UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the Period Ended March 31, 2008
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period From _____________to____________.
Commission file number 000-22847
AMEN Properties, Inc.
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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: 3,747,119 shares outstanding as of April 25,
2008.
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 March 31, 2008 (Unaudited) 1
Consolidated Statements of Income--for the three months ended
March 31, 2008 and 2007 (Unaudited) 3
Consolidated Statements of Cash Flows-- for the three months ended
March 31, 2008 and 2007 (Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operation 23
Item 3. Controls and Procedures 28
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3 Defaults Upon Senior Securities 28
Item 4 Submission of Matters to a Vote of Security Holders 29
Item 5 Other Information 29
Item 6 Exhibits 29
Signatures 32
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
March 31, 2008
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (note A3) $ 3,622,445
Accounts Receivable (notes A6 and A18), net of allowance of $21,665 1,410,832
Other Current Assets, net of allowance of $233,000 (note A7) 21,341
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Total Current Assets $ 5,054,618
RESTRICTED CASH EQUIVALENTS (note D) 2,197,000
PROPERTY AND EQUIPMENT (notes A8, A9, and E) 199,324
OIL AND GAS INVESTMENTS IN SFF GROUP (notes A10, M and Q) 9,801,886
INVESTMENT IN REAL ESTATE (notes A10 and F) 2,338,862
ROYALTY INTERESTS (notes A8 and G) 125,535
LONG-TERM INVESTMENTS (note A4) 62,350
OTHER ASSETS
Goodwill (note A11) 2,916,085
Deferred Costs 6,000
Deposits and Other Assets 536,612
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Total Other Assets 3,458,697
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TOTAL ASSETS $ 23,238,272
============
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
March 31, 2008
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 916,874
Accrued Liabilities (note I) 709,457
Deferred Revenue (note A14) 252,204
Income & Franchise Taxes Payable (notes A13 and J) 104,321
Short-Term Obligations (note Q) 1,632,559
Short-Term Related-Party Obligations (note Q) 1,076,441
Current Portion of Long-Term Obligations (note L) 117,611
Current Portion of Related-Party Obligations (note L) 373,105
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Total Current Liabilities $ 5,182,572
OTHER LIABILITIES
Long-Term Obligations, less current portion (notes L and M)
Financial Institutions and Other Creditors 700,291
Related-Party Obligations 1,793,521
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Total Other Liabilities 2,493,812
STOCKHOLDERS' EQUITY (notes O and P)
Preferred Stock, $.001 par value; 5,000,000 shares authorized
429,100 Series "D" shares issued and outstanding (note Q) 429
Common Stock, $.01 par value; 20,000,000 shares authorized; 37,471
3,747,119 shares issued and outstanding at March 31, 2008
Additional Paid-in Capital 49,609,144
Accumulated Deficit (34,085,156)
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Total Stockholders' Equity 15,561,888
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,238,272
==============
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 INCOME AND COMPREHENSIVE INCOME
Three Months Ended March 31,
(Unaudited)
2008 2007
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OPERATING REVENUE
Retail Electricity Revenue $ 2,312,033 $ 2,321,455
Energy Management Fees 1,419,604 779,178
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Total Operating Revenue 3,731,637 3,100,633
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OPERATING EXPENSE
Cost of Goods and Services 2,189,457 1,827,106
General and Administrative 973,870 676,126
Depreciation, Amortization and Depletion 55,509 14,109
Corporate Tithing (note A15) 112,397 59,291
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Total Operating Expenses 3,331,233 2,576,632
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INCOME FROM OPERATIONS 400,404 524,001
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OTHER INCOME (EXPENSE)
Interest Income 12,852 63,373
Interest Expense (218,766) (63,386)
Cumulative Gain on Liquidation of Investment (note H) 534,731 --
Income from Real Estate Investment 27,419 33,161
Income from SFF Group Investment 279,497 --
Other Income 24,541 12,206
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Total Other Income 660,274 45,354
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY
INTEREST 1,060,678 569,355
INCOME TAXES (notes A13 and J) (56,707) --
MINORITY INTEREST -- 900
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INCOME FROM CONTINUING OPERATIONS 1,003,971 570,255
LOSS FROM DISCONTINUED OPERATIONS (note R) (26,882) (61,332)
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NET INCOME $ 977,089 $ 508,923
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Net Income from Continuing Operations per Common Share (Basic) $ .27 $ .25
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Net Income from Continuing Operations per Common Share (Diluted) $ .26 $ .15
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Net Income per Common Share (Basic) $ .26 $ .22
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Net Income per Common Share (Diluted) $ .26 $ .14
============= ============
Weighted Average Number of Common Shares Outstanding - Basic 3,728,325 2,290,589
Weighted Average Number of Common Shares Outstanding - Diluted 3,804,521 3,721,802
OTHER COMPREHENSIVE INCOME
Net Income $ 977,089 $ 508,923
Unrealized Gain (Loss) on Investment -- (12,158)
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Comprehensive Income $ 977,089 $ 496,765
============= ============
The accompanying summary of accounting policies and footnotes are an
integral part of these consolidated financial statements.
3
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(Unaudited)
2008 2007
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Cash Flows From Operating Activities
Income From Continuing Operations: $ 1,003,971 $ 570,255
Adjustments to Reconcile Income From Continuing Operations to Net Cash
Provided By Continuing Operations
Depreciation, Amortization and Depletion 55,509 14,109
Cumulative Gain on Liquidation Santa Fe Energy Trust Investment (534,731) --
Equity Income from Real Estate Investment (27,419) (33,161)
Equity Income from SFF Group Investment (279,497) --
Minority Interest -- (900)
Changes in Operating Assets and Liabilities
Accounts Receivable 393,681 199,158
Allowance for Doubtful Accounts 4,433 (33,752)
Other Receivables 209,919 --
Other Assets (35,756) (185,670)
Deferred Costs -- (65,586)
Accounts Payable 120,334 64,536
Accrued and Other Liabilities 151,339 211,601
Deferred Revenue 225,685 240,253
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Net Cash Provided By Continuing Operations 1,287,468 980,843
Cash Flows From Discontinued Operations:
Loss From Discontinued Operating Activities (26,882) (61,332)
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Net Cash Provided By Operating Activities 1,260,586 919,511
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Cash Flows From Investing Activities
Purchases of Property and Equipment (76,069) (18,838)
Restricted Cash Equivalents -- --
Proceeds from Liquidation of Santa Fe Energy Trust Investment 3,972,290 --
Purchase of Investments -- (1,076,822)
Investment in Real Estate -- (478,491)
SFF Group Distributions 500,000 --
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Net Cash Provided By (Used In) Investing Activities 4,396,221 (1,574,152)
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Cash Flows From Financing Activities
Repayments of Notes Payable (3,630,218) (165,509)
Net Proceeds from Exercise of Warrants 75,004 --
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Net Cash (Used In) Financing Activities (3,555,214) (165,509)
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Net Increase (Decrease) in Cash and Cash Equivalents 2,101,593 (820,150)
Cash and Cash Equivalents at Beginning of Period 1,520,852 4,457,208
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Cash and Cash Equivalents at End of Period $ 3,622,445 $ 3,637,058
============= =============
Cash Paid During Period for:
Interest $ 251,421 $ 124,410
Non-Cash Investing and Financing Activities:
Unrealized Gain (Loss) on Marketable Securities -- (12,158)
Stock Issued for Compensation 89,208 --
The accompanying summary of accounting policies and footnotes are an integral
part of these consolidated financial statements.
4
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization
Company Background
o The Company was originally incorporated as DIDAX, Inc, in
January 1997
o Until December 2002 the Company operated under the name
Crosswalk.com; its primary businesses were operation of the
Christian web portal crosswalk.com(TM) and a direct mail
advertising service.
o During the last quarter of 2002, the Company sold
substantially all of its assets with the exception of the
Company's accumulated Net Operating Loss ("NOL") and changed
its name to AMEN Properties, Inc.
o A revised business plan was approved by the shareholders in
2002, and called for the Company to grow via the selective
acquisition of cash-generating assets in three categories:
o Commercial real estate in secondary stagnant markets
o Commercial real estate in out of favor growth markets
o Oil and gas royalties
During the time the Company operated as Crosswalk.com, it generated a
Net Operating Loss in excess of $30 million. Provisions in the United
States Federal Tax Code dictate that a significant ownership change (in
excess of 50% in a three-year period) would eliminate the Company's
ability to use the NOL to offset its Federal Income Tax liability. It
is the Company's intention to preserve its NOL, which requires funding
our growth without access to many traditional sources of capital which
would result in a significant change in ownership.
