UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Period Ended September 30, 2003
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 1700
Midland, TX 79701
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(Address of Principal Executive Offices)
(432-684-3821)
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
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Applicable Only to Corporate Issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Common Stock, $ .01 Par Value:
2,201,356 shares outstanding as of October 21, 2003
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Balance Sheet at September 30, 2003 (Unaudited) 1
Consolidated Statements of Operations--for the three and nine months ended
September 30, 2003 and 2002 (Unaudited) 2
Consolidated Statements of Cash Flows--for the nine months ended
September 30, 2003 and 2002 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Controls and Procedures 15
Part II. OTHER INFORMATION
Items 1-6 Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibits 17
11. Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30, 2003
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents (notes A3 and D) $ 1,898,788
Accounts receivable net of allowance of $91,066 (note A6) 81,532
Short-term investments (notes A4 and D) 989,631
-------------
Total current assets $ 2,969,951
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $722,999 (notes A7 and A8) 11,709,748
LONG-TERM INVESTMENTS (notes A4 and D) 106,950
OTHER ASSETS
Note receivable (note E) 259,661
Deferred costs 157,707
Rents receivable (notes A6 and A12) 74,276
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Total other assets 491,644
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TOTAL ASSETS $ 15,278,293
=============
CURRENT LIABILITIES
Current portion of long-term obligations $ 183,991
Accounts payable 97,742
Accrued liabilities (note F) 718,624
Deferred revenue (note G) 35,596
Other liabilities 139,384
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Total current liabilities $ 1,175,337
LONG-TERM OBLIGATIONS
Deferred revenue (note G) 188,875
Long-term debt, less current portion (note H) 8,945,907
-------------
Total long-term liabilities 9,134,782
MINORITY INTEREST (note A11) 1,082,731
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY (note J)
Preferred stock, $.001 par value, 5,000,000 shares authorized;
80,000 Series "A" shares issued and outstanding 80
80,000 Series "B" shares issued and outstanding 80
Common stock, $.01 par value, 20,000,000 shares authorized;
2,201,356 shares issued and outstanding 22,014
Common stock warrants 127,660
Additional paid-in capital 42,481,507
Accumulated deficit (38,760,134)
Accumulated other comprehensive income 14,236
-------------
Total stockholders' equity 3,885,443
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,278,293
=============
The accompanying footnotes are an integral part of these consolidated financial statements.
1
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------- ------------ ----------- -----------
Rental revenue $ 1,091,741 $ - $3,251,174 $ -
Operating Expense
Sales and marketing 1,728 - 5,671 -
General and administrative 128,610 20,671 413,931 117,830
Depreciation and amortization 103,027 - 303,591 -
Utilities 230,426 - 609,359 -
Building maintenance 148,364 - 458,977 -
Office expense 124,487 - 349,085 -
Taxes, except income 52,170 - 151,248 -
------------- ------------ ----------- -----------
Total operating expenses 788,812 20,671 2,291,862 117,830
------------- ------------ ----------- -----------
Net income (loss) from operations 302,929 (20,671) 959,312 (117,830)
Other income (expense)
Interest income 7,700 - 19,353 -
Interest expense (153,562) (42,000) (500,826) (126,000)
Other income 42,004 - 111,839 -
------------- ------------ ----------- -----------
Total other income (expense) (103,858) (42,000) (369,634) (126,000)
------------- ------------ ----------- -----------
Net income (loss) before income taxes, minority
interest and discontinued operations 199,071 (62,671) 589,678 (243,830)
Income taxes (note A10) - - - -
Minority interest (102,191) - (341,376) -
------------- ------------ ----------- -----------
Income (loss) from continuing operations 96,880 (62,671) 248,302 (243,830)
------------- ------------ ----------- -----------
Loss from discontinued operations (note B) - (1,956,513) - (3,435,325)
------------- ------------ ----------- -----------
