UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended September 30, 2007
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.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1831588
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 W. Wall Street, Suite 2300
Midland, TX 79701
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(Address of Principal Executive Offices)
(432-684-3821)
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes | X | No | |
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
Check 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: 3,713,789 shares outstanding as of October 18,
2007.
Transitional Small Business Disclosure Format (check one): Yes | X | No | |
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at September 30, 2007 (Unaudited) 1
Consolidated Statements of Income--for the three and nine months ended
September 30, 2007 and 2006 (Unaudited) 2
Consolidated Statements of Cash Flows-- for the nine months ended
September 30, 2007 and 2006 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 21
Item 3. Controls and Procedures 25
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3 Defaults Upon Senior Securities 26
Item 4 Submission of Matters to a Vote of Security Holders 26
Item 5 Other Information 26
Item 6 Exhibits 26
Signatures 30
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 SHEET
September 30, 2007
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (notes A3 and E) $ 2,596,101
Accounts Receivable, net of Allowance of $12,865 (note A6) 1,999,457
Other Current Assets, net of Allowance of $233,000 (note A7) 149,435
---------------
Total Current Assets $ 4,744,993
RESTRICTED CASH EQUIVALENTS (note E) 2,197,000
PROPERTY and EQUIPMENT (note F) 163,043
INVESTMENT IN REAL ESTATE (notes C and G) 2,290,303
ROYALTY INTERESTS, at cost net of Accumulated Depletion (note H) 127,271
LONG-TERM INVESTMENTS (note I) 3,442,434
OTHER ASSETS
Goodwill (see note B) 2,916,085
Deposits and Other Assets (note J) 508,981
---------------
Total Other Assets 3,425,066
---------------
TOTAL ASSETS $ 16,390,110
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 919,286
Investment Margin Account Payable (note I) 1,251,205
Accrued Liabilities (note K) 898,260
Current Portion of Non-Related Party Long-Term Obligations (note M) 113,183
Current Portion of Related Party Long-Term Obligations (note M) 384,856
Deferred Revenue (note A14) 64,559
---------------
Total Current Liabilities $ 3,631,349
LONG-TERM OBLIGATIONS
Non-Related Party (note M) 760,225
Related Parties (notes M and N) 1,994,754
---------------
Total Long-Term Obligations 2,754,979
MINORITY INTEREST (note A16) 22,553
COMMITMENTS and CONTINGENCIES (note O) --
STOCKHOLDERS' EQUITY (note P)
Common Stock - $0.01 Par Value - 20,000,000 shares authorized
3,713,789 Shares Issued and Outstanding (note A17) 37,138
Additional Paid-In Capital 45,064,991
Accumulated Deficit (35,063,426)
Accumulated Other Comprehensive Income (Loss) (57,474)
---------------
Total Stockholders' Equity 9,981,229
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,390,110
===============
The accompanying summary of accounting policies and footnotes are an integral part of these consolidated
financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
2007 2006 2007 2006
---------- ----------- ------------ -----------
Operating Revenue (note A18):
Rental Revenue (note C) $ -- $ 834,128 $ -- $ 2,418,702
Energy Management Fees (note B) 1,218,381 809,217 3,069,625 1,486,023
Retail Electricity Revenue 3,171,945 1,956,012 8,146,175 8,516,667
---------- ----------- ------------ -----------
Total Operating Revenue 4,390,326 3,599,357 11,215,800 12,421,392
---------- ----------- ------------ -----------
Operating Expenses:
Cost of Goods and Services 3,180,410 1,934,621 7,404,448 7,818,782
Rental Property Operations -- 631,300 -- 1,652,483
General and Administrative 903,881 539,056 2,450,249 1,272,789
Depreciation, Amortization and Depletion 38,999 112,022 68,519 319,357
Corporate Tithing 36,186 -- 157,569 --
---------- ----------- ------------ -----------
Total Operating Expenses 4,159,476 3,216,999 10,080,785 11,063,411
---------- ----------- ------------ -----------
Income from Operations 230,850 382,358 1,135,015 1,357,981
---------- ----------- ------------ -----------
Other (Expense) Income
Interest Income 106,312 61,023 247,479 169,839
Interest Expense (89,048) (343,344) (220,478) (690,211)
Gain on Sale of Investments (note C) -- 1,405,495 -- 1,405,495
Equity Income From Real Estate Investment 8,908 -- 81,627 --
Other Income 20,956 (209,399) 50,789 (299,451)
---------- ----------- ------------ -----------
Total Other (Expense) Income 47,128 913,775 159,417 585,672
---------- ----------- ------------ -----------
Income Before Income Taxes
and Minority Interest 277,978 1,296,133 1,294,432 1,943,653
Income Taxes (note A13) -- -- -- --
Minority Interest -- (3,547) 900 (60,256)
---------- ----------- ------------ -----------
NET INCOME $ 277,978 $ 1,292,586 $ 1,295,332 $ 1,883,397
========== =========== ============ ===========
Net Income Per Common Share - Basic $ .10 $ .56 $ .77 $ .84
========== =========== ============ ===========
Net Income per Common Share - Diluted $ .07 $ .35 $ .51 $ .51
========== =========== ============ ===========
Weighted Average Number of Common Shares
Outstanding - Basic 2,755,031 2,290,589 2,447,104 2,247,938
Weighted Average Number of Common Shares
Outstanding - Diluted 3,708,932 3,723,950 3,692,820 3,681,299
Other Comprehensive Income:
Net Income $ 277,978 $ 1,292,586 $ 1,295,332 $ 1,883,397
Unrealized Gain / (Loss) on Investment (56,176) -- (57,474) --
---------- ----------- ------------ -----------
Comprehensive Income $ 221,802 $ 1,292,586 $ 1,237,858 $ 1,883,397
========== =========== ============ ===========
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 CASH FLOWS
For the Nine Months Ended September 30,
(Unaudited)
2007 2006
--------------- ---------------
Cash Flows from Operating Activities
Net Income $ 1,295,332 $ 1,883,397
Adjustments to Reconcile Net Income to Net Cash Provided By
Operating Activities:
Depreciation, Amortization and Depletion 68,519 319,357
Gain on Sale of Investments -- (1,405,495)
Equity Income from Real Estate Investment (81,627) --
Minority Interest (900) 60,256
Changes in Operating Assets and Liabilities:
Accounts Receivable (600,225) 381,401
Allowance for Doubtful Accounts 207,124 16,163
Other Receivables (350,809) --
Deposits and Other Assets 8,817 117,280
Deferred Costs -- 30,692
Accounts Payable 323,997 (530,342)
Accrued and Other Liabilities 304,621 161,417
Deferred Revenue 33,774 (52,086)
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Net Cash Provided By Operating Activities 1,208,623 982,040
--------------- ---------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (83,014) (402,704)
Investment in Real Estate (478,491) 283,152
Increase in Restricted Cash Equivalents -- (625,736)
Sales and Maturity of Investments -- 2,100,000
Increase in Long Term Investments (2,186,354) --
Net Cash Used in Acquisition of Cogdill Enterprises, Inc. (6,000) --
Repayments of Notes Receivable -- 50,000
--------------- ---------------
Net Cash (Used in) Provided By Investing Activities (2,753,859) 1,404,712
--------------- ---------------
Cash Flows from Financing Activities:
Repayments of Long-Term Obligations (353,371) (2,354,887)
Net Proceeds from Exercised Warrants 37,500 337,495
Minority Interest Distributions -- (36,536)
--------------- ---------------
Net Cash Used In Financing Activities (315,871) (2,053,928)
--------------- ---------------
Net (Decrease) / Increase in Cash and Cash Equivalents (1,861,107) 332,824
--------------- ---------------
Cash and Cash Equivalents at Beginning of Period 4,457,208 2,104,428
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 2,596,101 $ 2,437,252
=============== ===============
Non-Cash Investing and Financing Activities:
Unrealized Loss on Marketable Securities $ (57,474) --
Effective April 1, 2006 the Company acquired 100% of Priority Power
Management and assumed a note payable to sellers -- $ 3,230,051
On September 27, 2006 the Company distributed certain net assets to
minority interest holders (note C) -- 369,250
Long Term Investment Financed with Margin Account 1,251,205 --
Effective August 31, 2007 the Company acquired 100% of Cogdill
Enterprises, Inc. and assumed a note payable to sellers 456,740 --
Effective August 31, 2007 the Company acquired 100% of Cogdill
Enterprises, Inc. and acquired contract rights (456,740) --
Issuance of common stock for compensation (71,336) --
The accompanying summary of accounting policies and footnotes are an integral part of these consolidated
financial statements.