Company Organization
In initiating the 2002 business plan the Company, in October 2002,
formed the following entities:
o NEMA Properties LLC, ("NEMA") a Nevada limited liability
company 100% owned by AMEN
o AMEN Delaware LP, (the "Delaware Partnership")a Delaware
limited partnership owned 99% by NEMA as the sole limited
partner and 1% by AMEN, as the sole general partner
o AMEN Minerals LP, (the "Minerals Partnership")a Delaware
limited partnership, owned 99% by NEMA as the sole limited
partner and 1% by AMEN, as the sole general partner.
On July 30, 2004, the Company formed W Power and Light LP, (the "W
Power Partnership") a Delaware limited partnership owned 99% by NEMA as
the sole limited partner and 1% by AMEN, as the sole general partner.
On May 18, 2006, the Company acquired 100% of Priority Power
Management, Ltd. and Priority Power Management Dallas, Ltd.,
(collectively the "PPM Partnership") effective April 1, 2006. Priority
Power is owned 1% by AMEN, as the sole general partner, and 99% by
NEMA, as the sole limited Partner.
Corporate Reorganization
On December 17, 2007, the Company approved a corporate reorganization
(the "Reorganization") effective January 1, 2008. As part of the
Reorganization, the Delaware Partnership, the Minerals Partnership, the
PPM Partnership, and the W Power Partnership were each converted from
limited partnerships into limited liability companies with AMEN owning
100% of the shares and as the sole managing member of each entity. The
converted entities are:
o AMEN Delaware, LLC, ("Delaware")
o AMEN Minerals, LLC, ("Minerals")
o NEMA Properties, LLC , ("NEMA")
o Priority Power Management, LLC ("Priority Power")
o W Power and Light, LLC, ("W Power")
5
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
Standard Reference
As used herein, the terms "Company" and "AMEN" and references to "we"
and "our" refer to all of AMEN Properties, Inc., NEMA, Delaware, the
Delaware Partnership, Minerals, the Minerals Partnership, and W Power,
the W Power Partnership, Priority Power, and the Priority Power
Partnership unless the context otherwise requires.
2. Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its majority-owned/controlled subsidiaries and affiliates.
Inter-company balances and transactions have been eliminated.
Management uses estimates and assumptions in preparing the consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America. Those estimates and
assumptions affect the reported amounts of assets, liabilities,
revenues and expenses in the consolidated financial statements, and the
disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.
3. Cash Equivalents
The Company considers cash on hand, cash on deposit in banks, money
market mutual funds and highly liquid debt instruments purchased with a
maturity of three months or less to be a cash equivalent.
4. Investments
The Company invests in U.S. government bonds and treasury notes,
municipal bonds, certificates of deposit, corporate bonds and other
securities. Investments with original maturities greater than three
months but less than twelve months from the balance sheet date are
short-term investments. Those investments with original maturities
greater than twelve months from the balance sheet date are long-term
investments.
The Company's marketable securities are classified as
available-for-sale as of the balance sheet date, and are reported at
fair value with unrealized gains and losses, net of tax, recorded in
stockholders' equity. Realized gains or losses and permanent declines
in value, if any, on available-for-sale investments are reported in
other income or expense as incurred.
5. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, investments, accounts
receivable, notes receivable, and accounts payable approximate fair
value because of the relatively short maturity of these instruments.
The fair value of the fixed rate debt, based upon current interest
rates for similar debt instruments with similar payment terms and
expected payoff dates, would be approximately $2,927,398 as of March
31, 2008. Disclosure about fair value of financial instruments is based
on pertinent information available to management as of March 31, 2008.
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
6
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
monthly service charges applicable to the estimated usage for the
period. W Power's allowance for doubtful accounts at March 31, 2008 was
$21,665.
The Company estimated the allowance for doubtful accounts related to W
Power's billed accounts receivable to be approximately .2% percent 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.
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 March 31, 2008.
At March 31, 2008 accounts receivable consisted of the following:
Billed electricity receivables $ 342,242
Unbilled electricity receivables 748,528
Billed Aggregation fees 272,764
Unbilled Aggregation fees 64,234
Allowance for doubtful accounts (21,665)
Other receivables 4,729
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Accounts receivable, net $ 1,410,832
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7. Other Current Assets
The Company has a relationship with a reseller that markets W Power's
services on a pre-pay basis. During the third quarter 2007, the
reseller's receivable balance grew to $300 thousand due to cash flow
issues caused by billing issues and customer turnover. The Company has
collateralized a portion of this receivable balance and has increased
the allowance for doubtful accounts by $233 thousand specifically for
this account.
At March 31, 2008, Other Current Assets consisted of the following:
Power reseller receivables 222,908
Allowance for doubtful accounts (233,000)
Miscellaneous current assets and receivables 31,433
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Other Current Assets, net $ 21,341
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8. Depreciation, Amortization and Depletion
Property and equipment are stated at cost. Depreciation is determined
using the straight-line method over the estimated useful lives ranging
from three to 10 years. Royalty acquisitions are stated at cost.
Depletion is determined using the units-of-production method based on
the estimated oil and gas reserves.
9. Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying
value of its long-lived assets and identifiable intangibles by
monitoring and evaluating changes in circumstances that may indicate
that the carrying amount of the asset may not be recoverable. Examples
of events or changes in circumstances that indicate that the
recoverability of the carrying amount of an asset should be assessed
include but are not limited to the following: a significant decrease in
the market value of an asset, a significant change in the extent or
manner in which an asset is used or a significant physical change in an
7
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
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. Investments in Joint Ventures
In 2006, the Company sold a significant interest in certain real estate
and contributed its retained 18% undivided ownership interest in the
real estate to an investment.
The Company and the other selling partners, the Buyers and affiliates
of the Buyers entered into a Contribution and Assumption Agreement
dated March 19, 2007 (the "Contribution Agreement"), whereby the
Company and others contributed their remaining interests, other
property interests, and cash to HPG Acquisition LLC ("HPG") in exchange
for membership interests in HPG, all effective as of March 2, 2007.
The Company's investment in real estate and SFF Group (see Note Q) is
recorded at cost, adjusted for its equity share of earnings, using the
equity method of accounting, and cash contributions and distributions.
11. Goodwill
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill and other intangible
assets with investment lives no longer be amortized. The intangible
assets are tested for impairment annually. If there is impairment, the
amount will be expensed and the intangible assets will be written down
accordingly.
12. Stock-Based Compensation
On January 1, 2006 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R), Accounting for Stock-Based
Compensation, to account for its stock-based compensation. In December
2004, the Financial Accounting Standards Board issued SFAS 123(R)
effective for small business issuers after December 15, 2005. The new
Statement requires mandatory reporting of all stock-based compensation
awards on a fair value basis of accounting. Generally, companies are
required to calculate the fair value of all stock awards and amortize
that fair value as compensation expense over the vesting period of the
awards.
13. Income and Franchise Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets
and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. At March 31, 2008, no income tax expense has
been incurred due to the utilization of the Company's net operating
losses.
On May 18, 2006, the Texas Governor signed into law a new Texas
Franchise Tax, which restructured the state business tax by replacing
the taxable capital and earned surplus components of the tax with a new
8
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
taxable margin component. The new franchise tax is effective for
returns due on or after January 1, 2008. The Texas franchise tax is
imposed on taxable entities chartered, organized, or doing business in
Texas. While the State of Texas does not classify the tax as a tax on
income, the tax is considered an income tax for purposes of SFAS No.
109 because the tax is based on a measure of income. Texas franchise
tax expense for the three months ended March 31, 2008 and 2007 was
estimated to be approximately $56 thousand and $0, respectively.
14. Deferred Revenue
Deferred revenue consists of prepaid aggregation fees. Deferred revenue
is amortized over the life of the aggregation contract for prepaid
aggregation fees.
15. Corporate Tithing
The Company shall, to the extent permitted by law, expend from the
revenues of the Company such sums as are deemed prudent by the Board of
Directors to support, encourage, or sustain persons or entities which
in the judgment of the Board of Directors are expected to make
significant efforts to propagate the Gospel of Jesus Christ in any
manner not in conflict with the Statement of Faith. Such expenditures
may be made without regard to the tax status or nonprofit status of the
recipient. It is expected that the expenditures paid out under the
provisions of this policy shall approximate ten percent (10%) of the
amount that would otherwise be the net profits of the Company for the
accounting period.
