Light experienced a significant
adverse impact from price escalation in wholesale electricity and natural
gas prices. Management determined that the escalation was likely to
continue into the future. Additionally, the Company recognized significant
changes in the ERCOT electricity spot market driven both by high natural
gas prices and a fundamental shift in energy and capacity availability
across Texas.
After noting these structural market changes, and assessing their impact on
W Power's retail electricity business unit, management presented a plan to
the Board of Directors to discontinue all retail electricity power
operations. Recognizing the significant opportunities for business
development, acquisitions, and growth in other areas of the Corporation, in
addition to the large capital requirements to grow REP operations, the
Board of Directors approved the plan to discontinue operations. The Company
does not expect further material expenses related to W Power.
Revenues
--------
o The Company's consolidated revenues, after reclassifying W Power to
discontinued operations, were approximately $1.15 million for the
quarter ended September 30, 2008, compared to $1.17 million for the
same quarter in 2007. This modest variation is primarily attributable
to changes in Priority Power's customer portfolio and small changes in
customers' energy usage.
Operating Expenses
------------------
o Total operating expenses for the quarter ended September 30, 2008 and
2007 were $1.1 million and $894 thousand, respectively; this increase
was primarily attributable to growth in general and administrative
expenses as described below.
o For the quarter ended September 30, 2008 general and administrative
costs increased approximately $355 thousand versus the same quarter in
2007. This increase is primarily associated with growth in the
Priority Power sales force and audit fees related to the Company's
investment in the SFF Group.
Other (expense) income
----------------------
For the quarter ended September 30, 2008 as compared to the same quarter in
2007 the Company experienced an increase of approximately $563 thousand in
other income. This increase was caused by the following factors:
o Earnings from the Company's investment in the SFF Group of
approximately $574 thousand.
o An increase of approximately $37 thousand in income from the
Yarborough Allen Field.
o A decrease of approximately $76 thousand in interest income resulting
from a reduction in interest bearing cash deposits.
30
First nine months of 2008 vs. First nine months of 2007
-------------------------------------------------------
o The increase in earnings from continuing operations from 2007 to 2008
was caused primarily by $1.4 million in earnings from the Company's
investment in the SFF Group as well as the recognition in 2008 of a
$535 thousand gain from the final distribution paid to the Company as
a unit-holder in the Santa Fe Energy Trust.
o Priority Power generated approximately $1.2 million in net income for
the nine months ended September 30, 2008 as compared to a net income
of approximately $1.6 million for the nine month ended September 30,
2007. The reduction in income is primarily attributable to increased
payroll expenses resulting from the addition of sales people.
o W Power incurred a loss of approximately $1.5 million for the nine
months ended September 30, 2008 as compared to net income of
approximately $615 thousand for the nine months ended September 30,
2007. The sharp decrease in earnings at W Power was caused primarily
by charges related to the discontinuation of retail electric
operations and adjustments in line loss estimates. (See Note R).
Revenues
--------
o The Company's consolidated revenues, after reclassifying W Power to
discontinued operations, were approximately $3.5 million for the nine
months ended September 30, 2008, compared to $2.9 million for the nine
months ended September, 2007. This change is primarily due to an
increase in aggregation fee revenue and $300 thousand earned as part
of a power plant development contract recognized in the first quarter
of 2008.
Operating Expenses
------------------
o Total operating expenses for the nine months ended September 30, 2008
and 2007 were $3.3 million and $2.3 million, respectively; this
increase was primarily attributable to growth in general &
administrative expenses as described below.
o For the nine months ended September 30, 2008 general and
administrative costs increased approximately $945 thousand versus the
nine months ended September 30, 2007. This increase is primarily
associated with growth in the Priority Power sales force and corporate
governance costs such as Sarbanes Oxley compliance.
Other (expense) income
----------------------
For the nine months ended September 30, 2008 as compared to the nine months
ended September 30, 2007 the Company experienced an increase of
approximately $1.7 million in other income. This increase was caused by the
following factors:
o The final distribution made to the Company as a unit-holder in the
Santa Fe Energy Trust, which resulted in a gain of approximately $535
thousand.
o Earnings from the Company's investment in the SFF Group of
approximately $1.4 million.
o The Company also had an increase of approximately $100 thousand in
interest expense, primarily related to acquisition related debt and a
decrease of interest income of approximately $148 thousand, primarily
related to a reduction in interest bearing cash deposits.