3
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization
Effective October 2002, AMEN formed NEMA Properties, LLC ("NEMA"), a Nevada
limited liability company; AMEN Minerals, LP ("Minerals"), a Delaware
limited partnership; and AMEN Delaware, LP ("Delaware"), a Delaware limited
partnership, to pursue acquisitions as authorized by stockholders on
September 19, 2002. AMEN Properties, Inc. and Subsidiaries is a
self-administered and self-managed Delaware corporation. Effective July
2004, AMEN Properties, Inc. and Subsidiaries and affiliates (collectively
referred to as the "Company") formed W Power and Light, LP ("W Power"), a
Delaware limited partnership to enter into the retail electricity market in
Texas. Effective April 1, 2006, AMEN Properties acquired 100% of Priority
Power Management, Ltd. a Texas limited partnership, and Priority Power
Management, Dallas, Ltd. a Texas limited partnership, (collectively
referred to as "Priority Power"). Priority Power is primarily involved in
providing energy management services and the Company believes that Priority
Power's business is complimentary to the retail electricity provider
business conducted by the Company's subsidiary W Power.
The Company's business purpose is to acquire strong cash-flowing businesses
or assets in energy-related industries. As of March 31, 2007, the Company,
through Delaware's investment in a real estate joint venture, has a
commercial real estate portfolio 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. Through its investment in Minerals, AMEN has acquired an
investment interest in an oil and gas royalty trust and other oil and gas
royalties. Through the Company's investment in W Power, Amen entered the
retail electricity market in the state of Texas. On April 1, 2006, the
Company, through it's investment in Priority Power, began aggregating
electric consumers and negotiating power prices on their behalf with retail
electric providers. The real estate operations of the Company are primarily
conducted through Delaware of which AMEN is the sole general partner; the
retail electricity operations are primarily conducted through W Power of
which Amen is the sole general partner; the aggregation of electric
consumers is primarily conducted through Priority Power of which Amen is
the sole general partner.
2. Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its majority-owned/controlled subsidiaries and affiliates.
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.
4
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
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 $2,898,972 as of September 30, 2007. Disclosure
about fair value of financial instruments is based on pertinent information
available to management as of September 30, 2007.
6. Accounts Receivable
Management regularly reviews accounts receivable and estimates the
necessary amounts to be recorded as an allowance for doubtful accounts.
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.
The Company estimated the allowance for doubtful accounts related to W
Power's billed accounts receivable to be approximately .2% of W Power's
retail electricity billed revenue. Due to the limited historical data, the
Company regularly reviews the accounts receivable and accordingly makes
adjustments in estimating the allowance for doubtful accounts.
The Company has a relationship with a reseller which markets W Power's
services on a pre-pay basis. Receivables and the associated reserves are
reflected in the Other Current Assets line on the Balance Sheet (Note A7).
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, 2007.
5
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
At September 30, 2007, accounts receivable consisted of the following:
Billed electricity receivables $ 430,109
Unbilled electricity receivables 1,014,695
Billed Aggregation fees 388,285
Unbilled Aggregation fees 141,733
Allowance for doubtful accounts (12,865)
Other receivables 37,500
-------------
Accounts receivable, net $ 1,999,457
=============
7. Other Current Assets
The Company has a relationship with a reseller which markets W Power's
services on a pre-pay basis. During the third quarter, the reseller's
receivable balance grew to over $300 thousand due to cash flow issues
caused by billing issues and customer turnover. The Company has
collateralized a portion of this receivable balance and has increased the
allowance for doubtful accounts by $233 thousand specifically for this
account.
At September 30, 2007, Other Current Assets consisted of the following:
Power reseller receivables 317,143
Allowance for doubtful accounts (233,000)
Miscellaneous current assets and receivables 59,292
-------------
Other Current Assets, net $ 149,435
=============
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 36.5 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.
The Company considers historical performance and anticipated future results
in its evaluation of potential impairment. Accordingly, when indicators or
impairments are present, the Company evaluates the carrying value of these
assets in reaction to the operating performance of the business and future
discounted and nondiscounted cash flows expected to result from the use of
these assets. Impairment losses are recognized when the sum of expected
future cash flows are less than the assets' carrying value.
10. Investment in Real Estate
As discussed in Note C to the consolidated financial statements, in
September 2006 the Company sold a significant interest in certain real
estate and contributed its retained 18.017% undivided ownership interest in
the real estate to a joint venture in which the Company has significant
continuing involvement.
6
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
The Company's investment in real estate joint venture is recorded at its
remaining net cost, adjusted for its 18.017% joint venture share of
earnings (loss) using the equity method of accounting, and joint venture
cash contributions and distributions.
As discussed in Note G, on March 19, 2007 the Company exchanged its 18.017%
joint venture interest for a 17.8% interest in a real estate limited
partnership. The Company will continue to use the equity method of
accounting for its 17.8% limited partnership interest.
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 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. For the period ended September 30, 2007, no income tax expense
has been incurred due to the utilization of the Company's net operating
losses. After submitting its 2006 Federal income tax return, the Company
had a net operating loss carryforward of approximately $29.5 million.
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 Partners,
Ltd. ("TCTB"), other than the Company, in the net earnings and net equity
of TCTB. The unit holder minority interest is adjusted at the end of each
7
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
period to reflect the ownership at that time. The unit holder minority
interest in TCTB was approximately 28.7% at September 30, 2007 and 2006.
17. Contingently Convertible Securities
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
The contingently convertible securities have not been included in the
calculation of diluted earnings per share for any periods in which their
effect is antidilutive.
18. Revenue Recognition
The Company records electricity sales under the accrual method and these
revenues are recognized upon delivery of electricity to the customers'
meters. Electric services not billed by month-end are accrued based upon
estimated deliveries to customers as tracked and recorded by the Electric
Reliability Council of Texas ("ERCOT") multiplied by the Company's average
billing rate per kilowatt hour ("kwh") in effect at the time ("the flow
technique").
The flow technique of revenue calculation relies upon ERCOT settlement
statements to determine the estimated revenue for a given month. Supply
delivered to our customers for the month, measured on a daily basis,
provides the basis for revenues. ERCOT provides net electricity delivered
data in three phases. Initial daily settlements become available
approximately 17 days after the settlement date. Approximately 45 days
after the settlement date, a resettlement is provided to adjust the initial
settlement to the actual supply delivered based on subsequent comparison of
prior forecasts to actual meter reads processed. A final resettlement is
provided approximately 180 days after power is delivered, marking the last
routine settlement adjustment to the power deliveries for that day.
Sales represent the total proceeds from energy sales, including pass
through charges from the TDSPs billed to the customer at cost. Cost of
goods and services ("COGS") include electric power purchased, sales
commissions, and pass through charges from the TDSPs in the areas serviced
by the Company. TDSP charges are costs for metering services and
maintenance of the electric grid. TDSP charges are determined by regulated
tariffs established by the Public Utility Commission of Texas ("PUCT").
Bilateral wholesale costs are incurred through contractual arrangements
with wholesale power suppliers for firm delivery of power at a fixed volume
and fixed price. The Company is typically invoiced for these wholesale
volumes at the end of each calendar month for the volumes purchased for
delivery during the month, with payment due 10 to 20 days after the end of
the month.
Balancing/ancillary costs are based on the aggregate customer load and are
determined by ERCOT through a multiple step settlement process. Balancing
costs/revenues are related to the differential between supply provided by
the Company through its bilateral wholesale supply and the supply required
to serve the Company's customer load. The Company endeavors to minimize the
amount of balancing/ancillary costs through its load forecasting and
forward purchasing programs.
8
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
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.
As of September 30, 2007, the Company recorded unbilled revenue of $141,733
for aggregation fees. Accrued unbilled revenues are based on our estimates
of customer 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 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.
19. Advertising Expense
All advertising costs are expensed when incurred. Advertising expenses were
approximately $171,467 and $11,007 for the nine months ended September 30,
2007 and 2006, respectively.
20. Income Per Share
Income per share is computed based on the weighted average common shares
and common stock equivalents outstanding during each period. The Series A,
Series B and Series C Convertible Preferred Stock are not included in the
computation of diluted earnings per share for any periods in which their
effect is antidilutive.
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 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 February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and
140. This Statement amends FASB Statement No.133, Accounting for Derivative
Instruments and Hedging Activities, and No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, "Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets." The provisions of this Statement shall be
effective for financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140. This Statement
amends FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, with respect to the
accounting for separately recognized servicing assets and servicing
liabilities. The provisions of this Statement shall be effective as of the
beginning of an entity's first fiscal year that begins after September 15,
2006.
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.