16. Minority Interest
Minority interest represents the interest of unit holders of TCTB,
other than the Company, in the net earnings and net equity of TCTB. In
2007, the remaining assets of TCTB were distributed to the unit holders
thereby eliminating the minority interest balance at December 31, 2007.
17. Contingently Convertible Securities
On August 31, 2007, the Company converted all classes of its Preferred
Stock into 1,349,764 shares of the Company's Common Stock as shown in
the following table:
Number of Number of
Series Shares Purchase Price Conversion Rate Common Shares
------ ------ -------------- --------------- --------------
A 80,000 $ 2,000,000 $ 3.2444 616,447
B 50,000 500,000 3.2444 154,111
B 10,000 100,000 3.424 29,206
B 20,000 200,000 4.000 50,000
C 125,000 2,000,000 4.000 500,000
18. Revenue Recognition
The Company's gross revenues for aggregation and other services to our
customers are recognized upon delivery and include estimated
aggregation fees and other services delivered but not billed by the end
of the period.
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.
9
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
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 10 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.
19. Advertising Expense
All advertising costs are expensed when incurred. Advertising expenses
for the three months ended March 31, 2008 and 2007 were approximately
$8 thousand and $2 thousand, 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.
21. Environmental
The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws regulate asbestos in
buildings that require the Company's real estate investments to remove
or mitigate the environmental effects of the disposal of the asbestos
at the buildings.
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Costs are expensed when they relate to an
existing condition caused by past operations and will not contribute to
current or future revenue generation. Liabilities related to
environmental assessments and/or remedial efforts are accrued when
property or services are provided or can be reasonably estimated.
10
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
22. New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value
measurements. The provisions of this Statement shall be effective for
financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an amendment
of FASB Statement No. 115. This Statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value measurement,
which is consistent with the Board's long-term measurement objectives
for accounting for financial instruments. The provisions of this
Statement shall be effective as of the beginning of each reporting
entity's first fiscal year that begins after November 15, 2007; this
Statement should not be applied retrospectively to fiscal years
beginning prior to the effective date, except as permitted in paragraph
30 for early adoption.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations ("SFAS 141(R)"), which replaces FASB Statement No. 141.
SFAS 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired. The Statement also
establishes disclosure requirements that will enable users to evaluate
the nature and financial effects of the business combination. SFAS
141(R) is effective for acquisitions that occur in an entity's fiscal
year that begins after December 15, 2008. The impact, if any, will
depend on the nature and size of business combinations that Company
consummates after the effective date.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements - an amendment of ARB
No. 51 ("SFAS160"). SFAS 160 requires that accounting and reporting for
minority interests will be recharacterized as noncontrolling interests
and classified as a component of equity. SFAS 160 also establishes
reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS 160 applies to all
entities that prepare consolidated financial statements, except
not-for-profit organizations, but will affect only those entities that
have an outstanding noncontrolling interest in one or more subsidiaries
or that deconsolidate a subsidiary. This statement is effective as of
the beginning of an entity's first fiscal year beginning after December
15, 2008.
Management does not believe the new pronouncements will have a material
impact on its financial statements.
23. Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the March 31, 2008 presentation.
NOTE B - BUSINESS COMBINATIONS
Cogdill Enterprises
On September 11, 2007 the Company announced the acquisition of 100% of
Cogdill Enterprises, Inc. ("CEI"), effective August 31, 2007 for an
aggregate consideration of $6,000 and a obligation to pay 95% of the
total revenues actually received by the Company each month directly as
a result of the contracts originated by Trenton Cogdill for and on
behalf of CEI prior to August 31, 2007. CEI provides energy consulting
services to over 1,200 religious and related organizations in Texas and
the Company believes that CEI's business will integrate with the
Company's PPM subsidiary.
11
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
NOTE C - CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances at four financial institutions,
which at times may exceed federally insured limits. The Company had
approximately $3 million of uninsured cash and cash equivalents at both
March 31, 2008 and 2007. The Company has not experienced any losses in
such accounts and believes that it is not exposed to any significant
credit risks on such accounts.
W Power and Priority Power's revenues are derived principally from
uncollateralized customer electricity billings. The concentration of
credit risk in a limited number of industries affects its overall
exposure to credit risk because customers may be similarly affected by
changes in economic and other conditions.
NOTE D - RESTRICTED CASH EQUIVALENTS
On October 18, 2005, the Company entered into a continuing agreement
for commercial and standby letters of credit (the "Letters of Credit")
with JPMorgan Chase Bank, N.A., Houston, Texas, ("Chase"). Under the
agreement Chase may, but is not obligated to, issue one or more standby
or commercial letters of credit on behalf of W Power. The Letters of
Credit are generally required in the normal course of business
operations to support the Company's obligations to collateralize
certain obligations to electric power providers, TDSPs, and ERCOT.
Currently the Letters of Credit bear an interest rate of seven-tenths
of one percent (0.70%) payable quarterly in advance. In order to
support the Letters of Credit, the Company, Chase and JP Morgan
Securities Inc. ("JPMorgan") maintain a tri-party control agreement
that creates a security interest in favor of Chase in a certain Money
Market Fund the Company maintains with JPMorgan. The Company had
deposits with JPMC totaling $2,197,000 collateralizing outstanding
Letters of Credit at March 31, 2008.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following at March
31, 2008:
Furniture, fixtures and equipment $ 372,134
Less: accumulated depreciation (172,810)
-------------
$ 199,324
Depreciation expense for the three months ended March 31, 2008 and 2007
was approximately $22 thousand and $12 thousand, respectively.
NOTE F - INVESTMENT IN REAL ESTATE
Effective September 27, 2006, the Company entered into an Agreement to
Distribute Assets with and among the partners of TCTB Partners, Ltd.
Contemporaneous with the distribution of the assets, the Company along
with the General Partner and the other Limited Partners of TCTB
collectively agreed to sell and sold 75% of their collective undivided
interest in the assets. The sale of the Company's undivided interest in
the assets resulted in the Company retaining approximate 18% undivided
interest in the assets which was subsequently contributed into HPG
Acquisition, LLC.
The Company's Investment in real estate consisted of the following at
March 31, 2008:
Real estate investment $ 2,361,443
Equity earnings 27,419
-------------
$ 2,388,862
12
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
A portion of the Company's real estate investment and equity earnings
results for 2008 are based on the results of HPG Acquisition, LLC and
its subsidiaries. HPG Acquisition, LLC reported the following
consolidated financial information at March 31, 2008:
Total Assets $ 16,601,857
Total Liabilities 560,654
Net Income 186,755
NOTE G - ROYALTY INTERESTS
The Company, through its wholly-owned subsidiary Amen Minerals, LLC,
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 for the three
months ended March 31, 2008 and 2007.
Depletion expense was approximately $1 thousand for both the three
months ended March 31, 2008 and 2007 and accumulated depletion was $37
thousand and $34 thousand, respectively.
NOTE H - GAIN ON LIQUIDATION OF SANTA FE ENERGY TRUST INVESTMENT
On February 29, 2008, the trustees of the Santa Fe Energy Trust made a
distribution of the net proceeds from the sale of the Trust's assets.
The Company, as a unit-holder in the Trust, received a portion of this
distribution. In addition, in 2007 the Company stripped $2,778,300 of
U.S. Treasury Bonds from its units in the Trust. These stripped
Treasury Bonds were sold on January 1, 2008.
The Company recognized the following gains from the liquidation of
these assets:
Santa Fe Energy Trust Units, at cost $ 659,259
Cash proceeds from Trust distribution 1,189,825
-------------
Gain on liquidation of
Santa Fe Energy Trust units 530,564
U.S. Treasury Bonds, at cost 2,778,300
Cash proceeds from sale of assets 2,782,467
-------------
Gain on liquidation of U.S. Treasury Bonds 4,167
Total gain on liquidation of
Santa Fe Trust Investment $ 534,731
=============
NOTE I - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at March 31, 2008:
2008
-------------
Accrued TDSP charges $ 187,261
Accrued sales tax 142,764
Accrued corporate tithing 199,295
Accrued officer bonuses 193,988
Other liabilities (13,851)
-------------
$ 709,457
=============
13
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
NOTE J - INCOME TAXES
There was no income tax expense or benefit to report for the three
months ended March 31, 2008 and 2007. As of March 31, 2008, the Company
has net operating loss carry-forwards totaling approximately $28
million for federal and state income tax purposes expiring in 2012
through 2027.