NET INCOME (LOSS) $ 96,880 $(2,019,184) $ 248,302 $(3,679,155)
============= ============ =========== ===========
Net income (loss) per common share - basic (note A13)
Income (loss) from continuing operations $ .04 $ (.03) $ .12 $ (.12)
Loss from discontinued operations - (.98) - (1.72)
------------- ------------ ----------- -----------
Net income (loss) $ .04 $ (1.01) $ .12 $ (1.84)
============= ============ =========== ===========
Weighted average number of common shares
outstanding - basic 2,201,356 1,992,055 2,081,316 1,991,931
============= ============ =========== ===========
Net income (loss) per common share - diluted (note A13)
Income (loss) from continuing operations $ .03 $ (.03) $ .08 $ (.12)
Loss from discontinued operations - (.98) - (1.72)
------------- ------------ ----------- -----------
Net income (loss) $ .03 $ (1.01) $ .08 $ (1.84)
============= ============ =========== ===========
Weighted average number of common shares
outstanding - diluted 3,051,079 1,992,055 2,931,039 1,991,931
============= ============ =========== ===========
The accompanying footnotes are an integral part of these consolidated financial statements
2
AMEN Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
Increase (Decrease) in Cash and Cash Equivalents 2003 2002
-------------- ---------------
Cash flows from operating activities:
Net income (loss) $ 248,302 $ (3,679,155)
Adjustments to reconcile net income (loss) to net cash provided by /
(used in) operating activities:
Net (gain) / loss on investments (4,001) 9,700
Allowance for doubtful accounts 29,241 -
Depreciation and amortization 303,591 -
Depreciation, amortization and impairment - discontinued operations - 1,520,967
Minority interest 341,376 -
Loss on sale of fixed asset 3,946 53,209
Changes in operating assets and liabilities:
Accounts receivable 63,314 445,450
Notes receivable from former officers - 17,856
Deposits and other assets 840 (370)
Deferred costs (47,000) 81,460
Accounts payable (117,113) 398
Accrued and other liabilities (123,191) 804,353
Deferred revenue 115,542 (285,144)
-------------- ---------------
Net cash provided by / (used in) operating activities 814,847 (1,031,276)
-------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (99,405) (12,263)
Proceeds from sale of property and equipment 5,170 -
Sales and maturity of investments 1,448,690 864,119
Purchase of investments (1,623,989) (819,286)
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Net cash (used in) / provided by investing activities (269,534) 32,570
-------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock - 289,091
Net proceeds from issuance of common stock - 7,438
Minority interest distributions (13,967) -
Repayments of notes payable (163,746) -
Repayments of capitalized leases (9,995) -
-------------- ---------------
Net cash (used in) / provided by financing activities (187,708) 296,529
-------------- ---------------
Net increase / (decrease) in cash and cash equivalents 357,605 (702,177)
Cash and cash equivalents at beginning of period 1,541,183 901,195
-------------- ---------------
Cash and cash equivalents at end of period $ 1,898,788 $ 199,018
============== ===============
The accompanying footnotes are an integral part of these consolidated financial statements.
3
AMEN Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
1. Organization
Pursuant to actions of the stockholders on September 19, 2002, Crosswalk.com,
Inc. changed its name to AMEN Properties, Inc., a Delaware corporation
("AMEN"). Effective October 2002, AMEN formed NEMA Properties, LLC ("NEMA"), a
Nevada limited liability company; AMEN Minerals, LP ("Minerals"), a Delaware
limited partnership; and AMEN Delaware, LP ("Delaware"), a Delaware limited
partnership, to pursue acquisitions as authorized by stockholders on September
19, 2002. AMEN Properties, Inc. and its Subsidiaries are collectively referred
to as the "Company".
The Company's business purpose, according to the business plan approved by the
stockholders, is to acquire investments in commercial real estate, oil and gas
royalties and stabilized cash flowing businesses or assets. As of September
30, 2003, the Company, through Delaware's investment in a limited partnership,
has a commercial real estate portfolio consisting of majority ownership in two
office properties located in Midland and Lubbock, Texas comprising an
aggregate of approximately 539,837 square feet of gross leasable area ("GLA").