9
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
In September 2006, the FASB issued SFAS No. 158, Employer's Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment to
FASB Statement No. 87, 88, 106, and 132R. This Statement improves financial
reporting by requiring an employer to recognize the over funded or under
funded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity
or changes in unrestricted net assets of a no-for-profit organization. An
employer with publicly traded equity securities shall initially apply the
requirement to recognize the funded status of a benefit plan and the
disclosure requirements as of the end of the fiscal year ending after
December 15, 2006. An Employer without publicly traded equity securities
shall initially apply the requirements as of the end of the fiscal year
ending after June 15, 2007.
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.
Management does not believe the new pronouncements will have a material
impact on its financial statements.
NOTE B - BUSINESS COMBINATIONS
On May 25, 2006, the Company completed the acquisition of 100% of Priority
Power Management ("PPM"), effective April 1, 2006, for an aggregate
consideration of $3,730,051. Priority Power is primarily involved in
providing energy management services and the Company believes that Priority
Power's business is complimentary to the retail electricity provider
business conducted by the Company's subsidiary W Power. The acquisition
resulted in the Company allocating $2,916,085 of the purchase price to
goodwill.
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 - DISPOSITION OF ASSETS
Effective September 27, 2006, the Company entered into an Agreement to
Distribute Assets with and among the partners of TCTB Partners, Ltd. The
assets consisted of the following: the twenty-four-story Bank of America
Tower, where the Company's headquarters are located, which was completed in
1977 and encompasses 329,178 rentable square feet and a 900 space-parking
garage; the related Bank of America 12-lane drive through banking facility;
and the twelve story Century Plaza Tower which was built in 1979 (renovated
in 1990) and has 99,422 rentable square feet. The Properties constituted
substantially all of the assets of TCTB prior to the transactions described
herein and were subject to a lien to secure a promissory note payable to
Wells Fargo Bank Texas, N.A. The Bank agreed to allow TCTB to distribute
the assets to the partners of TCTB in exchange for the payoff of the note
as described below. The asset distribution to the TCTB minority interest
partners resulted in an approximate $369,000 reduction in minority
interest.
10
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Contemporaneous with the distribution of the Properties, 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 Properties to Hampshire Plaza Garage, LLC and S.E.S.
Investments, Ltd., unaffiliated third party purchasers for a privately
negotiated price of $9.0 million. This resulted in the Company, through its
wholly owned subsidiary Amen Delaware, LP, selling approximately 74% of its
undivided interest in the distributed assets for approximately $6.4 million
(net proceeds of approximately $3,570,500) with a gain on the sale of
approximately $1,405,500. The sale of approximately 74% of the Company's
original 71.348% interest in the assets resulted in the Company retaining
approximately 18.017% in an investment in real estate aggregating
$1,687,238.
In connection with the Agreement to Distribute Assets the restricted $2.1
million certificate of deposit that secured the Note was applied to the
outstanding balance of the Note resulting in the Note balance of
approximately $3.7 million being distributed to the partners of TCTB
Partners, Ltd., approximately $2.6 million net to the Company. The Note was
subsequently paid in full on October 2, 2006 through the application of
approximately $3.9 million of the $9.0 million sales proceeds under the
Purchase Agreement received on October 2, 2006. The remaining $5.0 million
of the sales proceeds (after closing costs) were paid to the Selling
Partners in accordance with their respective interests in the Properties
(approximately $3.5 million to the Company). On October 3, 2006 the Company
used a portion of the net proceeds from the sale to pay the remaining
balance (approximately $1.7 million) on certain promissory notes entered
into by the Company in connection with its acquisition of partnership
interests in TCTB (including approximately $266,000 to Mr. Jon Morgan,
President and COO of the Company, and approximately $410,000 to an
affiliate of Mr. Eric Oliver, Chairman of the Board and CEO of the Company.
NOTE D - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at four financial institutions, which
at times may exceed federally insured limits. At September 30, 2007 and
2006 the Company had approximately $2,098,153 and $2,270,635, respectively,
of uninsured cash and cash equivalents. The Company has not experienced any
losses in such accounts and believes that it is not exposed to any
significant credit risks on such accounts.
W Power and Priority Power's revenues are derived principally from
uncollateralized customer electricity billings and TCTB's revenues are
derived principally from uncollateralized rents from tenants. 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 E - 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. At September 30,
2007, the Company had deposits with JPMorgan totaling $2,197,000
collateralizing outstanding Letters of Credit.
NOTE F - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following at September
30, 2007:
11
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Furniture, fixtures and equipment $ 298,092
Less: accumulated depreciation (135,049)
-------------
$ 163,043
Depreciation expense for the nine months ended September 30, 2007 and 2006
was $43,348 and $313,034, respectively. Included in the $313,034 of 2006
depreciation expense is $275,984 of depreciation related to the buildings
sold on September 29, 2006.
NOTE G - INVESTMENT IN REAL ESTATE
As discussed in Note C, 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. The sale of the Company's undivided interest in the
assets resulted in the Company retaining approximate 18.017% undivided
interest in the assets (see note C). On March 19, 2007, the Company
contributed its 18.017% real estate interest and cash of $478,491 to a real
estate limited partnership.
At September 30, 2007, investment in real estate consisted of the
following:
Real estate investment $ 2,208,676
Equity in Undistributed Income from
Real Estate Investment 81,627
------------
$ 2,290,303
NOTE H - ROYALTY INTERESTS
The Company currently owns two separate royalty interests, one in the state
of Texas and one in the state of Oklahoma. The total consideration paid by
the Company for the royalty interests was $162,854. Under accounting
principles generally accepted in the United States of America, revenues and
expenses are recognized on an accrual basis. Royalty income is generally
received one to two months following the month of production and the
Company uses estimates to accrue royalty income.
Depletion expense for the nine months ended September 30, 2007 and 2006 was
$2,506 and $6,324, respectively, and accumulated depletion was $35,583 and
$32,560, respectively.
NOTE I - LONG-TERM INVESTMENTS
Securities available-for-sale in the accompanying balance sheet at
September 30, 2007 totaled $3,442,435. The aggregate market value, cost
basis, and unrealized gains and losses of securities available-for-sale, by
major security type are as follows:
Gross
Market Unrealized
Value Cost Basis Losses
------------- ------------- ----------------
Santa Fe Energy Trust (SFF) Common Stock $ 3,380,085 $ 3,437,560 $ (57,474)
Other Securities 62,350 62,350 -
------------- ------------- ----------------
Total $ 3,442,435 $ 3,499,910 $ (57,474)
============= ============= ================
12
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
At September 30, 2007, the SFF investments were pledged to secure related
investment margin account payable of $1,251,205.
NOTE J - AMORTIZATION OF INTANGIBLE ASSETS
Deposits and Other Assets included $434,075 of intangible contract right
assets at September 30, 2007. These contract right assets are net of
amortization expense of $22,665 and $0 for the nine months ended September
30, 2007 and 2006, respectively. Amortization expense of intangible
contract right assets was $22,665 and $0 for the quarter ended September
30, 2007 and 2006.
NOTE K - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 2007:
TDSP (Electricity Delivery) Charges $ 153,335
Sales Tax 114,464
Corporate Tithing 298,620
Executive Bonuses 108,422
Customer Deposits 163,818
Other 59,601
-------------
$ 898,260
=============
NOTE L - OPERATING SEGMENTS
The Company's business activities are mainly comprised of three reportable
segments, real estate operations, a retail electricity provider ("REP"),
and retail energy consulting and aggregation services.
The commercial real estate portfolio consists of the Company's investment
in a real estate joint venture (see notes C and G), 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.
The Company entered the retail electricity market in the state of Texas in
July 2004. The retail electricity operations are primarily conducted
through W Power of which the Company is the sole general partner. The REP
segment sells electricity and provides the related billing, customer
service, collection and remittance services to both residential and
commercial customers.
On April 1, 2006, the Company, through its investment in Priority Power,
began energy consulting, aggregation and negotiation services for electric
consumers. The aggregation of electric consumers is primarily conducted
through Priority Power of which Amen is the sole general partner.
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 quarter and nine months ended September 30, 2007 and 2006,
respectively.