On May 18, 2006, the Texas Governor signed into law a new Texas
Franchise Tax, which restructured the state business tax by replacing
the taxable capital and earned surplus components of the tax with a new
taxable margin component. The new franchise tax is effective for
returns due on or after January 1, 2008. While the State of Texas does
not classify the tax as a tax on income, the tax is considered an
income tax for purposes of FASB Statement No. 109, Accounting for
Income Taxes, because the tax is based on a measure of income. The
Company's franchise tax liability at March 31, 2008 and 2007 was
approximately $104 thousand and $0, respectively.
NOTE K - OPERATING SEGMENTS
The Company's business activities are mainly comprised of three
reportable segments, and retail electricity aggregation services, real
estate operations, and a retail electricity provider ("REP").
The aggregation of electric consumers is primarily conducted through
Priority Power of which AMEN is the sole member.
The commercial real estate portfolio consists of the Company's
investment in a real estate joint venture (see note F), consisting of
an ownership of approximately 18% in two office properties located in
Midland, Texas comprising an aggregate of approximately 428,560 square
feet of gross leasable area.
Retail electricity operations are primarily conducted through W Power
of which the Company is the sole member. The REP segment sells
electricity and provides the related billing, customer service,
collection and remittance services to both residential and commercial
customers.
Each segment's accounting policies are the same as those described in
the summary of significant accounting policies and the following tables
reflect totals for three months ended March 31, 2008 and 2007,
respectively.
Three Months Ended March 31, 2008:
---------------------------------
Energy Inter-Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------ -------------- ------------ ------------ ------------- -------------
Revenues from external
customers $ 2,312,033 $ -- $ 1,419,604 $ -- $ -- $ 3,731,637
============ ============== ============ ============ ============= =============
Revenues from other
operating segments $ -- $ -- $ 2,474 $ -- $ (2,474) $ --
============ ============== ============ ============ ============= =============
Depreciation,
amortization and
depletion $ 6,602 $ -- $ 44,290 $ 4,617 $ -- $ 55,509
============ ============== ============ ============ ============= =============
Interest expense $ 3,915 $ -- $ 3,300 $ 211,551 $ -- $ 218,766
============ ============== ============ ============ ============= =============
Segment net income (loss) $ 88,907 $ 20,927 $ 705,815 $ (118,127) $ 279,567 $ 977,089
============ ============== ============ ============ ============= =============
Segment assets $ 4,690,448 $ 2,364,862 $ 1,801,439 $ 19,687,208 $ (5,305,685) $ 23,238,272
============ ============== ============ ============ ============= =============
Goodwill $ -- $ -- $ -- 2,916,085 $ -- $ 2,916,085
============ ============== ============ ============ ============= =============
Expenditures for segment
assets $ 32,423 $ -- $ 6,848 $ 3,330 $ -- $ 42,601
============ ============== ============ ============ ============= =============
14
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
Three Months Ended March 31, 2007:
----------------------------------
Energy Inter-Company
Real Estate Management Other and Transaction Consolidated
REP Operations Services Corporate Eliminations Total
------------ -------------- --------------- ----------- -------------- --------------
Revenues from external
customers $ 2,321,455 $ -- $ 779,178 $ -- $ -- $ 3,100,633
============ ============== =============== =========== ============== ==============
Revenues from other
operating segments $ -- $ -- $ 6,084 $ -- $ (6,084) $ --
------------ -------------- =============== ----------- -------------- --------------
Depreciation,
amortization and
depletion $ 3,961 $ -- $ 5,989 $ 4,159 $ -- $ 14,109
============ ============== =============== =========== ============== ==============
Interest expense $ 3,950 $ -- $ -- $ 59,436 $ -- $ 63,386
============ ============== =============== =========== ============== ==============
Segment net income (loss) $ 388,506 $ 35,865 $ 402,880 $ (263,375) $ (54,953) $ 508,923
============ ============== =============== =========== ============== ==============
Segment assets $ 4,531,645 $ 2,319,839 $ 954,664 $ 6,133,612 $ 5,670 $ 13,945,430
============ ============== =============== =========== ============== ==============
Goodwill $ -- $ -- $ -- $ 2,916,085 $ -- $ --
============ ============== =============== =========== ============== ==============
Expenditures for segment
assets $ 14,451 $ -- $ -- $ 4,387 $ -- $ 18,838
============ ============== =============== =========== ============== ==============
NOTE L - LONG-TERM OBLIGATIONS
NEMA entered into twenty-two promissory notes (the "NEMA Notes") on May
18, 2006, effective April 1, 2006 totaling $3,230,051 to purchase 100%
ownership interest in Priority Power Management, Ltd, a Texas limited
partnership, and Priority Power Management Dallas, Ltd, a Texas limited
partnership (see note B). The notes are due in quarterly installments
of $142,985 beginning on September 30, 2006 with a final maturity of
December 31, 2013. The term notes bear interest at a fixed rate per
annum of 7.75%.
PPM entered into an agreement effective August 31, 2007 to purchase
100% ownership interest in Cogdill Enterprises, Inc. As part of the
agreement PPM is obligated to pay 95% of the total revenues actually
received by PPM each month directly as a result of the contracts
originated by Trenton Cogdill for and on behalf of the Company prior to
August 31, 2007. The estimated net present value of the expected future
obligation under the Cogdill agreement is classifiedas a long-term
obligation, less the current portion (the "Cogdill Note").
Long-term obligations consisted of the following at March 31, 2008:
NEMA Notes $ 2,633,440
Cogdill Note 351,088
---------------
2,984,528
Less: Related Party Portion (2,166,626)
Less: Current Portion (117,611)
---------------
$ 700,291
===============
15
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
Related party portion of long-term obligations consisted of the
following at March 31, 2008:
NEMA Notes $ 1,815,538
Cogdill Note 351,088
---------------
2,166,626
Less: Current Portion (373,105)
---------------
$ 1,793,521
===============
Annual maturities of long-term obligations at March 31, 2008 are as
follows:
2008 $ 117,611
2009 126,994
2010 137,126
2011 148,066
2012 159,879
2013 and thereafter 128,226
---------------
$ 817,902
===============
Annual maturities of related party portion of long-term obligations at
March 31, 2008 are as follows:
2008 $ 373,105
2009 367,972
2010 372,190
2011 382,026
2012 386,704
2013 and thereafter 284,629
---------------
$ 2,166,626
===============
NOTE M - RELATED PARTY TRANSACTIONS
Sale of Preferred C and Issuance of Warrants
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.
Number of Preferred C Purchase
Preferred C Common Stock Voting Price
Shares Equivalent Equivalent
---------------- ---------------- --------------- --------------
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
================ ================ =============== ==============
16
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
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, classes A, B & C of Preferred Stock were converted
into 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. Additionally, Mr. Oliver received an additional 9,375 shares of
common stock upon exercise of warrants with a strike price of $4. Mr.
Oliver exercised his remaining warrants on March 1, 2008, for which he
received an additional 18,751 shares at a price of $4 per share.
Purchase of Cogdill Enterprises
On September 11, 2007 the Company announced the acquisition of 100% of
Cogdill Enterprises, Inc. ("CEI"), effective August 31, 2007 for an
aggregate consideration of $6,000 and a obligation to pay 95% of the
total revenues actually received by the Company each month directly as
a result of the contracts originated by Trenton Cogdill for and on
behalf of the CEI prior to the August 31, 2007. Trenton Cogdill is now
an employee of Priority Power. Assuming the acquisition of CEI occurred
on January 1, 2006, its operating results would not have been material
to the Company's operating results for the years ended December 31,
2007 and 2006.
The following table reflects the portion of the Company's long-term
debt payable to related parties as of March 31, 2007:
Total
-------------
Eric Oliver, Chairman of the Board $ 10,248
Jon M. Morgan , CEO 457,783
Padraig Ennis, VP of Priority Power 70,540
John Bick, Managing Principal of Priority Power 182,774
Trenton Cogdill, Priority Power 239,050
5% Shareholders 833,126
-------------
Total $ 1,793,521
=============
Issuance of Options
During 2008, certain members of the Company's Board of Directors were
issued stock options under the Company's 1998 Stock Option Plan (See
Note O).