The investment was obtained through Delaware's acquisition of an approximate
64.9% partnership interest in TCTB Partners, Ltd. ("TCTB"), a Texas limited
partnership. Through its investment in Minerals, AMEN has acquired an
investment interest in an oil and gas royalty trust. The operations of the
Company are primarily conducted through Delaware of which AMEN is the sole
general partner and beneficial owner of the outstanding limited partnership
interest.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements as of September
30, 2003 and 2002 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB of Regulation S-B. They
do not include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to the consolidated financial
statements for the year ended December 31, 2002 included in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange Commission
("SEC"). This report should be read in conjunction with Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002. In the opinion of
management, all adjustments considered necessary for fair presentation of the
Company's financial position and the results of its operations for the interim
periods presented have been included. The results of operations for the three
months and nine months ended September 30, 2003 are not necessarily indicative
of the results to be expected for any subsequent quarter or for the entire
fiscal year ending December 31, 2003.
4
The consolidated financial statements include the accounts of AMEN and its
majority-owned/controlled subsidiaries. Intercompany balances and transactions
have been eliminated. Management uses estimates and assumptions in preparing
the consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. Those estimates and
assumptions affect the reported amounts of assets, liabilities, revenues and
expenses in the consolidated financial statements, and the disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates.
3. Cash Equivalents
The Company considers cash on hand, cash on deposit in banks, money market
mutual funds and highly liquid debt instruments purchased with a maturity of
three months or less to be a cash and cash equivalent. The Company maintains
cash and cash equivalents at several financial institutions which at times may
not be federally insured or may exceed federally insured limits. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any significant credit risks on such accounts.
4. Short and Long-Term Investments
The Company invests in U.S. government bonds and treasury notes, municipal
bonds, and corporate bonds. Investments with current maturities greater than
three months but less than twelve months from the balance sheet date are
short-term investments. Those investments with current maturities greater than
twelve months from the balance sheet date are long-term investments.
The Company's marketable securities are classified as available-for-sale as of
the balance sheet date, and are reported at fair value with unrealized gains and
losses, net of tax, recorded in stockholders' equity. Realized gains or losses
and permanent declines in value, if any, on available-for-sale investments are
reported in other income or expense as incurred.
5. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, investments and accounts
receivable approximate fair value because of the relatively short maturity of
these instruments.
6. Tenant Accounts Receivable
Management regularly reviews accounts receivable and estimates the necessary
amounts to be recorded as an allowance for uncollectibility. These reserves are
established on a tenant-specific basis and are based upon, among other factors,
the period of time an amount is past due and the financial condition of the
obligor.
7. Depreciation and Amortization
Property, plant and equipment are stated at cost. Depreciation is determined
using the straight-line method over the estimated useful lives ranging from
three to forty years. Leasehold improvements are amortized over the shorter of
the life of the asset or the remaining lease term. Intangible assets are
amortized over the useful lives of five to ten years using the straight-line
method. Costs for the repair and maintenance of property and equipment are
expensed as incurred.
5
8. Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value of
its long-lived assets and identifiable intangibles and whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Examples of events or changes in circumstances that indicate
that the recoverability of the carrying amount of an asset should be assessed
include but are not limited to the following: a significant decrease in the
market value of an asset, a significant change in the extent or matter in which
an asset is used or a significant physical change in an asset, a significant
adverse change in legal factors or in the business climate that could affect the
value of an asset or an adverse action or assessment by a regulator, an
accumulation of costs significantly in excess of the amount originally expected
to acquire or construct an asset, and/or a current period operating or cash flow
loss 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
impairment are present, the Company evaluates the carrying value of these assets
in reaction to the operating performance of the business and future discounted
and non-discounted cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of expected future cash flows are
less than the assets' carrying value.
9. Deferred Costs
Deferred costs primarily consist of deferred financing costs, prepaid insurance,
leasing commissions, and investor relations costs. Deferred financing costs are
amortized as interest expense over the life of the related debt. Insurance costs
are amortized over the life of the policy. Leasing commissions are amortized
over the life of the lease. Investor relations costs are amortized ratably over
the term of service, generally one year.
10. Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
11. Minority Interest
Minority interest represents the interest of unit holders of TCTB, other than
the Company, in the net earnings and net equity of TCTB. The unit holder
minority interest is adjusted at the end of each period to reflect the ownership
at that time. The unit holder minority interest in TCTB was approximately 35.1%
at September 30, 2003.
6
12. Revenue recognition
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are recognized on a straight-line basis over the terms of the respective
leases. As a result of recording rental revenue on a straight-line basis,
accounts receivable include $74,276 of tenant receivables at September 30, 2003,
which is expected to be collected over the remaining lives of the leases.
13. Earnings per Share
Income/(loss) from continuing operations has been decreased/(increased) by
preferred stock dividends of approximately $42,000 for the three months ended
March 31, 2003 and 2002, respectively. Beginning April 1, 2003 preferred stock
dividends have been suspended. See discussion in Note J.
The effects of Series A and B convertible Preferred Stock are included in the
computation of diluted earnings per share for the three months and nine months
ended September 30, 2003 as the Company reported positive net income. The
effects are not included in the three months and nine months ending September
30, 2002, as their effect is antidilutive.
Disclosures regarding shares and share price have been adjusted to reflect the
1-for-4 reverse stock split dated February 3, 2003 in accordance with generally
accepted accounting principles in the United States of America. See note J.
14. Environmental
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws regulate asbestos in buildings that require the
Company to remove or mitigate the environmental effects of the disposal of the
asbestos at the buildings.
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Costs are expensed when they relate to an existing
condition caused by past operations and will not contribute to current or future
revenue generation. Liabilities related to environmental assessments and/or
remedial efforts are accrued when property or services are provided or can be
reasonably estimated.
15. New Accounting Pronouncements
In September 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
No. 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement improves financial reporting by requiring that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. The
accounting for similar events and circumstances will be the same, thereby
improving the comparability and representation faithfulness of reported
financial information. The provisions of this Statement are effective for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged.
7
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of FASB Statement No. 123.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities. The objective of this interpretation is to provide
guidance on how to identify a variable interest entity (VIE) and determine when
the assets, liabilities, noncontrolling interests, and results of operations of
a VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate the
entity if the company's interest in the VIE is such that the company will absorb
a majority of the VIE's expected losses and/or receive a majority of the
entity's expected residual returns, if they occur. FIN 46 also requires
additional disclosures by primary beneficiaries and other significant variable
interest holders. The provisions of this interpretation became effective upon
issuance.
In July 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of nonpublic
entities.
Management does not believe the new pronouncements will have a material impact
on its financial statements.
16. Reclassifications
Certain reclassifications of prior period amounts have been made to conform to
the 2003 presentation.
NOTE B - DISCONTINUED OPERATIONS
Through September 2002, the business of the Company consisted of the development
and aggregation of Internet content and services; advertising and royalty sales;
and through the third quarter of 2000, the resale of products specifically
designed to meet the needs of Christian users of the Internet and the World Wide
Web. This was accomplished through the platform of the website Crosswalk.com,
which was created and developed by the Company (the "Online Business"). In
addition, the Company generated advertising revenue through the issuance of
mailers called "card decks." Six times annually, the Company distributed these
card decks bringing awareness of over fifty ad clients' products to 225,000
churches in each mailing (the "Offline Business").
8
The Offline Business, which employed a staff of three, included a proprietary
database of about 140,000 churches. Additional lists were rented to meet the
remaining distribution commitment.
In September 2002, the Company's stockholders approved the sale of the
Crosswalk.com website to Salem Communications, Inc. for approximately $4.1
million in cash. The sale closed October 4, 2002. The operation of the Online
Business terminated at that time. The Company incurred legal and consulting
fees, contract termination costs and severance costs approximating $1,043,000.
These costs were incurred as part of the Company's exit of the Online Business
activities and relocating corporate headquarters to Midland, Texas.