Book Value per Share
--------------------
The primary metric that the Company's management uses when making operating and
investment decisions is Book Value per Share ("BVPS"). BVPS is calculated as
Total Shareholder Equity divided by the Fully Diluted Number of Shares
Outstanding as of the measurement date. Management's belief is that if the
Company consistently delivers increases in BVPS, it will maximize value to the
shareholder over the long term. As of September 30, 2008 the Company's BVPS is
$3.95 compared to $3.97 at September 30, 2007.
Analysis of Cash Flows
Operating Activities
--------------------
During the first nine months of 2008, net cash used in operating activities was
approximately $592 thousand. This was driven by a number of factors:
- Income from continuing operations of approximately $2 million
- Cash outflows of approximately $1 million for W Power's exit from the
retail electric market.
- Earnings of $1.4 million from the Company's investment in SFF Group.
31
Investing Activities
--------------------
For the first nine months of 2008, the net cash provided by investing activities
was approximately $6.2 million. This was driven by three primary activities:
- Liquidation of the Company's investment in the Santa Fe Energy Trust,
which provided $4.0 million in cash.
- Distributions totaling $2.6 million from the SFF Group.
- The purchase of the Yarborough Allen Field assets for $1.7 million.
- A decrease in restricted cash which provided $1.7 million in cash.
Based on current commodity prices and production volumes, the Company expects to
receive regular cash distributions from SFF Group ranging from approximately
$300 - 500 thousand per quarter.
Financing Activities
--------------------
Net cash used in financing activities for the first nine months of 2008 was
approximately $4.0 million. This is primarily related to repayment of notes for
the purchase of Priority Power (the "NEMA" notes - See Note L) and stub
financing related to the purchase of an interest in the SFF Group (See Note Q).
Additionally, the Company paid $274 thousand in preferred dividends on the
Preferred Class D stock in the first nine months of 2008.
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $28 million. This NOL is mainly related to the Company's operations
prior to the Company presenting the 2002 business plan to shareholders. The
Company believes that the utilization, without limitation, of the Company's NOL
will be determined by the ability of management to limit the issue of new equity
due to IRC Section 382 restrictions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Item 6, "Management's Discussion and Analysis or Plan of Operation" of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2007,
contains a detailed discussion of our risk factors under the subheading "Risk
Factors". There are no material changes in our risk factors as previously
described in our Annual Report on Form 10-KSB for the year ended December 31,
2007.
ITEM 4T. Controls and Procedures
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company uses a
risk-based business process activity approach for its assessment of internal
control. This approach is based on the framework provided by the Committee of
Sponsoring Organizations ("COSO") of the Treadway Commission.
The Company documents its assessment of internal controls over financial
reporting to allow for internal review and to facilitate evaluation of the
adequacy of management's documentation. The documentation includes the
following:
o The design of controls over all relevant assertions related to all
significant accounts and disclosures in the financial statements;
o Information about how significant transactions are initiated,
authorized, recorded, processed, and reported;
o Sufficient information about the flow of transactions to identify the
points at which material misstatements due to error of fraud could
occur;
o Controls designed to prevent or detect fraud, including who performs
the controls and the related segregation of duties;
o Controls over the period-end financial reporting process;
o Controls over the safeguarding of assets; and
o The results of management's testing and evaluation.
The Company's management believes it maintains an adequate and effective system
of controls over financial reporting.
There have not been any changes in the Company's disclosure controls and
procedures during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's
disclosure controls and procedures over financial reporting.
32
The Company's annual report for December 31, 2007 did not include an attestation
report of the company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the company's registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
company to provide only management's report in its annual report.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None to report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
3.1+ Certificate of Incorporation and Certificates of Amendments
thereto of DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.6*** Certificate of Amendment of Certificate of Incorporation dated
May 26, 2004
3.7 Certificate of Designation of Rights and Preferences of the
Series D Preferred Stock of Amen Properties, Inc. (Incorporated
by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on December 17, 2007)
4.1 Form of Warrant (Incorporated by reference to the Company's
Report on Form 8-K filed with the Securities and Exchange
Commission on December 17, 2007)
10.1+ Form of Stock Option Agreement
10.2+ 1997 Stock Option Plan
10.3* 1997 Stock Option Plan, as amended April 6, 1998
10.4* 1998 Stock Option Plan
10.5** 1998 Stock Option Plan, as amended February 26, 1999
33
10.6## 1998 Stock Option Plan, as amended March 3, 2000
10.7// Lease Agreement between TCTB Partners, Ltd. and Bank of America,
N.A. dated September 30, 2003.