17
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
Sale of Preferred D and Issuance of Warrants
The Company issued Preferred D stock, promissory notes and warrants to
finance its investment in SFF Royalty and SFF Production, as described
in Note Q. Certain of the Company's Directors participated in this
transaction as shown below:
# Warrants
# Shares Preferred D Received
Preferred D Purchase Promissory @$6.02
Director Purchased Price Note Amount Strike Price
--------------------------- -------------- ------------- -------------- ------------
Eric Oliver 164,376 $ 1,643,760 $ 1,037,741 172,382
Bruce Edgington 6,130 61,300 38,700 6,429
Stub Financing
In order to secure the cash required for the Company's contribution to
SFF Royalty and SFF Production on December 17, 2007, stub financing was
arranged via the execution of two promissory notes with SoftVest, LP, a
related party, totaling $3.5 million. These notes were due and payable
on December 31, 2007 and carry an annual interest rate of 8.5%. The
balance was paid on March 13, 2008.
NOTE N - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to claims and lawsuits which arise primarily in
the ordinary course of business. It is the opinion of management that
the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial
position of the Company.
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 March
31, 2008:
2008 $ 3,366,810
2009 925,784
-------------
Total $ 4,292,594
=============
NOTE O - STOCK OPTION PLAN
Since the inception of the Company, various options have been granted
by the Board of Directors to founders, directors, employees,
consultants and ministry partners. In February 1997, the Company
authorized 67,100 additional shares of common stock to underlie
additional options reserved for key employees and for future
compensation to members of the Board of Directors. The Board of
Directors also adopted and the Stockholders approved, the 1997 Stock
Option Plan ("1997 Plan"), which provides for the granting of either
qualified or non-qualified options to purchase an aggregate of up to
514,484 shares of common stock, inclusive of the 67,100 shares
mentioned above, and any and all options or warrants granted in prior
years by the Company. As of March 31, 2008, all options available under
the 1997 Plan have been granted: 62,579 options have been exercised,
and 91,010 options are outstanding which are fully vested and range in
price from $3.50 to $61.36.
18
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
The 1998 Stock Option Plan ("1998 Plan") was approved by the Board of
Directors in April 1998, with approved amendment in May 2000. The 1998
Plan gives the Company the authority to issue 300,000 options to
purchase AMEN common stock. If any stock options granted under the 1998
Plan terminate, expire or are canceled, new stock options may
thereafter be granted covering such shares. In addition, any shares
purchased under the 1998 Plan subsequently repurchased by the Company,
if management elects, pursuant to the terms hereof may again be granted
under the 1998 Plan. The shares issued upon exercise of stock options
under the 1998 Plan may, in whole or in part, be either authorized but
unissued shares, or issued shares reacquired by the Company. As of
March 31, 2008, 4,859 options have been exercised and 147,833 options
are outstanding and are fully vested and range in price from $1.98 to
$45.50.
During the three months ended March 31, 2008 the Company issued 7,459
options to the following members of the Board of Directors as
compensation for their service to the Company:
Strike
Director Issuance Date # Options Issued Price
---------------- --------------- ------------------ ----------
Bruce Edgington 1/27/08 988 $ 7.00
3/31/08 988 8.80
-------------------------------------------------------------------
Earl Gjelde 1/27/08 988 7.00
3/31/08 769 8.80
-------------------------------------------------------------------
Randy Nicholson 1/27/08 875 7.00
3/31/08 875 8.80
-------------------------------------------------------------------
Don Blake 1/27/08 988 7.00
3/31/08 988 8.80
-------------------------------------------------------------------
Total 7,459
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model.
The table below summarizes the stock option activity for the
quarter ended March 31, 2008:
Weighted
Options Average
Options Outstanding Outstanding Price
------------------------------ -------------- --------------
Outstanding December 31, 2007 287,636 $ 10.92
Options exercised - -
Options forfeited (56,252) 12.00
Options issued 7,459 7.87
-------------- --------------
Outstanding March 31, 2008 238,843 $ 10.57
============== ==============
At March 31, 2008 the 238,843 outstanding options are fully vested and
exercisable. They range in price from $1.98 to $61.36 and have a
weighted average contractual maturity of 4.51 years. The weighted
average grant date fair value for equity options issued during the
three months ended March 31, 2008 was 3.95 per share. Stock options
issued after 2006 are expensed based on the fair value of the options
at the grant dates consistent with the method of accounting under SFAS
No. 123. The total expensed for the three months ended March 31, 2008
was $29,480.
19
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
NOTE P - STOCKHOLDERS' EQUITY
Warrant Exercises
Eric Oliver, Chairman of the Company, exercised his remaining warrants
issued in connection with the Preferred C issuance (see Note M) on
March 1, 2008, for which he received 18,751 shares at a price of $4 per
share.
Conversion of Preferred A, B & C and Warrant Exercises
On August 31, 2007, the Company converted all classes of its Preferred
Stock into 1,349,764 shares of the Company's Common Stock as shown in
the following table:
Number of Number of
Series Shares Purchase Price Conversion Rate Common Shares
------ ------- -------------- --------------- --------------
A 80,000 $ 2,000,000 $ 3.2444 616,447
B 50,000 500,000 3.2444 154,111
B 10,000 100,000 3.424 29,206
B 20,000 200,000 4.000 50,000
C 125,000 2,000,000 4.000 500,000
Also on August 31, 2007, the Company issued 55,210 shares of common
stock upon the exercise of stock warrants with a strike price of $4.
Stock Issuances as Employee Compensation
Pursuant to their employment agreements, certain of the Company's
employees receive common stock as payment for bonuses or a portion of
their salary. 12,186 shares of common stock were issued as employee
compensation during the three months ended March 31, 2008.
Issuance of Preferred D Stock
As described in Note Q, the Company issued 429,100 shares of Class D
Preferred Stock on December 17, 2007 for total proceeds of $4,291,000
to finance the Company's investment in SFF Royalty and SFF Production.
Below is a summary of the significant characteristics of the Preferred
D:
o Pays a coupon of 8.5% annually.
o Has limited voting rights.
o Is not convertible into common stock.
o Is redeemable upon demand by the Company.
Certain of the Company's Directors purchased Preferred D Stock as
described in Note M.
NOTE Q - INVESTMENT IN SFF GROUP
On December 17, 2007, the Company invested $7.6 million in SFF Royalty,
LLC ("SFF Royalty") and $2.4 million in SFF Production ("SFF
Production") in exchange for a one-third ownership interest in each
entity. Also on December 17, 2007, SFF Royalty and SFF Production
acquired the following properties from Santa Fe Energy Trust (the
"Trust") and Devon Energy Production Company, LP ("Devon"):
Acquired from the Trust Acquired from Devon
----------------------------- ---------------------------
Acquiring Purchase Purchase Total
Entity Description Amount Description Amount Purchase
-------------- ---------------- ---------- --------------- --------- ----------
Net profits interests
SFF Royalty interests in subject to
royalty Trust's net
interests owned profits
by Devon $21,077,688 interests $2,254,662 $23,332,350
Working
Net profits interests
SFF Production interests in subject to
working Trust's net
interests owned profits
by Devon 6,072,125 interests 649,531 6,721,656
---------- --------- ----------
Totals $27,149,813 $2,904,193 $30,054,006
========== ========= ==========
20
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
To secure the $10 million required for the investments in SFF Royalty
and SFF Production, the Company issued Preferred Stock and short-term
promissory notes and secured stub financing.
Class D Preferred Stock
429,100 shares of Class D Preferred Stock ("Preferred D") were issued
at a share price of $10 for total proceeds of $4,291,000. Below is a
summary of the significant characteristics of the Preferred D:
o Pays a coupon of 8.5% annually.
o Has limited voting rights.
o Is not convertible into common stock.
o Is redeemable upon demand by the Company.
Promissory Notes
The Company also signed promissory notes with the recipients of the
Preferred D totaling $2,709,000. Below is a summary of the significant
characteristics of the promissory notes:
o Due and payable on June 30, 2008.
o Interest rate of Prime plus 1%. (6.25% at March 31, 2008).
The holders of the promissory notes were issued warrants to purchase a
total of 450,000 shares of common stock at a strike price of $6.02.
These warrants expire June 30, 2008 and the proceeds from their
issuance will be used to retire the related promissory notes. No value
has been assigned to these warrants as shareholder approval is required
before the warrants can be exercised.
Certain of the Company's Directors participated in this transaction and
received shares of Preferred D stock, promissory notes and warrants, as
described in Note M.