13
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Three Months Ended September 30, 2007:
--------------------------------------
Inter-
Energy Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- --------------- ------------- ------------- -------------- ------------
Revenues from external
customers $ 3,171,945 $ -- $ 1,218,381 $ -- $ -- $ 4,390,326
============= =============== ============= ============= ============== ============
Revenues from other
operating segments $ -- $ -- $ 7,265 $ -- $ (7,265) $ --
============= =============== ============= ============= ============== ============
Depreciation,
amortization and
depletion $ 5,394 $ -- $ 29,491 $ 4,114 $ -- $ 38,999
============= =============== ============= ============= ============== ============
Interest expense $ 3,924 $ -- $ 1,310 $ 83,814 $ -- $ 89,048
============= =============== ============= ============= ============== ============
Segment net income
(loss) $ 33,998 $ 14,762 $ 490,229 $ (213,953) $ (47,058) $ 277,978
============= =============== ============= ============= ============== ============
Segment assets $ 4,632,298 $ 2,368,304 $ 2,377,664 $ 6,945,516 $ 66,328 $ 16,390,110
============= =============== ============= ============= ============== ============
Goodwill $ -- $ -- $ -- 2,916,085 $ -- $ 2,916,085
============= =============== ============= ============= ============== ============
Expenditures for
segment assets $ 2,720 $ -- $ 6,944 $ 810,568 $ -- $ 820,232
============= =============== ============= ============= ============== ============
Three Months Ended September 30, 2006:
--------------------------------------
Inter-
Energy Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- --------------- ------------- ------------- -------------- ------------
Revenues from external
customers $ 1,956,012 $ 834,128 $ 809,217 $ -- $ -- $ 3,599,357
============= =============== ============= ============= ============== ============
Revenues from other
operating segments $ 305,461 $ 5,411 $ -- $ -- $ (310,872) $ --
============= =============== ============= ============= ============== ============
Depreciation,
amortization and
depletion $ 3,876 $ 102,270 $ 4,583 $ 1,293 $ -- $ 112,022
============= =============== ============= ============= ============== ============
Interest expense $ 60,325 $ 276,769 $ 62,582 $ -- $ (56,332) $ 343,344
============= =============== ============= ============= ============== ============
Segment net income
(loss) $ (78,124) $ 12,382 $ 425,750 $ 988,372 $ (55,794) $ 1,292,586
============= =============== ============= ============= ============== ============
Segment assets $ 3,859,107 $ 218,984 $ 1,075,279 $ 12,368,839 $ (99,130) $ 17,423,079
============= =============== ============= ============= ============== ============
Goodwill $ -- $ -- $ -- $ -- $ -- $ --
============= =============== ============= ============= ============== ============
Expenditures for
segment assets $ 5,722 $ 325,263 $ 13,694 $ 2,245 $ -- $ 346,924
============= =============== ============= ============= ============== ============
14
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Nine Months Ended September 30, 2007:
-------------------------------------
Inter-
Energy Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- --------------- ------------- ------------- -------------- ------------
Revenues from external
customers $ 8,146,175 $ -- $ 3,069,625 $ -- $ -- $ 11,215,800
============= =============== ============= ============= ============== ============
Revenues from other
operating segments $ -- $ -- $ 20,925 $ -- $ (20,925) $ --
============= =============== ============= ============= ============== ============
Depreciation,
amortization and
depletion $ 14,145 $ -- $ 42,221 $ 12,153 $ -- $ 68,519
============= =============== ============= ============= ============== ============
Interest expense $ 11,739 $ -- $ 1,310 $ 207,429 $ -- $ 220,478
============= =============== ============= ============= ============== ============
Segment net income
(loss) $ 615,037 $ 96,032 $ 1,402,787 $ (661,061) $ (157,463) $ 1,295,332
============= =============== ============= ============= ============== ============
Segment assets $ 4,632,298 $ 2,368,304 $ 2,377,664 $ 6,945,516 $ 66,328 $ 16,390,110
============= =============== ============= ============= ============== ============
Goodwill $ -- $ -- $ -- 2,916,085 $ -- $ 2,916,085
============= =============== ============= ============= ============== ============
Expenditures for
segment assets $ 27,154 $ -- $ 8,789 $ 2,367,421 $ -- $ 2,403,364
============= =============== ============= ============= ============== ============
Nine Months Ended September 30, 2006:
--------------------------------------
Inter-
Energy Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------- --------------- ------------- ------------- -------------- ------------
Revenues from external
customers $ 8,516,667 $ 2,418,702 $ 1,486,023 $ -- $ -- $ 12,421,392
============= =============== ============= ============= ============== ============
Revenues from other
operating segments $ 794,572 $ 20,797 $ -- $ -- $ (815,369) $ --
============= =============== ============= ============= ============== ============
Depreciation,
amortization and
depletion $ 10,985 $ 293,522 $ 7,400 $ 7,450 $ -- $ 319,357
============= =============== ============= ============= ============== ============
Interest expense $ 163,776 $ 553,767 $ 125,165 $ 136 $ (152,633) $ 690,211
============= =============== ============= ============= ============== ============
Segment net income
(loss) $ 348,016 $ 210,312 $ 687,921 $ 789,243 $ (152,095) $ 1,883,397
============= =============== ============= ============= ============== ============
Segment assets $ 3,859,107 $ 218,984 $ 1,075,279 $ 12,368,839 $ (99,130) $ 17,423,079
============= =============== ============= ============= ============== ============
Goodwill -- -- 2,916,085 -- -- 2,916,085
============= =============== ============= ============= ============== ============
Expenditures for
segment assets $ 10,306 $ 381,495 $ 14,496 $ (3,593) $ -- $ 402,704
============= =============== ============= ============= ============== ============
NOTE M - 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
15
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Cogdill for and on behalf of the Company prior to the August 31, 2007. The
estimated net present value of the expected future obligation under the CEI
agreement is classified as a long term obligation, less the current
portion.
Long-term non-related party obligations consisted of the following at
September 30, 2007:
Total Notes $ 2,812,154
Less related party portion (1,938,746)
Less current portion (113,183)
--------------
$ 760,225
==============
Long-term related party obligations consisted of the following at September
30, 2007:
Related Party Notes $ 1,938,746
Less current portion (251,237)
CEI Related Party Notes 440,864
Less current portion (133,619)
--------------
$ 1,994,754
==============
Annual maturities of long-term non-related party obligations at September
30, 2007 are as follows:
October 2007 - September 2008 $ 113,183
October 2008 - September 2009 122,213
October 2009 - September 2010 131,963
October 2010 - September 2011 142,491
October 2011 - September 2012 153,859
October 2012 and thereafter 209,699
------------
$ 873,408
============
Annual maturities of long-term related party obligations at September 30,
2007 are as follows:
October 2007 - September 2008 $ 384,856
October 2008 - September 2009 350,606
October 2009 - September 2010 382,392
October 2010 - September 2011 386,738
October 2011 - September 2012 397,209
October 2012 and thereafter 477,809
------------
$ 2,379,610
============
NOTE N - RELATED PARTY TRANSACTIONS
The Company closed the sale and issuance of 125,000 shares of Series C
Preferred Stock and 250,000 Warrants pursuant to a Purchase Agreement, as
amended by the Second Amendment on March 1, 2005 between the Company and
certain accredited investors, including the Company's President and Chief
Operating Officer, Jon M. Morgan, the Company's Chief Executive Officer,
Eric Oliver and Bruce Edgington, one of the Company's Directors.
The following table reflects the Series C issuance to the Company's
officers and directors.
16
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Number of Preferred C
Preferred C Common Stock Voting Purchase
Shares Equivalent Equivalent Price
--------------- ----------------- ---------------- -------------
Eric Oliver 14,063 56,252 52,877 $ 225,008
Jon M. Morgan 14,062 56,248 52,873 224,992
Bruce Edgington 3,125 12,500 11,750 50,000
--------------- ----------------- ---------------- -------------
Total 31,250 125,000 117,500 $ 500,000
=============== ================= ================ =============
The following table reflects the issuance of Warrants to the Company's
Officers and Directors.
Number of Common Stock
Warrants Equivalent
-------------- ------------------
Eric Oliver 28,126 28,126
Jon M. Morgan 28,124 28,124
Bruce Edgington 6,250 6,250
-------------- ------------------
Total 62,500 62,500
============== ==================
On May 18, 2006, Jon M. Morgan and Bruce Edgington exercised their
outstanding warrants (described above) for a total exercise price of
$112,496 and $25,000, respectively. Mr. Morgan received 28,124 shares of
common stock and Mr. Edgington received 6,250 shares of common stock upon
the exercise of their stock warrants. On August 31, 2007, Eric Oliver
exercised 9,375 warrants for a total exercise price of $37,500.
On August 31, 2007, all of the Company's classes of Preferred Stock were
converted in Common Stock of the Company, as described in Note A17. 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.
On May 25, 2006, the Company completed its acquisition of all of the
outstanding partnership interests in Priority Power pursuant to a
Securities Purchase Agreement by and between the Company and its
subsidiary, NEMA and the partners of Priority Power dated May 18, 2006. The
total purchase price was $3,730,051, comprised of (i) $500,000 in cash, and
(ii) promissory notes with the aggregate principal amount of $3,230,051
(see note N) from the Company and NEMA and payable to the sellers. There
are several business relationships among Priority Power, its partners, the
Company and its subsidiaries, and their respective affiliates. The
Company's retail electricity provider subsidiary, W Power, has contractual
relationships with Priority Power with respect to providing electricity to
less than 0.2% of Priority Power's clients and the Company believes W Power
will not provide energy to any Priority Power clients in the future.
