CORENERGY INFRASTRUCTURE TRUST, INC., 10-K filed on 2/13/2013
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Nov. 30, 2012
Dec. 31, 2012
May 31, 2012
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
CorEnergy Infrastructure Trust, Inc. 
 
 
Entity Central Index Key
0001347652 
 
 
Document Type
10-K 
 
 
Document Period End Date
Nov. 30, 2012 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--11-30 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 84,588,904 
Entity Common Stock, Shares Outstanding
 
24,140,667 
 
Consolidated Balance Sheets (USD $)
Nov. 30, 2012
Nov. 30, 2011
Assets
 
 
Trading securities, at fair value
$ 55,219,411 
$ 27,037,642 
Other equity securities, at fair value
19,866,621 
41,856,730 
Leased property, net of accumulated depreciation of $1,131,680, and $294,309, respectively
12,995,169 
13,832,540 
Cash and cash equivalents
14,333,456 
2,793,326 
Property and equipment, net of accumulated depreciation of $1,751,202 and $1,483,616, respectively
3,589,022 
3,842,675 
Escrow receivable
698,729 
1,677,052 
Accounts receivable
1,570,257 
1,402,955 
Intangible lease asset, net of accumulated amortization of $413,580 and $121,641, respectively
681,191 
973,130 
Lease receivable
 
474,152 
Prepaid expenses
537,184 
140,017 
Receivable for Adviser expense reimbursement
 
121,962 
Deferred tax asset
 
27,536 
Other assets
1,940,793 
107,679 
Total Assets
111,431,833 
94,287,396 
Liabilities and Stockholders' Equity Liabilities
 
 
Management fees payable to Adviser
249,326 
365,885 
Accounts payable and other accrued liabilities
2,636,305 
1,107,765 
Line of credit
120,000 
 
Long-term debt
 
2,279,883 
Lease obligation
27,522 
107,550 
Deferred tax liability
7,172,133 
 
Unearned Income
2,370,762 
 
Total Liabilities
12,576,048 
3,861,083 
Stockholders' Equity
 
 
Warrants, no par value; 945,594 issued and outstanding at November 30, 2012 and November 30, 2011 (5,000,000 authorized)
1,370,700 
1,370,700 
Capital stock, non-convertible, $0.001 par value; 9,190,667 shares issued and outstanding at November 30, 2012 and 9,176,889 shares issued and outstanding at November 30, 2011 (100,000,000 shares authorized)
9,191 
9,177 
Additional paid-in capital
91,763,475 
95,682,738 
Accumulated retained earnings (deficit)
5,712,419 
(6,636,302)
Total Stockholders' Equity
98,855,785 
90,426,313 
Total Liabilities and Stockholders' Equity
$ 111,431,833 
$ 94,287,396 
Consolidated Balance Sheets (Parenthetical) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Consolidated Balance Sheets [Abstract]
 
 
Accumulated depreciation, leased property
$ 1,131,680 
$ 294,309 
Accumulated depreciation, property and equipment
1,751,202 
1,483,616 
Accumulated amortization, intangible lease asset
$ 413,580 
$ 121,641 
Warrants, par value
$ 0 
$ 0 
Warrants, issued
945,594 
945,594 
Warrants, outstanding
945,594 
945,594 
Warrants, authorized
5,000,000 
5,000,000 
Capital stock non-convertible, par value
$ 0.001 
$ 0.001 
Capital stock non-convertible, shares issued
9,190,667 
9,176,889 
Capital stock non-convertible, shares outstanding
9,190,667 
9,176,889 
Capital stock non-convertible, shares authorized
100,000,000 
100,000,000 
Consolidated Statements of Income (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Revenue
 
 
 
Sales revenue
$ 8,021,022 
$ 2,161,723 
 
Lease income
2,552,975 
1,063,740 
 
Total Revenue
10,573,997 
3,225,463 
 
Expenses
 
 
 
Cost of sales (excluding depreciation expense)
6,078,102 
1,689,374 
 
Management fees, net of expense reimbursements
1,046,796 
968,163 
925,820 
Asset acquisition expenses
377,834 
638,185 
 
Professional fees
1,141,045 
548,759 
590,486 
Depreciation expense
1,118,269 
364,254 
 