Stub Financing
In order to secure the cash required for the Company's contribution to
SFF Royalty and SFF Production on December 17, 2007, stub financing was
arranged via the execution of two promissory notes with SoftVest, LP
totaling $3.5 million. These notes were due and payable on December 31,
2007 and carry an annual interest rate of 8.5%. The balance was paid on
March 13, 2008.
As discussed in Note M, Mr. Eric Oliver, the Company's Chairman of the
Board, is the Managing Partner of SoftVest, LP.
The Company's Investment in SFF Group consisted of the following at
March 31, 2008:
Oil and Gas Investment in SFF Group $ 10,000,000
Equity earnings 301,886
Distributions (500,000)
-------------
$ 9,801,886
=============
21
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
SFF Royalty reported the following consolidated financial information
at March 31, 2008:
SFF Royalty
----------------
Total Assets $ 22,238,949
Total Liabilities 142,522
Net Income (56,381)
SFF Production reported the following consolidated financial
information at March 31, 2008:
SFF Production
-----------------
Total Assets $ 7,956,632
Total Liabilities 647,403
Net Income 894,871
NOTE R - BUSINESSES HELD FOR SALE
In the first quarter of 2008, the Company adopted a plan to sell its
online electricity brokering business, ChooseEnergy.com. Its primary
business, as previously described, is to provide competitive
electricity pricing alternatives for residential and small commercial
electricity consumers.
In accordance with SFAS No. 144, the Company has reflected the
operating results as discontinued operations in the consolidated
statements of operations for all periods presented. There are no
capitalized assets or depreciation expenses to be reflected on the
consolidated balance sheet as held for sale.
The following is a summary of historical financial information about
ChooseEnergy.com for the three month period ended March 31:
2007 2006
----------- -----------
Revenue $ 65,749 31,986
----------- -----------
Loss before income taxes (26,882) (61,332)
Income taxes - -
----------- -----------
Loss from discontinued operations $ (26,882) (61,332)
=========== ===========
No income tax benefit is provided as a result of the Company's net
operating loss carry forward.
22
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements and related footnotes
presented in Item 1 and the Company's December 31, 2007 Form 10-KSB.
Overview
AMEN Properties, Inc. (the "Company") is in the business of acquiring
profitable, cash-generating businesses with proven track records and the ability
to create sustained value. The Company is a holding company and conducts its
business through the following subsidiaries:
o AMEN Delaware, LLC ("Delaware") - real estate investments
o AMEN Minerals, LLC ("Minerals") - oil and gas royalties, other
investments
o W Power & Light, LLC ("W Power") - retail electricity provider in the
State of Texas
o Priority Power Management, LLC. ("Priority Power") - energy
management, consulting and aggregation
Application of Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and
contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an ongoing basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities where that
information is available from other sources. Certain estimates are particularly
sensitive due to their significance to the financial statements. Actual results
may differ significantly from management's estimates.
We believe that the most significant accounting policies that involve the use of
estimates and assumptions as to future uncertainties and, therefore, may result
in actual amounts that differ from estimates are the following:
- Impairments,
- Business combinations,
- Revenue recognition,
- Gain recognition on sale of real estate assets,
- Consolidation of variable interest entities,
- Allowance for doubtful accounts and
- Stock options
Impairments
Real estate and leasehold improvements are classified as long-lived assets held
for sale or long-lived assets to be held and used. In accordance with SFAS No.
144, we record assets held for sale at the lower of carrying value or sales
price less costs to sell. For assets classified as held and used, these assets
are tested for recoverability when events or changes in circumstances indicate
that the estimated carrying amount may not be recoverable. An impairment loss is
recognized when expected undiscounted future cash flows from a Property is less
than the carrying value of the Property. Our estimates of cash flows of the
Properties requires us to make assumptions related to future rental rates,
occupancies, operating expenses, the ability of the properties' tenants to
perform pursuant to their lease obligations and proceeds to be generated from
the eventual sale of our investment in the Properties. Any changes in estimated
future cash flows due to changes in our plans or views of market and economic
conditions could result in recognition of additional impairment losses.
If events or circumstances indicate that the fair value of an investment
accounted for using the equity method has declined below its carrying value and
we consider the decline to be "other than temporary," the investment is written
down to fair value and an impairment loss is recognized. The evaluation of
23
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.
Business Combinations
We allocate the purchase price of acquired businesses to tangible and identified
intangible assets acquired based on their fair values in accordance with SFAS
No. 141, "Business Combinations." We initially record the allocation based on a
preliminary purchase price allocation with adjustments recorded within one year
of the acquisition.
In making estimates of fair value for purposes of allocating purchase price,
management utilizes sources, including, but not limited to, independent value
consulting services, independent appraisals that may be obtained in connection
with financing the respective business, and other market data. Management also
considers information obtained about each business as a result of its
pre-acquisition due diligence in estimating the fair value of the tangible and
intangible assets acquired.
The aggregate value of the tangible assets acquired is measured based on the sum
of (i) the value of the property and (ii) the present value of the amortized
in-place tenant improvement allowances over the remaining term of each lease.
Management's estimates of the value of the property are made using models
similar to those used by independent appraisers. Factors considered by
management in its analysis include an estimate of carrying costs such as real
estate taxes, insurance, and other operating expenses and estimates of lost
rentals during the expected lease-up period assuming current market conditions.
The value of the property is then allocated among building, land, site
improvements, and equipment. The value of tenant improvements is separately
estimated due to the different depreciable lives.
The aggregate value of intangible assets acquired is measured based on the
difference between (i) the purchase price and (ii) the value of the tangible
assets acquired as defined above. This value is then allocated among
above-market and below-market in-place lease values, costs to execute similar
leases (including leasing commissions, legal expenses and other related
expenses), in-place lease values and customer relationship values.
Above-market and below-market in-place lease values for acquired properties are
calculated based on the present value (using a market interest rate which
reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) management's estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease for above-market leases and the initial term plus the term of
the below-market fixed rate renewal option, if any, for below-market leases. We
perform this analysis on a lease by lease basis. The capitalized above-market
lease values are amortized as a reduction to rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial term
plus the term of the below-market fixed rate renewal option, if any, of the
respective leases.
Management estimates costs to execute leases similar to those acquired at the
property at acquisition based on current market conditions. These costs are
recorded based on the present value of the amortized in-place leasing costs on a
lease by lease basis over the remaining term of each lease.
The in-place lease values and customer relationship values are based on
management's evaluation of the specific characteristics of each customer's lease
and our overall relationship with that respective customer. Characteristics
considered by management in allocating these values include the nature and
extent of our existing business relationships with the customer, growth
prospects for developing new business with the customer, the customer's credit
quality, and the expectation of lease renewals, among other factors. The
in-place lease value and customer relationship value are both amortized to
expense over the initial term of the respective leases and projected renewal
periods, but in no event does the amortization period for the intangible assets
exceed the remaining depreciable life of the building.
Should a tenant terminate its lease, the unamortized portion of the in-place
lease value and the customer relationship value and above-market and
below-market lease values would be charged to expense.
Revenue Recognition
The Company 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
24
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.
The Company's gross revenues for energy management services provided to our
customers are recognized upon delivery and include estimated aggregation fees
and other services delivered but not billed by the end of the period.
Accrued unbilled aggregation revenues are based on our estimates of customer
electricity usage since the date of the last meter reading provided by the
independent system operators or electric distribution companies. Volume
estimates are based on average daily volumes, estimated customer usage and
applicable customer aggregation rates. Unbilled aggregation revenues are
calculated by multiplying volume estimates by our estimated rates by customer.
Estimated amounts are adjusted when actual usage and rates are known and billed.
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.
Gain Recognition on Sale of Real Estate Assets
We perform evaluations of each real estate sale to determine if full gain
recognition is appropriate in accordance with SFAS No. 66, "Accounting for Sales
of Real Estate". The application of SFAS No. 66 can be complex and requires us
to make assumptions including an assessment of whether the risks and rewards of
ownership have been transferred, the extent of the purchaser's investment in the
property being sold, whether our receivables, if any, related to the sale are
collectible and are subject to subordination, and the degree of our continuing
involvement with the real estate asset after the sale. If full gain recognition
is not appropriate, we account for the sale under an appropriate deferral
method.