Additionally certain of the selling partners of Priority Power are
customers of W Power none of which are considered significant customers. In
addition, certain of the selling partners of Priority Power are also five
percent or more stockholders of the Company or affiliates of stockholders
of the Company, including an affiliate of Jon M. Morgan, the President and
Chief Executive Officer of the Company, and Eric L. Oliver, the Chairman of
the Board of Directors of the Company. Jon M. Morgan is a fifty percent
owner of Anthem Oil and Gas, Inc which was a selling limited partner of
Priority Power. Mr. Morgan also owned a one third interest in the selling
general partner of Priority Power Management, Ltd. Eric L. Oliver owned a
thirty-seven and a half percent interest in a selling limited partner of
Priority Power, Oakdale Ventures, Ltd.
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.
The following table reflects the portion of the Company's long-term
obligations payable to related parties as of September 30, 2007:
17
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Total
---------------
Eric Oliver, Chairman of the Board $ 11,125
Jon M. Morgan , CEO 496,962
Padraig Ennis, VP of Priority Power 76,577
John Bick, Managing Principal of Priority
Power 198,415
Trenton Cogdill, Priority Power 307,245
5% Shareholders 904,430
---------------
Total $ 1,994,754
===============
Under the Company's long-term obligation to John Bick and Padraig Ennis,
each party has the right to receive their note payments in the form of
common stock.
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 Properties, 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 Properties to Hampshire Plaza Garage, LLC and S.E.S.
Investments, Ltd., unaffiliated third party purchasers for a privately
negotiated price of $9.0 million (see note C).
Mr. Jon Morgan, CEO of the Company, and his affiliate were among the
Selling Partners and the sale of their undivided interest in the Properties
resulted in Mr. Morgan receiving a net check in the amount of $79,317. Mr.
Morgan is also an owner and officer of the General Partner of TCTB, and
took actions in such capacity in connection with this transaction in
addition to acting as an officer of the Company. As an owner of such
General Partner, Mr. Morgan indirectly received an additional $5,300 from
the sale of the General Partner's interest in the Properties
During the quarter ended September 30, 2007, certain members of the
Company's Board of Directors were issued stock options under the Company's
1998 Stock Option Plan (See Note P).
NOTE O - 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.
Power Purchase Contracts
Certain contracts to purchase electricity provide for capacity payments to
ensure availability and provide for adjustments based on the actual power
taken under the contracts. Expected annual future capacity payments under
existing agreements are estimated as follows as of September 30, 2007:
2007 $ 1,160,931
2008 874,293
-------------
Total $ 2,035,224
=============
NOTE P - STOCK OPTION PLAN
The table below summarizes the Company's stock option activity for the
quarter ended September 30, 2007:
18
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
Options Weighted
Options Outstanding Outstanding Average Price
--------------------------------- -------------- -------------
Outstanding June 30, 2007 269,206 $ 11.65
Options exercised - -
Options forfeited - -
Options issued 23,157 $ 5.67
-------------- -------------
Outstanding September 30, 2007 292,363 $ 11.17
============== =============
At September 30, 2007 the 292,363 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 3.79 years. For the quarter ended September
30, 2007 the Company issued 23,157 options to the following members of the
Board of Directors as compensation for their service to the Company:
Director # Options Issued Strike Price
-------- ---------------- ------------
Bruce Edgington 5,925 $5.67
Earl Gjelde 5,969 $5.67
Randy Nicholson 5,294 $5.67
Don Blake 5,969 $5.67
NOTE Q - MATERIAL SUBSEQUENT EVENT
The Company has entered into a Purchase and Sale Agreement dated November
8, 2007 with Bank of New York Trust Company, N. A., the trustee of Santa Fe
Energy Trust (the "Trust") to purchase all of the Net Profits Royalties
owned by the Trust. The assets to be sold consist of the Trust's interests
in certain royalty interests and working interests in oil and gas
properties located in a number of different states. The Company made an
earnest money deposit to the Trust of approximately $7.5 million in
connection with the execution of the Agreement, which will be applied to
the purchase price at closing or returned to the Company upon termination
of the Agreement except for termination resulting from a breach of the
Agreement by the Company, litigation enjoining the transaction or lack of
any required governmental consents. The Trust Purchase and Sale Agreement
provides for a total purchase price of $50.4 million, subject to certain
adjustments and customary closing conditions. Specifically, the Agreement
provides for upward and downward adjustments to the purchase price for a
number of factors including title issues, environmental issues, adjustments
to estimated reserves and changes in the market price of West Texas
Intermediate Crude Oil. The Agreement also provides that the parties can
terminate the Agreement upon the occurrence of certain events customary for
transactions of this type, including without limitation the right of the
Trust to terminate the transaction if the amount of the environmental
defects asserted exceeds 20% of the purchase price, and the right of either
party to terminate if the total adjustment to the purchase price related to
changes in estimated reserves is in excess of $4 million. The parties
intend to consummate the transaction on or about December 17, 2007 with an
effective date of October 1, 2007.
The Company owns 139,500 units of the Trust and is part of an affiliated
ownership group, which includes certain of the Company's officers and
directors, that owns 701,393 units of the Trust, approximately 11% of the
outstanding units. The Company will continue to receive regular
distributions from the Trust until its liquidation on or before February
15, 2008.
Additionally, the Company has entered into a Purchase and Sale Agreement
dated November 8, 2007 with Devon Energy Production Company, L. P.
("Devon") to acquire Devon's working and royalty interests in the
19
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
September 30, 2007
(Unaudited)
properties that are subject to the Net Profits Royalties owned by the
Trust. The Devon Purchase and Sale Agreement provides for a total purchase
price of $5.6 million, subject to certain adjustments and customary closing
conditions. Specifically, the Agreement provides for upward and downward
adjustments to the purchase price for a number of factors including title
issues, environmental issues, and adjustments to estimated reserves. The
parties intend to consummate the transaction contemporaneously with the
Trust transaction on or about December 17, 2007.
20
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, 2006 Form 10-KSB.
Overview
AMEN Properties, Inc., (the "Company") is engaged in owning and managing energy
related business properties. The Company is a holding company and conducts its
operations through AMEN Delaware, LP ("Delaware"); AMEN Minerals, LP
("Minerals"), W Power and Light, LP ("W Power") and Priority Power Management,
Ltd ("Priority Power") each being a wholly owned subsidiary of the Company. The
company's primary business activities are:
o Retail Electricity - The Company is engaged in the retail electricity
market as a retail electric provider serving both retail and wholesale
customers within the state of Texas through W Power.
o Energy Aggregation, Brokering and Consulting - Effective April 1,
2006, AMEN Properties acquired 100% of Priority Power Management, Ltd.
a Texas limited partnership, and Priority Power Management, Dallas,
Ltd. a Texas limited partnership, (collectively referred to as
"Priority Power"). Priority Power is primarily involved in providing
energy management services and the Company believes that Priority
Power's business is complimentary to the retail electricity provider
business conducted by the Company's subsidiary W Power. On August 31,
2007, AMEN Properties acquired Cogdill Enterprises, Inc., dba Cogdill
Energy Consultants, a leading energy consulting firm to religious
groups and other commercial and industrial customers located primarily
in Texas. Cogdill has since been integrated with Priority Power.
o Oil & Gas Royalties - The Company's present oil and gas royalty
holdings are through Minerals, which owns two oil and gas royalty
properties, one in Nowata County, Oklahoma and the other in Hemphill
County, Texas.
o Real Estate - As of December 31, 2006, the Company, through Delaware's
investment in a real estate joint venture, has a commercial real
estate portfolio 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
which was exchanged for 17.8% interest in a real estate limited
partnership on March 19, 2007.
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
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
o Impairments,
o Acquisition of operating properties,
o Revenue recognition,
o Consolidation of variable interest entities,
o Allowance for doubtful accounts and
o 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
21
Properties requires us to make assumptions related to future rental rates,
occupancies, operating expenses, the ability of our tenants to perform pursuant
to their lease obligations and proceeds to be generated from the eventual sale
of our Properties. Any changes in estimated future cash flows due to changes in
our plans or views of market and economic conditions could result in recognition
of additional impairment losses.
If events or circumstances indicate that the fair value of an investment
accounted for using the equity method has declined below its carrying value and
we consider the decline to be "other than temporary," the investment is written
down to fair value and an impairment loss is recognized. The evaluation of
impairment for an investment would be based on a number of factors, including
financial condition and operating results for the investment, inability to
remain in compliance with provisions of any related debt agreements, and
recognition of impairments by other investors. Impairment recognition would
negatively impact the recorded value of our investment and reduce net income.