On December 12, 2002, the assets related to the Offline Business were sold to
Blue Hill Media, Inc. for a note receivable in the amount of $275,000 and a 3.5%
net profits interest in the Offline Business' future gross margin. The operation
of the Offline Business ceased upon the date of the sale. Therefore, except for
expenses related to continuing operations, all income and expense related to the
Online and Offline business have been reclassified and summarized into loss from
discontinued operations.
NOTE C - BUSINESS COMBINATIONS
Effective October 1, 2002, Delaware completed the acquisition of approximately
64.9% of a limited partnership interest in TCTB for an aggregate consideration
of approximately $4,375,000, including approximately $1,946,000 of cash paid.
This acquisition has been accounted for under the purchase method of accounting.
The purchase price has been preliminarily allocated based on the estimated fair
values of the approximate 64.9% acquired interest at the acquisition date.
NOTE D - CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
The Company invests in cash in banks, U.S. government bonds, oil and gas royalty
trust funds and various other investments. All highly liquid instruments with
current maturities of three months or less are considered cash equivalents;
those with current maturities greater than three months but less than twelve
months from the balance sheet date are considered short-term investments; and
those with maturities greater than twelve months from the balance sheet date are
considered long-term investments. The Company's marketable securities are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses, net of tax, recorded in
stockholders' equity. Realized gains and losses and permanent declines in value,
if any, on available-for-sale securities are reported in other income or expense
as incurred. The cost of securities sold is determined by the specific
identification method.
At September 30, 2003, all of the $1,898,788 of cash and cash equivalents was
cash in banks.
9
Investments in the accompanying balance sheet at September 30, 2003 total
$1,096,581. The aggregate market value, cost basis, and unrealized gains and
losses of securities available-for-sale, by major security type as of September
30, 2003 are as follows:
Market Cost Unrealized
Value Basis Gains
------------- ------------- -------------
U.S. Government Debt Securities $ 406,980 400,632 6,348
Oil and Gas Royalty Trust Fund 44,600 38,107 6,493
Oil and Gas Royalty 253,185 253,185 -
Other 391,816 391,816 -
------------- ------------- -------------
Total $ 1,096,581 1,083,740 12,841
============= ============= =============
The current and long-term portions are as follows:
Market Cost Unrealized
Value Basis Gains
------------- ------------- -------------
Short-term investments $ 989,631 $ 983,283 $ 6,348
Long-term investments 106,950 100,457 6,493
------------- ------------- -------------
$ 1,096,581 $ 1,083,740 $ 12,841
============= ============ ============
NOTE E - NOTE RECEIVABLE
On December 13, 2002, the Company received a note receivable in the amount of
$275,000, with an annual interest rate of 6.00%, from a third-party for the sale
of substantially all assets associated with the Offline Business (see note B).
The note receivable is due in quarterly installments, beginning April 10, 2003,
equal to 20% of the gross margin of the Offline Business operations for the
prior calendar quarter period, with all remaining unpaid principal and interest
due on January 10, 2010. Subsequent to the end of the current quarter, the
Company received the third installment payment on the note of $12,500, including
principal and interest.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 2003:
Contract payable - short sale of investments $ 508,560
Accrued property taxes 154,800
Other liabilities 55,264
-------------
$ 718,624
=============
10
NOTE G - DEFERRED REVENUE
In April 2003, the Company received a one time cash payment of $238,871 from a
tenant in the Lubbock building. This represents a prepayment of a buildout loan
between the tenant and TCTB, which was structured and recognized as additional
rent. The payment was deferred and is being amortized over the term of the
lease, approximately seven years.
NOTE H - LONG-TERM OBLIGATIONS
On June 5, 2002, TCTB entered into a loan agreement with Wells Fargo Bank Texas,
N.A. for a term note of $6,800,000 and a revolving line of credit which expired
in May 2003. The term note bears interest at a fixed rate per annum of 7.23%.