Operating expenses
739,519 
196,775 
 
Directors' fees
85,050 
70,192 
92,053 
Other expenses
231,086 
183,674 
244,398 
Total Expenses
10,817,701 
4,659,376 
1,852,757 
Loss from Operations, before Income Taxes
(243,704)
(1,433,913)
(1,852,757)
Other Income and Expense
 
 
 
Net distributions and dividend income
(279,395)
651,673 
1,853,247 
Net realized and unrealized (loss) gain on trading securities
4,009,933 
2,299,975 
(894,531)
Net realized and unrealized gain on other equity securities
16,171,944 
2,283,773 
20,340,602 
Other Income
 
40,000 
38,580 
Interest Expense
(81,123)
(36,508)
(45,619)
Total Other Income and Expense
19,821,359 
5,238,913 
21,292,279 
Income before income taxes
19,577,655 
3,805,000 
19,439,522 
Taxes
 
 
 
Current tax expense
(29,265)
(253,650)
 
Deferred tax expense
(7,199,669)
(629,207)
(4,772,648)
Income tax expense, net
(7,228,934)
(882,857)
(4,772,648)
Net Income
$ 12,348,721 
$ 2,922,143 
$ 14,666,874 
Earnings Per Common Share:
 
 
 
Basic and Diluted
$ 1.34 
$ 0.32 
$ 1.61 
Weighted Average Shares of Common Stock Outstanding:
 
 
 
Basic and Diluted
9,182,425 
9,159,809 
9,107,070 
Dividends declared per share
$ 0.44 
$ 0.41 
$ 0.43 
Consolidated Statements of Equity (USD $)
Total
Capital Stock
Warrants
Additional Paid-in Capital
Retained Earnings (Accumulated Deficit)
Beginning balance at Nov. 30, 2009
$ 84,296,585 
$ 9,078 
$ 1,370,700 
$ 101,929,307 
$ (19,012,500)
Beginning balance, shares at Nov. 30, 2009
 
9,078,090 
 
 
 
Net Income
14,666,874 
 
 
 
14,666,874 
Distributions to stockholders sourced as return of capital
(3,915,124)
 
 
(3,915,124)
 
Reinvestment of distributions to stockholders, shares
 
68,416 
 
 
 
Reinvestment of distributions to stockholders
430,838 
69 
 
430,769 
 
Ending balance at Nov. 30, 2010
95,479,173 
9,147 
1,370,700 
98,444,952 
(4,345,626)
Ending balance, shares at Nov. 30, 2010
 
9,146,506 
 
 
 
Net Income
2,922,143 
 
 
 
2,922,143 
Distributions to stockholders sourced as return of capital
(3,755,607)
 
 
(3,755,607)
 
Reinvestment of distributions to stockholders, shares
 
30,383 
 
 
 
Reinvestment of distributions to stockholders
252,242 
30 
 
252,212 
 
Consolidation of wholly-owned subsidiary
(4,471,638)
 
 
741,181 
(5,212,819)
Ending balance at Nov. 30, 2011
90,426,313 
9,177 
1,370,700 
95,682,738 
(6,636,302)
Ending balance, shares at Nov. 30, 2011
9,176,889 
9,176,889 
 
 
 
Net Income
12,348,721 
 
 
 
12,348,721 
Distributions to stockholders sourced as return of capital
(4,040,273)
 
 
(4,040,273)
 
Reinvestment of distributions to stockholders, shares
 
13,778 
 
 
 
Reinvestment of distributions to stockholders
121,024 
14 
 
121,010 
 
Ending balance at Nov. 30, 2012
$ 98,855,785 
$ 9,191 
$ 1,370,700 
$ 91,763,475 
$ 5,712,419 
Ending balance, shares at Nov. 30, 2012
9,190,667 
9,190,667 
 
 
 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Operating Activities
 
 
 
Net Income
$ 12,348,721 
$ 2,922,143 
$ 14,666,874 
Adjustments:
 
 
 
Distributions received from investment securities
4,985,370 
2,845,434 
3,064,204 
Deferred income tax, net
7,199,669 
629,207 
4,772,648 
Depreciation expense
1,118,269 
364,254 
 
Amortization of intangible lease asset
291,939 
121,641 
 
Amortization of assumed debt premium
(91,883)
(94,611)
 
Realized and unrealized (gain) loss on trading securities
(4,009,933)
(2,299,975)
894,531 
Realized and unrealized gain on other equity securities
(16,171,944)
(2,283,773)
(20,340,602)
Changes in assets and liabilities:
 