Acquisition of Operating Properties
We allocate the purchase price of acquired properties to tangible and identified
intangible assets acquired based on their fair values in accordance with SFAS
No. 141, "Business Combinations." We initially record the allocation based on a
preliminary purchase price allocation with adjustments recorded within one year
of the acquisition.
In making estimates of fair value for purposes of allocating purchase price,
management utilizes sources, including, but not limited to, independent value
consulting services, independent appraisals that may be obtained in connection
with financing the respective property, and other market data. Management also
considers information obtained about each property as a result of its
pre-acquisition due diligence, marketing and leasing activities in estimating
the fair value of the tangible and intangible assets acquired.
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.
22
Revenue Recognition
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are recognized on a straight-line basis over the terms of the respective
leases.
The Company records electricity sales under the accrual method and these
revenues are recognized upon delivery of electricity to the customers' meters.
Electric services not billed by month-end are accrued based upon estimated
deliveries to customers as tracked and recorded by the Electric Reliability
Council of Texas ("ERCOT") multiplied by the Company's average billing rate per
kilowatt hour ("kwh") in effect at the time.
The flow technique of revenue calculation relies upon ERCOT settlement
statements to determine the estimated revenue for a given month. Supply
delivered to our customers for the month, measured on a daily basis, provides
the basis for revenues. ERCOT provides net electricity delivered data in three
frames. Initial daily settlements become available approximately 17 days after
the day being settled. Approximately 45 days after the day being settled, a
resettlement is provided to adjust the initial settlement to the actual supply
delivered based on subsequent comparison of prior forecasts to actual meter
reads processed. A final resettlement is provided approximately 180 days after
power is delivered, marking the last routine settlement adjustment to the power
deliveries for that day.
Sales represent the total proceeds from energy sales, including pass through
charges from the TDSPs billed to the customer at cost. Cost of goods and
services ("COGS") include electric power purchased, sales commissions, and pass
through charges from the TDSPs in the areas serviced by the Company. TDSP
charges are costs for metering services and maintenance of the electric grid.
TDSP charges are determined by regulated tariffs established by the Public
Utility Commission of Texas ("PUCT").
Bilateral wholesale costs are incurred through contractual arrangements with
wholesale power suppliers for firm delivery of power at a fixed volume and fixed
price. The Company is typically invoiced for these wholesale volumes at the end
of each calendar month for the volumes purchased for delivery during the month,
with payment due 10 to 20 days after the end of the month.
Balancing/ancillary costs are based on the aggregate customer load and are
determined by ERCOT through a multiple step settlement process. Balancing
costs/revenues are related to the differential between supply provided by the
Company through its bilateral wholesale supply and the supply required to serve
the Company's customer load. The Company endeavors to minimize the amount of
balancing/ancillary costs through its load forecasting and forward purchasing
programs.
Consolidation of Variable Interest Entities
We perform evaluations of each of our investment partnerships, real estate
partnerships and joint ventures to determine if the associated entities
constitute a Variable Interest Entity, or VIE, as defined under Interpretations
46 and 46R, "Consolidation of Variable Interest Entities," or FIN 46 and 46R,
respectively. In general, a VIE is an entity that has (i) an insufficient amount
of equity for the entity to carry on its principal operations, without
additional subordinated financial support from other parties, (ii) a group of
equity owners that are unable to make decisions about the entity's activities,
or (iii) equity that does not absorb the entity's losses or receive the benefits
of the entity. If any one of these characteristics is present, the entity is
subject to FIN 46R's variable interests consolidation model.
Quantifying the variability of VIEs is complex and subjective, requiring
consideration and estimates of a significant number of possible future outcomes
as well as the probability of each outcome occurring. The results of each
possible outcome are allocated to the parties holding interests in the VIE and,
based on the allocation, a calculation is performed to determine which party, if
any, has a majority of the potential negative outcomes (expected losses) or a
majority of the potential positive outcomes (expected residual returns). That
party, if any, is the VIE's primary beneficiary and is required to consolidate
the VIE. Calculating expected losses and expected residual returns requires
modeling potential future results of the entity, assigning probabilities to each
potential outcome, and allocating those potential outcomes to the VIE's interest
holders. If our estimates of possible outcomes and probabilities are incorrect,
it could result in the inappropriate consolidation or deconsolidation of the
VIE.
For entities that do not constitute VIEs, we consider other GAAP, as required,
determining (i) consolidation of the entity if our ownership interests comprise
a majority of its outstanding voting stock or otherwise control the entity, or
(ii) application of the equity method of accounting if we do not have direct or
indirect control of the entity, with the initial investment carried at costs and
subsequently adjusted for our share of net income or less and cash contributions
and distributions to and from these entities.
Allowance for Doubtful Accounts
Our accounts receivable balance is reduced by an allowance for amounts that may
become uncollectible in the future. Our receivable balance is composed primarily
of rents and operating cost recoveries due from its tenants and billed and
unbilled customer retail 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 tenants and 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
23
estimated the allowance for doubtful accounts related to W Power's billed
account receivables to be approximately 0.2% percent of W Power's retail
electricity billed revenue for the quarter ended September 30, 2007. Due to the
limited historical data, the Company regularly reviews the accounts receivable
and accordingly makes adjustments in estimating the allowance for doubtful
accounts.
Stock Options
The Company accounts for its stock-based compensation in accordance with
Financial Accounting Standards (SFAS) No. 123R, Accounting for Stock-Based
Compensation. In December 2004, the Financial Accounting Standards Board issued
Statement 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
--------
For the nine months ended September 30, 2007, the Company generated fully
diluted earnings of $0.51 per share, in line with earnings for the same period
in 2006. As a reminder, Priority Power was acquired April 1, 2006, so the
Company's 2006 numbers only include six months of Priority's business.
Priority's growth and the Company's reduced debt as a result of withdrawing from
the real estate business enabled the company to maintain earnings despite the
third quarter typically being marginally profitable in the retail electricity
segment due to high wholesale electricity and capacity costs across the hot
summer months in Texas. The trend of mild temperatures experienced during the
first half of 2007 continued through the summer months of July, August, and
September. Despite reduced consumption resulting from these mild temperatures, W
Power realized a 25% increase in delivered energy compared to the same period
last year by growing its portfolio of customers. The mild weather also had an
effect on Priority's revenues for certain consumption-based fees for a portion
of its client base.
Revenues
--------
Total operating revenues for the first nine months of 2007 were $11,215,800, a
decrease of 10% versus the same period in 2006, as shown in the table below:
Nine Months Ended
Description 9/30/07 9/30/06 Change
--------------------------- ------------- ----------- -------------
Rental Revenue $ - $ 2,418,702 $ (2,418,702)
Energy Management Fees 3,069,625 1,486,023 1,583,602
Retail Electricity Revenue 8,146,175 8,516,667 (370,492)
------------- ----------- -------------
Total $ 11,215,800 $ 12,421,392 $ (1,205,592)
============= =========== =============
As shown above, Rental Revenue was eliminated due to the Company's disposition
of real estate assets, as described in Note C to the financial statements.
Despite a 25% increase in delivered retail energy volume, W Power's revenue fell
by 4% due to reduced wholesale volumes and lower retail billing rates resulting
from reduced natural gas and electricity prices in the wholesale markets.
Priority Power's revenue growth was caused primarily by 2007 consisting of nine
months versus six months in 2006 as well as new customer acquisition
supplemented by increased volume and expanded service offerings to existing
customers.
Operating Expenses
------------------
Operating Expenses for the first nine months of 2007 decreased $982,626, a
decline of 9% versus the same period in 2006. The decline was driven by the
elimination of expenses associated with Real Estate Operations ($1,652,483 in
2006) and a decrease of $414,334 in Cost of Goods and Services, driven primarily
by reduced wholesale power supply rates associated with W Power. These decreases
were partially offset by an increase in General & Administrative expenses of
$1,177,460, caused primarily by nine months of Priority Power business in 2007
versus six months in 2006.
Net Margin
----------
The Company's net margin declined in the first nine months of 2007, primarily
due to the gain on sale of real estate assets in the third quarter of 2006 (see
note C). This decline in margin was mitigated by improvement in W Power
profitability and growth in Priority Power's higher-margin business, as shown in
the table below (see Note L for more segment financial data):
24
Nine Months Ended 9/30/07 Nine Months Ended 9/30/06
---------------------------- ----------------------------
Segment Net Income Net Margin % Net Income Net Margin %
-------------------------------- ---------------------------- ----------------------------
Real Estate $ 96,032 N/A $ 210,312 9%
Retail Electricity 615,037 8% 348,016 4%
Energy Management & Consulting 1,402,787 46% 687,921 46%
Other (Corporate) (661,061) N/A 789,243 N/A
Eliminations (157,463) N/A (152,095) N/A
---------------------------- ----------------------------
Total $ 1,295,332 12% 1,883,397 15%
============= ============== ============= ==============
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, 2007 the Company's BVPS is
$2.70, an increase of 20% during the first nine months of 2007.