Consolidation of Variable Interest Entities
We perform evaluations of each of our investment partnerships, real estate
partnerships and joint ventures to determine if the associated entities
constitute a Variable Interest Entity, or VIE, as defined under Interpretations
46 and 46R, "Consolidation of Variable Interest Entities," or FIN 46 and 46R,
respectively. In general, a VIE is an entity that has (i) an insufficient amount
of equity for the entity to carry on its principal operations, without
additional subordinated financial support from other parties, (ii) a group of
equity owners that are unable to make decisions about the entity's activities,
or (iii) equity that does not absorb the entity's losses or receive the benefits
of the entity. If any one of these characteristics is present, the entity is
subject to FIN 46R's variable interest consolidation model.
Quantifying the variability of VIEs is complex and subjective, requiring
consideration and estimates of a significant number of possible future outcomes
as well as the probability of each outcome occurring. The results of each
possible outcome are allocated to the parties holding interests in the VIE and,
based on the allocation, a calculation is performed to determine which party, if
any, has a majority of the potential negative outcomes (expected losses) or a
majority of the potential positive outcomes (expected residual returns). That
party, if any, is the VIE's primary beneficiary and is required to consolidate
the VIE. Calculating expected losses and expected residual returns requires
modeling potential future results of the entity, assigning probabilities to each
potential outcome, and allocating those potential outcomes to the VIE's interest
holders. If our estimates of possible outcomes and probabilities are incorrect,
it could result in the inappropriate consolidation or deconsolidation of the
VIE.
For entities that do not constitute VIEs, we consider other GAAP, as required,
determining (i) consolidation of the entity if our ownership interests comprise
a majority of its outstanding voting stock or otherwise control the entity, or
(ii) application of the equity method of accounting if we do not have direct or
indirect control of the entity, with the initial investment carried at costs and
subsequently adjusted for our share of net income or less and cash contributions
and distributions to and from these entities.
25
Allowance for Doubtful Accounts
Our accounts receivable balance is reduced by an allowance for amounts that may
become uncollectible in the future. Our receivable balance is composed primarily
of billed and unbilled customer retail electricity usage flowed for a given
period and billed and unbilled customer management fees based on electricity
usage flowed for a given period. The allowance for doubtful accounts is reviewed
at least quarterly for adequacy by reviewing such factors as the credit quality
of our customers, any delinquency in payment, historical trends and current
economic conditions. If the assumptions regarding our ability to collect
accounts receivable prove incorrect, we could experience write-offs in excess of
the allowance for doubtful accounts, which would result in a decrease in net
income. The Company 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 period ended March 31, 2008. Due to
the limited historical data, the Company regularly reviews the accounts
receivable and accordingly makes adjustments in estimating the allowance for
doubtful accounts. In addition, the Company established an allowance of $233,000
for doubtful accounts relating to wholesale QSE services. (See Note A7). At
March 31, 2008, W Power had a total allowance for doubtful accounts of $254,665.
Priority Power's trade accounts receivable arise from aggregation fees and other
management services. An allowance for uncollectible accounts receivable is
provided for amounts not expected to be collectible. As of March 31, 2008 the
Company considers Priority Power's accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
Stock Options
The Company accounts for its stock-based compensation in accordance with SFAS
No. 123R, Accounting for Stock-Based Compensation. In December 2004, the
Financial Accounting Standards Board issued SFAS 123(R) effective for small
business issuers after December 15, 2005. The new Statement requires mandatory
reporting of all stock-based compensation awards on a fair value basis of
accounting. Generally, companies are required to calculate the fair value of all
stock awards and amortize that fair value as compensation expense over the
vesting period of the awards.
Results of Operations
Overview
Description 2008 2007
------------------------------------------------ ------------ ---------
Net Income from Continuing Operations $ 1,003,971 $ 570,255
Per Share Net Income from Continuing Operations 0.27 0.25
Net Income 977,089 508,923
Per Share Net Income 0.26 0.22
o The increase in earnings from 2007 to 2008 was caused primarily by an
increase in aggregation and consulting income from Priority Power and
by the recognition in 2008 of a $534 thousand gain from the final
distribution paid to the Company as a unit-holder in the Santa Fe
Energy Trust.
o Priority Power generated approximately $700 thousand in net income for
the three months ended March 31, 2008 as compared to a net income of
approximately $400 thousand for the three months ended March 31, 2007.
o W Power generated approximately $89 thousand in net income for the
three months ended March 31, 2008 as compared to a net income of
approximately $388 thousand for the three months ended March 31, 2007.
The decrease in earnings at W Power was caused primarily by increased
commodity and delivery charges.
W Power & Light was profitable during the first quarter of 2008. However, there
has been significant wholesale electricity and natural gas price escalation
during the latter part of the period, and the escalation is likely to continue
throughout the coming months. Additionally, there have been significant changes
in the ERCOT electricity spot market driven both by high natural gas prices and
a fundamental shift in energy and capacity availability across Texas. The
changes are due partly to the large quantities of wind generation being
constructed primarily in the western region of ERCOT. The result of this has
been a drastic increase in the spot market zonal price volatility. While wind
generation can provide a low cost of energy in some instances, the large amounts
of wind generation now being introduced into ERCOT are not located near the
large metropolitan load areas which have the greatest need for electricity. The
result has been significantly increased electricity price differentials across
different areas of ERCOT, and increased ancillary services costs required to
provide retail electricity.
Management expects this to continue for an unknown period of time throughout the
coming months, and believes the spot market volatility will be further increased
by transmission constraints and non-wind generation capacity shortfalls. We are
concerned about these structural market changes, and are currently assessing
what impact they may have on our retail electricity business unit. Management
believes that with both wholesale and spot market volatility likely to be
sustained, it will be unlikely for the REP operations to be profitable across
the current year. Given the significant opportunities for business development,
acquisitions, and growth in other areas of the Corporation, in addition to the
large capital requirements to grow REP operations, Management is currently
considering exiting retail energy in ERCOT. If the decision to do so occurs, it
is likely that W Power will experience significant expenses during the coming
26
months in winding down retail energy operations, and would be expected to post a
significant financial loss during the next quarters as it ceases operations.
Revenues
--------
o The Company's consolidated revenues were approximately $3.7 million
for the three months ended March 31, 2008, compared to $3.1 million
for the three months ended March 31, 2007.
o Priority Power Management generated approximately $1.4 million and
$779 thousand in revenue from continuing operations for the three
months ended March 31, 2008 and 2007, respectively. This change is
primarily due to an increase in aggregation fee revenue and $300
thousand earned as part of a power plant development contract.
o W Power generated revenue of approximately $2.3 million for both the
three months ended March 31, 2008 and 2007.
Operating Expenses
------------------
o Total operating expenses for the three months ended March 31, 2007 and
2007 were $3.3 million and $2.6 million, respectively.
o The increase was primarily attributable to growth in cost of goods and
services and general & administrative expenses as described below.
o W Power's cost of goods and services were approximately $2.0 million
and $1.8 million for the three months ended March 31, 2008 and 2007,
respectively or 87% and 78% of retail electricity sales for the three
months then ended. The change of approximately 12% is primarily due to
adjusting commodity prices and delivery charges. o For the three
months ended March 31, 2008 general and administrative costs increased
approximately $400 thousand versus the year ended March 31, 2007. This
increase is primarily associated with employee bonuses, additional
staff, and corporate governance costs such as Sarbanes Oxley
compliance.
Other (expense) income
----------------------
For the year three months ended March 31, 2008 as compared to the three months
ended March 31, 2007 the Company experienced an increase of approximately $615
thousand in other income. This increase was caused by the following factors:
o The final distribution made to the Company as a unit-holder in the
Santa Fe Energy Trust.
o Earnings from the Company's investment in the SFF Group.
o The Company also had an increase of approximately $155 thousand in
interest expense, primarily related to interest on acquisition related
debt.
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 March 31, 2008 the Company's BVPS is $4.06
compared to $2.45 at March 31, 2007.
Analysis of Cash Flows
Operating Activities
--------------------
During the first three months of 2008, net cash provided by operating activities
was approximately $1.2 million. This was driven by a number of factors:
- Net Income of $977 thousand.
- A decrease of $393 thousand in accounts receivable, due to a decrease
in unbilled power at W Power.
- Earnings of $280 thousand from the SFF Group.
- An increase in Accounts Payable of $120 thousand
- An increase in Accrued Liabilities of $151 thousand due to accruals
for executive bonuses, and tithing.