Commencing on June 30, 2002, TCTB began making monthly payments of principal and
interest in the amount of $53,663 for the term note until maturity of the note
on May 31, 2009. The loan agreement is secured by substantially all of the
assets of TCTB. The loan agreement restricts cash distributions to TCTB's
owners. TCTB shall not declare or pay any distributions in excess of tax
liability due annually (but in any event, no more than 40% of net income),
either in cash or any property to any owners. The loan agreement also contains
other customary conditions and events of default, the failure to comply with, or
occurrence of, would prevent any further borrowings and would generally require
the repayment of any outstanding borrowings along with accrued interest under
the loan agreement. Such events of default include (a) non-payment of loan
agreement debt and interest thereon, (b) non-compliance with the terms of the
credit agreement covenants, (c) cross-default with other debt in certain
circumstances, (d) bankruptcy and (e) a final judgment or order for the payment
of money in excess of $100,000.
Delaware entered into nine promissory notes, in an aggregate amount of
$2,789,087, to purchase the 64.9% ownership interest in TCTB (see note C). The
notes are due in annual payments of principal and interest beginning April 1,
2005 with a final maturity of May 31, 2009. The interest rate is equal to the
Wall Street Journal Prime Lending Rate plus 15 basis points. The annual payments
are equal to a set percentage, ranging from 1% to 16%, of the future net
operating loss benefit of the Company. The net operating loss benefits are
calculated as the dollar value of the federal income tax benefit to the Company
of the net operating loss calculated in accordance with the Internal Revenue
Code, for the calendar year preceding the date of each annual payment.
NOTE I - RELATED PARTY TRANSACTIONS
At September 30, 2003, related parties leased approximately 37,000 square feet
of approximately 539,837 square feet of GLA. TCTB received rental income from
these related parties of approximately $69,067 during the quarter ended
September 30, 2003 and $207,699 for the nine months ended September 30, 2003.
NOTE J - STOCKHOLDERS' EQUITY
At a special meeting held January 30, 2003, the Company's stockholders approved
a 1-for-4 reverse stock split, which became effective on February 3, 2003. This
action brought the closing bid price of AMEN's common stock over the $1.00 per
share criteria required before the February 14, 2003 deadline issued by the
Nasdaq Listing Panel. Disclosures regarding shares and share price have been
adjusted to reflect the 1-for-4 reverse stock split in accordance with generally
accepted accounting principles in the United States of America.
11
The Company entered into agreements effective May 30, 2003 with its Series A and
Series B Preferred Shareholders pursuant to which the Preferred Shareholders
agreed to the suspension of the accrual of dividends on the Series A and Series
B Preferred Stock from and after April 1, 2003. Additionally, the Company agreed
to declare and pay the accrued and unpaid dividends of $360,000 on the Preferred
Stock through March 31, 2003 in shares of the Company's common stock. As a
result, the Company issued 209,300 unregistered shares of common stock of the
Company to satisfy the accrued dividend as of March 31, 2003. In addition, the
Preferred Shareholders agreed to amend the designations to effect the terms of
the agreement.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and related footnotes included in the
Annual Report on Form 10-KSB.
Forward Looking Statements
Certain information in this section may contain "forward-looking statements"
within the meaning of Section 21e of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including, but
not limited to, any projections of earnings, revenues or other financial items,
any statements of the plans and objectives of management for future operations,
any statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, "forward-looking
statements" can be identified by the use of terminology such as "may," "will,"
"expects," "believes," "plans," "anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in its forward-looking
statements are reasonable, it can give no assurance that such expectations or
any of its "forward-looking statements" will prove to be correct, and actual
results could differ materially from those projected or assumed in the Company's
"forward-looking statements." Our financial condition and results, as well as
any other "forward-looking statements," are subject to inherent risks and
uncertainties, including but not limited to those risk factors disclosed in the
Company's definitive Schedule 14A dated August 27, 2002 and year end December
31, 2002 Annual Report on Form 10-KSB.
Background
Through the third quarter ended September 30, 2002, AMEN Properties, Inc. and
its subsidiaries ("AMEN" or "the Company") consisted primarily of the operations
of crosswalk.com(TM), an interactive website, which provided information and
resources that the Company believed generally appeal to the English speaking
Christian and family-friendly community (the "Online Business"). The Company
primarily generated advertising revenue from this service.