Analysis of Cash Flows
Operating Activities
--------------------
During the first nine months of 2007, net cash provided by operating activities
was $1,208,623. This was driven by a number of factors:
o Net Income of $1,295,332.
o An increase in Accounts Payable of $323,997, caused by timing of
payment cycles; this was offset by an increase in Accounts Receivable
of $600,225, caused by the timing of billing cycles and increased
billings for W Power due to higher temperatures.
o An increase in Accrued Liabilities of $304,621 due to accruals for
executive bonuses, tithing and an increase in retail electricity
customer deposits.
o An increase in Allowance for Doubtful Accounts of $207,124, caused by
a specific reserve for a receivable balance from a W Power reseller
(see note A7); this receivable balance was the primary cause for the
increase in Deposits and Other Assets of $350,809.
Investing Activities
--------------------
For the first nine months of 2007, the net cash used in investing activities was
$2,753,859. This was driven by two primary activities:
o The Company invested $478,491 in the Hampshire Plaza Garage Limited
Partnership in exchange for an 18.017% interest in the partnership, as
discussed in Note C.
o $2,186,354 was used to purchase marketable securities (see Note I).
Financing Activities
--------------------
Net cash used in financing activities for the first nine months of 2007 was
$315,871. This is primarily related to repayment of notes for the purchase of
Priority Power (the "NEMA" notes - See Note M).
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $29 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. However, if an opportunity presents itself
that would be more valuable to the shareholders than the approximate $2.5 to $5
million present value we have assigned the NOL we will strongly consider
pursuing the deal and would consider issuing equity to do so.
ITEM 3. Controls and Procedures
The Company has carried out an evaluation under the supervision of management,
including the Chairman and Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
Chairman and Chief Executive Officer and Chief Financial Officer have concluded
that, and have reported to the Audit Committee of the Company's Board of
Directors that, management has identified certain deficiencies in the disclosure
controls and procedures. The deficiencies noted were (a) a lack of documented
25
control procedures (b) the lack of segregation of duties and (c) insufficient
supervision of the Company's accounting personnel. The Company believes such
deficiencies are primarily attributable to the Company currently having only one
full time employee at the corporate level and the continuing development of the
Company's new start up subsidiary W Power and Light, L.P. Management believes
that the deficiencies noted above do not materially interfere with the Company's
timely disclosure of information required to be disclosed by the Company in
reports filed or submitted under the Securities Exchange Act 1934, as amended,
because accounting personnel and a member of management have first-hand
knowledge of the daily transactions of the Company and that first-hand knowledge
enables such personnel to accumulate and communicate such information to the
Company's management, including its principal executive and principal financial
officer as appropriate to allow timely decisions regarding disclosure.
Therefore, the Company believes that its disclosure controls and procedures are
sufficient to provide reasonable assurance that the information required to be
disclosed by the Company in reports filed or submitted by it under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time period specified in the rules and forms of the SEC,
notwithstanding the deficiencies noted above.
There have not been any changes in the Company's disclosure controls and
procedures during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's
disclosure controls and procedures over financial reporting.
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
(a) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1+ Certificate of Incorporation and Certificates of Amendments
thereto of DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.4 ~ Certificate of Designation for Series A Preferred Stock
3.4(a) ~~ Amended Certificate of Designation for Series A Preferred Stock
3.5 ~~ Certification of Designation for Series B Preferred Stock
26
3.6*** Certificate of Amendment of Certificate of Incorporation dated
May 26, 2004
3.7@ Certificate of Designation for Series C Preferred Stock
4.1+ Warrant Certificate between the Company and Robert Varney dated
July 10, 1996
4.2+ Warrant Certificate between the Company and Robert Varney dated
September 26, 1996
4.3+ Warrant Certificate between the Company and Bruce Edgington dated
July 30, 1996
4.4+ Warrant Certificate between the Company and Bruce Edgington dated
October 30, 1996
4.5@ Form of Warrant Certificate dated March 1, 2005
10.1// Asset Purchase Agreement between the Company and Blue Hill Media,
Inc. dated December 13, 2002
10.2+ Form of Stock Option Agreement
10.3+ 1997 Stock Option Plan
10.4* 1997 Stock Option Plan, as amended April 6, 1998
10.5* 1998 Stock Option Plan
10.6** 1998 Stock Option Plan, as amended February 26, 1999
10.7## 1998 Stock Option Plan, as amended March 3, 2000
10.8++ Stock Purchase Agreement between the Company and A. Scott Dufford
for Series A Preferred Stock dated September 29, 2000
10.9++ Stock Purchase Agreement between the Company and John R. Norwood
Norwood for Series A Preferred Stock dated September 29, 2000
10.10++ Stock Purchase Agreement between the Company and J.M. Mineral and
Land Co. for Series A Preferred Stock dated September 29, 2000
10.11++ Stock Purchase Agreement between the Company and Jon M. Morgan
Pension Plan for Series A Preferred Stock dated September 29,
2000
10.12++ Stock Purchase Agreement between the Company and Stallings
Properties, Ltd. for Series A Preferred Stock dated September 29,
2000
10.13++ Stock Purchase Agreement between the Company and John D. Bergman
for Series A Preferred Stock dated September 29, 2000
10.14++ Stock Purchase Agreement between the Company and Julia Jones
Family Trust for Series A Preferred Stock dated September 29,
2000
10.15++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series A Preferred Stock dated September 29, 2000
10.16++ Stock Purchase Agreement between the Company and Soft Op, L.P.
for Series A Preferred Stock dated September 29, 2000
10.17++ Stock Purchase Agreement between the Company and Lighthouse
Partners, L.P. for Series A Preferred Stock dated September 29,
2000
10.18++ Stock Purchase Agreement between the Company and Ray McGlothlin,
Jr. for Series A Preferred Stock dated September 29, 2000
27
10.19++ Stock Purchase Agreement between the Company and Gary J. Lamb for
Series A Preferred Stock dated September 29, 2000
10.20++ Stock Purchase Agreement between the Company and Frosty Gilliam,
Jr. for Series A Preferred Stock dated September 29, 2000
10.21++ Stock Purchase Agreement between the Company and Bruce Edgington
for Series B Preferred Stock dated December 31, 2001
10.22++ Stock Purchase Agreement between the Company and Dodge Jones
Foundation for Series B Preferred Stock dated December 31, 2001
10.23++ Stock Purchase Agreement between the Company and Earl E. Gjelde
for Series B Preferred Stock dated December 31, 2001
10.24++ Stock Purchase Agreement between the Company and Jon M. Morgan
for Series B Preferred Stock dated December 31, 2001
10.25++ Stock Purchase Agreement between the Company and Soft Op, L.P.
for Series B Preferred Stock dated December 31, 2001
10.26++ Annex to the Stock Purchase Agreement for Series A Preferred
Stock dated September 29, 2000
10.27# Agreement to Suspend Dividends and Consent of the Holders of
Series A Preferred Stock of Amen Properties, Inc. dated May 30,
2003.
10.28# Agreement to Suspend Dividends and Consent of Holders of Series B
Convertible Preferred Stock of Amen Properties, Inc. dated May
30, 2003.
10.29^ Consent, Waiver and Amendment of the holders of Series A
Preferred Stock dated January 2005 (identical copy executed by
each holder)
10.30^ Consent, Waiver and Amendment of the holders of Series B
Preferred Stock dated January 2005 (identical copy executed by
each holder)
10.31++ Annex to the Stock Purchase Agreement for Series B Preferred
Stock dated December 31, 2001
10.32// Agreement and Transfer of Limited Partnership Interest between
the Company and the Selling Partners of TCTB Partners, Ltd. dated
October 31, 2002
10.33// Amended Promissory Note between the Company and A. Scott Dufford
dated October 31, 2002, with schedule describing all outstanding
Amended Promissory Notes between the Company and the Selling
Partners of TCTB Partners, Ltd, which are identical other than
differences stated in the schedule.
10.34// Credit Agreement between TCTB Partners, Ltd. and Wells Fargo Bank
Texas, N.A. dated June 5, 2002, the exhibits of which are not
included due to their size.
10.35// Lease Agreement between TCTB Partners, Ltd. and Bank of America,
N.A. dated September 30, 2003.