10.8// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural
Resources USA, Inc. dated April 4, 2000.
10.9### Employment and Noncompetition Agreement between the Company and
Kevin Yung dated as of July 1, 2004
10.10@ Loan Agreement between Amen Properties, Inc. and Western National
Bank
10.11@ Western National Bank Revolving Line of Credit Note
10.12 Employment Agreement between Priority Power Management, Ltd and
John Bick (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on
June 1, 2006).
10.13 Employment Agreement between Priority Power Management, Ltd and
Padraig Ennis (Incorporated by reference to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
June 1, 2006).
10.14 Securities Purchase Agreement among Amen 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 Report filed on
May 24, 2006).
10.15 Agreement to Distribute Assets among TCTB Partners, Ltd and its
partners dated as of September 27, 2006 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 5, 2006)
10.16 Purchase Agreement between TCTB Partners, Ltd as nominee for
certain partners of TCTB Partners, Ltd and Hampshire Plaza
Garage, LLC and S.E.S. Investments, Ltd. dated as of September
29, 2006 (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on
October 5, 2006)
10.17 Management Agreement between the Company and TCTB Management
Group, LLC. dated as of September 29, 2006 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 5, 2006)
10.18 Amendment to Employment Agreement of Kevin Yung dated December 5,
2006 (Incorporated by reference to the Company's Definitive Proxy
Statement on Form 14A filed with the Securities and Exchange
Commission on April 20, 2007)
10.19 Amendment to Employment Agreement of John Bick dated June 1, 2006
(Incorporated by reference to the Company's Definitive Proxy
Statement on Form 14A filed with the Securities and Exchange
Commission on April 20, 2007)
10.20 Amendment to Employment Agreement of Padraig Ennis dated June 1,
2006 (Incorporated by reference to the Company's Definitive Proxy
Statement on Form 14A filed with the Securities and Exchange
Commission on April 20, 2007)
10.21 Employment Agreement of Kris Oliver, dated July 30, 2007
(Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on July 30,
2007)
10.22 Purchase Agreement between Amen Properties, Inc. and Bank of New
York Trust Company, N. A., the trustee of Santa Fe Energy Trust,
dated as of November 8, 2007 (Incorporated by reference to the
Company's Report on Form 8-K filed with the Securities and
Exchange Commission on November 8, 2007)
10.23 Purchase Agreement between Amen Properties, Inc. and Devon Energy
Production Company, L.P. dated as of November 8, 2007
(Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on November 8,
2007)
10.24 Amendment to Purchase Agreement between Amen Properties, Inc. and
Bank of New York Trust Company, N. A., the trustee of Santa Fe
Energy Trust, dated as of November 8, 2007 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on December 178, 2007)
34
10.25 Amendment to Purchase Agreement between Amen Properties, Inc. and
Devon Energy Production Company, L.P. dated as of November 8,
2007 (Incorporated by reference to the Company's Report on Form
8-K filed with the Securities and Exchange Commission on December
17, 2007)
10.26 SFF Royalty, LLC Operating Agreement (Incorporated by reference
to the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on December 17, 2007)
10.27 SFF Production, LLC Operating Agreement (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on December 17, 2007)
10.28 Securities Purchase and Note Agreement (Incorporated by reference
to the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on December 17, 2007)
10.29 Amen Properties Promissory Note to SoftVest, LP (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on December 17, 2007)
11 Statement of computation of earnings per share
21.1 Subsidiaries of the Company
23.1 Consent of Independent Registered Public Accounting Firm (filed
herewith)
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC
ss.1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC
ss.1350.
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
// Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 24, 2003.
@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005.
35
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMEN Properties, Inc.
November 14, 2008 By: /s/ Jon Morgan
-------------------------------------
Jon Morgan,
Chief Executive Officer
November 14, 2008 By: /s/ Kris Oliver
-------------------------------------
Kris Oliver,
Chief Financial Officer and Secretary
36