Through December 12, 2002, the Company also provided direct mail advertising
services (the "Offline Business") whereby six times per year the Company mailed
packets of advertiser product information (the "card deck") to approximately
225,000 churches per mailing. In support of this business, the Company
maintained a proprietary database of about 140,000 churches and rented lists to
meet the remaining distribution commitment. The Company generated advertising
revenue from this service.
12
The Company sold substantially all of the assets used, required, useful, or
otherwise relating to the ownership, development and operations of the Online
Business to Salem Communications Corporation ("Salem") for approximately $4.1
million in cash (the "Asset Sale"). The Asset Sale closed on October 4, 2002. In
addition, on December 12, 2002 the Company divested the Offline Business to Blue
Hill Media, Inc. and received a $275,000 note receivable bearing 6% interest and
a 3.5% net profits interest in the business's gross margin.
Taking into consideration the Company's material remaining value of
approximately $4.1 million in cash from the asset sale, a public company
foundation, and a net operating tax loss carryforward (NOL) in excess of $29
million, the Company presented to shareholders a business plan (the "Business
Plan") to grow the Company and exploit the NOL through the judicious acquisition
of cash generating assets, consisting primarily of office buildings in secondary
stagnant markets, office buildings in out of favor growth markets and oil and
gas royalties. In addition, management intends to pursue other types of property
and business endeavors, including but not limited to, real estate investment
trusts and partnership interests, for which there is a reasonable degree of
accuracy in ascertaining the risks associated with their future. In particular,
we are interested in existing businesses with management in place that have
stable cash flow history. On September 19, 2002, the shareholders approved this
Business Plan, and immediately thereafter, the board of directors appointed
current directors Eric Oliver and Jon Morgan as Chairman and Chief Executive
Officer, and President and Chief Operating Officer, respectively. Effective
October 9, 2002, the name of the Company was changed from Crosswalk.com, Inc. to
AMEN Properties, Inc., and the Company relocated its headquarters from
Chantilly, Virginia to Midland, Texas.
The first step in the new Business Plan was completed on October 31, 2002 when
the Company entered into an Agreement with certain limited partners ("the
Selling Partners") of TCTB Partners, Ltd. ("TCTB") to purchase 64.86248% of the
LP Interest in TCTB effective October 1, 2002. The assets of TCTB are two
secondary office market properties in Midland and Lubbock, Texas, collectively
referred to as "the Properties". These properties are described further in the
Company's Annual Report on Form 10-KSB as of December 31, 2002.
The Company makes available, free of charge, its Annual Report on Form 10-K or
10-KSB, Quarterly Reports on Form 10-Q or 10-QSB, Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file or furnish them to the Securities Exchange
Commission. These reports may also be obtained directly from the SEC via an
Internet site (http://www.sec.gov) and at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Results of Operations
For the quarter ended September 30, 2003, the Company reported net income of
$96,880 as compared to a net loss of $2,019,184 the same quarter in 2002. This
significant increase was the result of the sale of the unprofitable Online
Business and the acquisition of approximately 65% of the limited partnership
interest in TCTB, which is discussed in the financial statements located in Item
1 of this report.
13
The loss from discontinued operations, recorded in accordance with SFAS 144, for
the three months and nine months ended September 30, 2002 amounted to $1,956,513
and $3,435,325 respectively. This represents the loss associated with the Online
and Offline assets, which were sold effective October 1, 2002 and December 13,
2002, respectively.
Total rental revenue for the quarter ending September 30, 2003, was $1,091,741
with no comparison for the same quarter of 2002. The revenue represents rental
income from tenants occupying the commercial real estate buildings owned by
TCTB.
General and administrative expenses were $128,610 during the third quarter of
2003. The increase of $107,939 over the same period in 2002 is primarily a
result of additional expenses in 2003 from TCTB. The 2003 expenses are
representative of the type of expenses that are incurred in current operations.