10.36// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural
Resources USA, Inc. dated April 4, 2000.
10.38### Employment and Noncompetition Agreement between the Company and
Kevin Yung dated as of July 1, 2004
10.39@@ Agreement to Distribute Assets among TCTB Partners, Ltd. and its
partners dated as of December 31, 2004
10.40@@ Purchase Agreement between certain partners of TCTB Partners,
Ltd. and 1500 Broadway Partners, Ltd. dated as of December 31,
2004
10.41@ Securities Purchase Agreement between the Company and certain
investors dated January 18, 2005, as amended by a First Amendment
dated January 28, 2005 and a Second Amendment dated February 28,
2005
10.42@ Loan Agreement between Amen Properties, Inc. and Western National
Bank
28
10.43@ Western National Bank Revolving Line of Credit Note
11 Statement of computation of earnings per share
21.1 Subsidiaries of the Company
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.
99.1 Press release regarding March 31, 2006 Quarterly Report on Form
10-QSB
+ Incorporated by reference to the Company's Registration Statement on Form SB-2
declared effective by the Securities and Exchange Commission on September 24,
1997, SEC File No. 333-25937
++ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 29, 2002, amended July 25,
2002 and August 14, 2002.
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
# Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on June 4, 2003.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
~ Incorporated by reference to the Company's Registration Statement on Form S-3
declared effective by the Securities and Exchange Commission on December 1,
2000, SEC File No. 333-49126
~~ Incorporated by reference to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on April 5, 2002, SEC file No.
333-85636
// Incorporated by reference to the Company's Annual Report on Form 10-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.
@@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on January 4, 2005.
^ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 2005.
29
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, 2007 By: /s/ Jon Morgan
---------------------------------------
Jon Morgan,
Chief Executive Officer
November 14, 2007 By: /s/ Kris Oliver
----------------------------------------
Kris Oliver,
Chief Financial Officer and Secretary
30
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -------------------
3.1+ Certificate of Incorporation and Certificates of Amendments thereto of DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.4 ~ Certificate of Designation for Series A Preferred Stock
3.4(a) ~~ Amended Certificate of Designation for Series A Preferred Stock
3.5 ~~ Certification of Designation for Series B Preferred Stock
3.6*** Certificate of Amendment of Certificate of Incorporation dated May 26, 2004
3.7@ Certificate of Designation for Series C Preferred Stock
4.1+ Warrant Certificate between the Company and Robert Varney dated July 10, 1996
4.2+ Warrant Certificate between the Company and Robert Varney dated September 26, 1996
4.3+ Warrant Certificate between the Company and Bruce Edgington dated July 30, 1996
4.4+ Warrant Certificate between the Company and Bruce Edgington dated October 30, 1996
4.5@ Form of Warrant Certificate dated March 1, 2005
10.1// Asset Purchase Agreement between the Company and Blue Hill Media, Inc. dated December 13,
2002
10.2+ Form of Stock Option Agreement
10.3+ 1997 Stock Option Plan
10.4* 1997 Stock Option Plan, as amended April 6, 1998
10.5* 1998 Stock Option Plan
10.6** 1998 Stock Option Plan, as amended February 26, 1999
10.7## 1998 Stock Option Plan, as amended March 3, 2000
10.8++ Stock Purchase Agreement between the Company and A. Scott Dufford for Series A Preferred
Stock dated September 29, 2000
10.9++ Stock Purchase Agreement between the Company and John R. Norwood for Series A Preferred
Stock dated September 29, 2000
10.10++ Stock Purchase Agreement between the Company and J.M. Mineral and Land Co. for Series A
Preferred Stock dated September 29, 2000
10.11++ Stock Purchase Agreement between the Company and Jon M. Morgan Pension Plan for Series A
Preferred Stock dated September 29, 2000
31
10.12++ Stock Purchase Agreement between the Company and Stallings Properties, Ltd. for Series A
Preferred Stock dated September 29, 2000
10.13++ Stock Purchase Agreement between the Company and John D. Bergman for Series A Preferred
Stock dated September 29, 2000
10.14++ Stock Purchase Agreement between the Company and Julia Jones Family Trust for Series A
Preferred Stock dated September 29, 2000
10.15++ Stock Purchase Agreement between the Company and Dodge Jones Foundation for Series A
Preferred Stock dated September 29, 2000
10.16++ Stock Purchase Agreement between the Company and Soft Op, L.P. for Series A Preferred
Stock dated September 29, 2000
10.17++ Stock Purchase Agreement between the Company and Lighthouse Partners, L.P. for Series A
Preferred Stock dated September 29, 2000
10.18++ Stock Purchase Agreement between the Company and Ray McGlothlin, Jr. for Series A
Preferred Stock dated September 29, 2000
10.19++ Stock Purchase Agreement between the Company and Gary J. Lamb for Series A Preferred
Stock dated September 29, 2000
10.20++ Stock Purchase Agreement between the Company and Frosty Gilliam, Jr. for Series A
Preferred Stock dated September 29, 2000
10.21++ Stock Purchase Agreement between the Company and Bruce Edgington for Series B Preferred
Stock dated December 31, 2001
10.22++ Stock Purchase Agreement between the Company and Dodge Jones Foundation for Series B
Preferred Stock dated December 31, 2001
10.23++ Stock Purchase Agreement between the Company and Earl E. Gjelde for Series B Preferred
Stock dated December 31, 2001
10.24++ Stock Purchase Agreement between the Company and Jon M. Morgan for Series B Preferred
Stock dated December 31, 2001
10.25++ Stock Purchase Agreement between the Company and Soft Op, L.P. for Series B Preferred
Stock dated December 31, 2001
10.26++ Annex to the Stock Purchase Agreement for Series A Preferred Stock dated September 29,
2000
10.27# Agreement to Suspend Dividends and Consent of the Holders of Series A Preferred Stock of
Amen Properties, Inc. dated May 30, 2003.
10.28# Agreement to Suspend Dividends and Consent of Holders of Series B Convertible Preferred
Stock of Amen Properties, Inc. dated May 30, 2003.
10.29^ Consent, Waiver and Amendment of the holders of Series A Preferred Stock dated January
2005 (identical copy executed by each holder)
10.30^ Consent, Waiver and Amendment of the holders of Series B Preferred Stock dated January
2005 (identical copy executed by each holder)
10.31++ Annex to the Stock Purchase Agreement for Series B Preferred Stock dated December 31, 2001
10.32// Agreement and Transfer of Limited Partnership Interest between the Company and the
Selling Partners of TCTB Partners, Ltd. dated October 31, 2002
32
10.33// Amended Promissory Note between the Company and A. Scott Dufford dated October 31, 2002,
with schedule describing all outstanding Amended Promissory Notes between the Company and
the Selling Partners of TCTB Partners, Ltd, which are identical other than differences
stated in the schedule.
10.34// Credit Agreement between TCTB Partners, Ltd. and Wells Fargo Bank Texas, N.A. dated June
5, 2002, the exhibits of which are not included due to their size.
10.35// Lease Agreement between TCTB Partners, Ltd. and Bank of America, N.A. dated September 30,
2003.
10.36// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural Resources USA, Inc. dated
April 4, 2000.
10.38### Employment and Noncompetition Agreement between the Company and Kevin Yung dated as of
July 1, 2004
10.39@@ Agreement to Distribute Assets among TCTB Partners, Ltd. and its partners dated as of
December 31, 2004
10.40@@ Purchase Agreement between certain partners of TCTB Partners, Ltd. and 1500 Broadway
Partners, Ltd. dated as of December 31, 2004
10.41@ Securities Purchase Agreement between the Company and certain investors dated January 18,
2005, as amended by a First Amendment dated January 28, 2005 and a Second Amendment dated
February 28, 2005
10.42@ Loan Agreement between Amen Properties, Inc. and Western National Bank
10.43@ Western National Bank Revolving Line of Credit Note
11 Statement of computation of earnings per share
21.1 Subsidiaries of the Company
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.
99.1 Press release regarding March 31, 2006 Quarterly Report on Form 10-QSB
+ Incorporated by reference to the Company's Registration Statement on Form SB-2
declared effective by the Securities and Exchange Commission on September 24,
1997, SEC File No. 333-25937
++ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 29, 2002, amended July 25,
2002 and August 14, 2002.
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
# Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on June 4, 2003.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
33
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
~ Incorporated by reference to the Company's Registration Statement on Form S-3
declared effective by the Securities and Exchange Commission on December 1,
2000, SEC File No. 333-49126
~~ Incorporated by reference to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on April 5, 2002, SEC file No.
333-85636
// Incorporated by reference to the Company's Annual Report on Form 10-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.
@@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on January 4, 2005.
^ Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 2005.
34