The Company does not expect its investment in SFF Group to generate significant
accounting income due to the depletion expense that will be incurred; however,
regular cash distributions are expected as discussed in the Investing Activities
section below.
27
Investing Activities
--------------------
For the first three months of 2008, the net cash provided by investing
activities was approximately $4.4 million. This was driven by two primary
activities:
- Liquidation of the Company's available-for-sale securities related to
units held in the Santa Fe Energy Trust.
- A distribution of $500 thousand from the SFF Group.
Based on current commodity prices and production volumes, the Company expects to
receive regular cash distributions from SFF Group of approximately $500 - 800
thousand per quarter.
Financing Activities
--------------------
Net cash used in financing activities for the first three months of 2007 was
approximately $3.5 million. This is primarily related to repayment of notes for
the purchase of Priority Power (the "NEMA" notes - See Note L) and stub
financing related to the purchase of an interest in the SFF Group (See Notes O
and M).
Currently, the Company has a net operating tax loss ("NOL") carry forward in
excess of $28 million. This NOL is mainly related to the Company's operations
prior to the Company presenting the 2002 business plan to shareholders. The
Company believes that the utilization, without limitation, of the Company's NOL
will be determined by the ability of management to limit the issue of new equity
due to IRC Section 382 restrictions. 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's management is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company uses a
risk-based business process activity approach for its assessment of internal
control. This approach is based on the framework provided by the Committee of
Sponsoring Organizations ("COSO") of the Treadway Commission.
The Company documents its assessment of internal controls over financial
reporting to allow for internal review and to facilitate evaluation of the
adequacy of management's documentation. The documentation includes the
following:
o The design of controls over all relevant assertions related to all
significant accounts and disclosures in the financial statements;
o Information about how significant transactions are initiated,
authorized, recorded, processed, and reported;
o Sufficient information about the flow of transactions to identify the
points at which material misstatements due to error of fraud could
occur;
o Controls designed to prevent or detect fraud, including who performs
the controls and the related segregation of duties;
o Controls over the period-end financial reporting process;
o Controls over the safeguarding of assets; and
o The results of management's testing and evaluation.
The Company's management believes it maintains an adequate and effective system
of controls over financial reporting.
There have not been any changes in the Company's disclosure controls and
procedures during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company's
disclosure controls and procedures over financial reporting.
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.
28
ITEM 4. Submission of Matters to a Vote of Security Holders
None to report.
ITEM 5. Other Information
The Company is currently unable to complete a required Form 8-K disclosure
containing pro forma financial statement data related to its acquisition of
assets from the Santa Fe Energy Trust ("Trust") and Devon Energy Production
Company ("Devon"). The Company is waiting on the completion and filing of 2006
and 2007 audited financial statements for the Santa Fe Energy Trust, an
unaffiliated third party. The Company will provide the required financial
statements as soon as possible after receiving the necessary financial
statements from Santa Fe Energy Trust.
ITEM 6. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1+ Certificate of Incorporation and Certificates of Amendments
thereto of DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b)** Certificate of Amendment thereto of DIDAX INC.
3.2+++ Certificate of Amendment thereto of Crosswalk.com, Inc.
3.3+ Bylaws and amendments thereto of the Company
3.6*** Certificate of Amendment of Certificate of Incorporation dated May 26,
2004
3.7 Certificate of Designation of Rights and Preferences of the Series D
Preferred Stock of Amen Properties, Inc. (Incorporated by reference to
the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on December 17, 2007)
4.1 Form of Warrant (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on December
17, 2007)
10.1+ Form of Stock Option Agreement
10.2+ 1997 Stock Option Plan
10.3* 1997 Stock Option Plan, as amended April 6, 1998
10.4* 1998 Stock Option Plan
10.5** 1998 Stock Option Plan, as amended February 26, 1999
10.6## 1998 Stock Option Plan, as amended March 3, 2000
10.7// Lease Agreement between TCTB Partners, Ltd. and Bank of America, N.A.
dated September 30, 2003.
10.8// Lease Agreement between TCTB Partners, Ltd. and Pioneer Natural
Resources USA, Inc. dated April 4, 2000.
10.9### Employment and Noncompetition Agreement between the Company and Kevin
Yung dated as of July 1, 2004
29
10.10@ Loan Agreement between Amen Properties, Inc. and Western National Bank
10.11@ Western National Bank Revolving Line of Credit Note
10.12 Employment Agreement between Priority Power Management, Ltd and John
Bick (Incorporated by reference to the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on June 1, 2006).
10.13 Employment Agreement between Priority Power Management, Ltd and
Padraig Ennis (Incorporated by reference to the Company's Report on
Form 8-K filed with the Securities and Exchange Commission on June 1,
2006).
10.14 Securities Purchase Agreement among Amen Properties, Inc. and NEMA
Properties, LLC, Priority Power Management, Ltd. and Priority Power
Management Dallas, Ltd. and their respective partners dated as of May
18, 2006, including the forms of promissory note and assignment
delivered at closing (incorporated by reference to the Company's Form
8-K Current Report filed on May 24, 2006).
10.15 Agreement to Distribute Assets among TCTB Partners, Ltd and its
partners dated as of September 27, 2006 (Incorporated by reference to
the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on October 5, 2006)
10.16 Purchase Agreement between TCTB Partners, Ltd as nominee for certain
partners of TCTB Partners, Ltd and Hampshire Plaza Garage, LLC and
S.E.S. Investments, Ltd. dated as of September 29, 2006 (Incorporated
by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 5, 2006)
10.17 Management Agreement between the Company and TCTB Management Group,
LLC. dated as of September 29, 2006 (Incorporated by reference to the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on October 5, 2006)
10.18 Amendment to Employment Agreement of Kevin Yung dated December 5, 2006
(Incorporated by reference to the Company's Definitive Proxy Statement
on Form 14A filed with the Securities and Exchange Commission on April
20, 2007)
10.19 Amendment to Employment Agreement of John Bick dated June 1, 2006
(Incorporated by reference to the Company's Definitive Proxy Statement
on Form 14A filed with the Securities and Exchange Commission on April
20, 2007)
10.20 Amendment to Employment Agreement of Padraig Ennis dated June 1, 2006
(Incorporated by reference to the Company's Definitive Proxy Statement
on Form 14A filed with the Securities and Exchange Commission on April
20, 2007)
10.21 Employment Agreement of Kris Oliver, dated July 30, 2007 (Incorporated
by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on July 30, 2007)
10.22 Purchase Agreement between Amen Properties, Inc. and Bank of New York
Trust Company, N. A., the trustee of Santa Fe Energy Trust, dated as
of November 8, 2007 (Incorporated by reference to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
November 8, 2007)
10.23 Purchase Agreement between Amen Properties, Inc. and Devon Energy
Production Company, L.P. dated as of November 8, 2007 (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on November 8, 2007)
30
10.24 Amendment to Purchase Agreement between Amen Properties, Inc. and Bank
of New York Trust Company, N. A., the trustee of Santa Fe Energy
Trust, dated as of November 8, 2007 (Incorporated by reference to the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on December 178, 2007)
10.25 Amendment to Purchase Agreement between Amen Properties, Inc. and
Devon Energy Production Company, L.P. dated as of November 8, 2007
(Incorporated by reference to the Company's Report on Form 8-K filed
with the Securities and Exchange Commission on December 17, 2007)
10.26 SFF Royalty, LLC Operating Agreement (Incorporated by reference to the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on December 17, 2007)
10.27 SFF Production, LLC Operating Agreement (Incorporated by reference to
the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on December 17, 2007)
10.28 Securities Purchase and Note Agreement (Incorporated by reference to
the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on December 17, 2007)
10.29 Amen Properties Promissory Note to SoftVest, LP (Incorporated by
reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on December 17, 2007)
11 Statement of computation of earnings per share
21.1 Subsidiaries of the Company
23.1 Consent of Independent Registered Public Accounting Firm (filed
herewith)
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 USC ss.1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 USC ss.1350.
+++ Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on January 13, 2003.
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No.
333-25937
** Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2000.
*** Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on June 10, 2004.
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A filed
with the Securities and Exchange Commission on March 30, 2000.
### Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on August 13, 2004
// Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 24, 2003.
@ Incorporated by reference to the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2005.
31
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.
May 15, 2008 By: /s/ Jon Morgan
---------------------------------------
Jon Morgan,
Chief Executive Officer
May 15, 2008 By: /s/ Kris Oliver
----------------------------------------
Kris Oliver,
Chief Financial Officer and Secretary
32