The remainder of the operating costs relate to the expenses incurred at TCTB to
operate the buildings. Interest expense of $153,562 is comprised $117,689 of
interest paid on the Wells Fargo Bank Texas, N.A. note and approximately $35,873
of accrued interest on the notes payable to the selling Partners of TCTB. Other
income of $42,004 primarily represents distributions received from the Company's
royalty trust investments and approximately $6,000 in recoveries on previously
written off receivables.
Comparison of net income for the three months ended June 30, 2003 to the net
income for the three months then ended September 30, 2003 shows an increase of
$51,939. The increase is primarily a result of approximately $16,000 of
non-recurring legal expense reported during the second quarter and a decrease in
operations expenses during the third quarter. The operations expense decrease is
largely due to a decline in contracted accounting work.
Liquidity and Capital Resources
During the nine months ending September 30, 2003 and 2002, net cash provided by
/ (used in) operating activities, including discontinued operations, was
$814,847 and $(1,031,276) respectively. The Company's positive operating cash
flow for the period ending September 30, 2003 includes the effect of a one time
cash payment $238,871 received from a tenant (see Note G to the Financial
Statements for further discussion).
Net cash used in investing activities was $269,534 for the nine months ending
September 30, 2003 compared to $32,570 provided by for the same period of 2002.
For the nine months ending September 30, 2003 purchases of property and
equipment mainly consist of tenant improvements at TCTB, and purchases and sales
of investments relates to the Company's Royalty Trust investments. Beginning in
September 2003 management began selling short a portion of the Company's Royalty
Trust investments. The consummation of the sale was not completed by the end of
the third quarter and the short sale is shown as an accrued liability at
September 30, 2003.
Net cash used in financing activities for the nine months ended September 30,
2003 was $187,708 which primarily consists of repayments of notes payable at
TCTB. Net cash provided by financing activities in 2002 of $296,529 was
primarily a result of the issuance of the Series B Convertible Preferred stock
in 2002.
14
Management is actively seeking acquisition opportunities that meet our criteria
in accordance with the Business Plan. Should an acquisition be made,
expenditures and required resources could change significantly. The Company's
ability to raise funds is somewhat hindered as we are limited in our ability to
issue new equity due to IRC Section 382 restrictions on utilization of the NOL.
However, if an opportunity presents itself that would be more valuable to the
shareholders than the present value we have assigned the NOL, we will strongly
consider pursuing the deal and would consider issuing equity to do so. Absent
this, we intend on using certain limited partnership structures and traditional
bank borrowings to implement the Business Plan and meet our growth targets. No
assurances can be made that such financing will be available on terms considered
acceptable to the Company.
ITEM 3. Controls and Procedures
The Company's management, under the supervision and with the participation of
the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
performed an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of October 17, 2003 before the
filing date of this quarterly report. Based on that evaluation, the CEO and CFO
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
their evaluation.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None to report.
ITEM 2. Change in Securities
None to report.
ITEM 3. Defaults Upon Senior Securities
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None to report.
ITEM 5. Other Information
None to report.
ITEM 6. Exhibits, List and Reports on Form 8-K
(a) EXHIBITS:
Exhibit
Number Description
11. Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
15
(b) Reports on Form 8-K
On August 30, 2003 Eric Boyt tendered his resignation as Chief Financial Officer
and Corporate Secretary of the Company. With a unanimous vote, the Board of
Directors accepted Mr. Boyt's resignation on September 1, 2003, and appointed
John M. James as the new Chief Financial Officer and Corporate Secretary. This
transition was anticipated since Mr. James employment as Controller of the
Company in April 2003. Mr. Boyt will continue to advise the company in future
business development opportunities.
SIGNATURES
In accordance with the requirements of Securities Act of 1934, AMEN Properties,
Inc., the registrant, has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMEN Properties, Inc.
November 4, 2003 By: /s/ Eric L. Oliver
-------------------------
Eric L. Oliver
Chairman and Chief Executive Officer
November 4, 2003 By: /s/ John M. James
-------------------------
John M. James
Chief Financial Officer and Secretary
16
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
11. Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
17