 
 
Decrease (increase) in interest, dividend and distribution receivable
 
42,778 
(42,774)
Decrease in lease receivable
474,152 
237,077 
 
Increase in accounts receivable
(167,302)
(92,473)
 
(Increase) decrease in prepaid expenses and other assets
(233,272)
70,109 
(13,429)
Increase (decrease) in management fees payable to Adviser, net of expense reimbursement
5,403 
25,632 
(30,926)
Increase (decrease) in accounts payable and other accrued liabilities
1,528,541 
275,003 
(47,625)
Increase in unearned income
2,370,762 
 
 
Net cash provided by operating activities
9,648,492 
2,762,446 
2,922,901 
Investing Activities
 
 
 
Purchases of long-term investments of trading and other equity securities
 
(38,060,281)
(10,633,882)
Proceeds from sale of long-term investment of trading and other equity securities
9,354,306 
53,950,583 
15,762,612 
Proceeds from receipt of escrow receivable
628,863 
 
 
Acquisition expenditures and deferred lease costs
(942,707)
 
 
Cash paid in business combination
 
(12,250,000)
 
Proceeds from sale of property and equipment
3,076 
 
 
Purchases of property and equipment
(30,321)
(1,045)
 
Net cash provided by (used in) investing activities
9,013,217 
3,639,257 
5,128,730 
Financing Activities
 
 
 
Payments on long-term debt
(2,188,000)
(1,221,000)
 
Payments on lease obligation
(80,028)
(44,816)
 
Deferred financing costs
(1,054,302)
 
 
Advances from revolving line of credit
5,285,000 
 
 
Repayments on revolving line of credit
(5,165,000)
(400,000)
(4,600,000)
Distributions paid to common stockholders
(3,919,249)
(3,503,365)
(3,484,284)
Net cash used in financing activities
(7,121,579)
(5,169,181)
(8,084,284)
Net Change in Cash and Cash Equivalents
11,540,130 
1,232,522 
(32,653)
Consolidation of wholly-owned subsidiary
 
94,611 
 
Cash and Cash Equivalents at beginning of year
2,793,326 
1,466,193 
1,498,846 
Cash and Cash Equivalents at end of period
14,333,456 
2,793,326 
1,466,193 
Supplemental Disclosure of Cash Flow Information
 
 
 
Interest paid
203,611 
176,595 
66,703 
Income taxes paid
96,000 
253,650 
 
Non-Cash Investing Activities
 
 
 
Security proceeds from sale of long-term investment of other equity securities
26,565,400 
 
 
Non-Cash Financing Activities
 
 
 
Reinvestment of distributions by common stockholders in additional common shares
$ 121,024 
$ 252,242 
$ 430,838 
Introduction and Basis of Presentation
Introduction and Basis of Presentation

1. Introduction and Basis of Presentation

CorEnergy Infrastructure Trust, Inc, formerly known as Tortoise Capital Resources Corporation, (the “Company”) was organized as a Maryland corporation on September 8, 2005. The Company completed its initial public offering in February 2007 as a non-diversified closed-end management investment company regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company withdrew its election to be treated as a BDC on September 21, 2011 in order to pursue qualification as a real estate investment trust (“REIT”). Historically as a BDC, the Company invested primarily in privately held companies operating in the U.S. energy infrastructure sector. The Company’s shares are listed on the New York Stock Exchange under the symbol “CORR.”

The financial statements included in this report are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex or subjective judgments.

Beginning with the filing of our Annual Report on Form 10-K for the year-ended November 30, 2011, the Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Mowood, LLC (“Mowood”). Mowood is the holding company for Omega Pipeline Company, LLC (“Omega”). Omega owns and operates a natural gas distribution system in Fort Leonard Wood, Missouri. Omega is responsible for purchasing and coordinating delivery of natural gas to Fort Leonard Wood, as well as performing maintenance and expansion of the pipeline. In addition, Omega provides gas marketing services to local commercial end users. All significant inter-company balances and transactions have been eliminated in consolidation.

Basis of Presentation

Consolidation of Mowood was initiated at the time the Company withdrew its election to be treated as a BDC (September 21, 2011) and began reporting its financial results in accordance with general corporate reporting guidelines instead of under the AICPA Investment Company Audit Guide (the “Guide”). At that time, the presentation of the Company’s financial statements changed. Certain prior year balances have been reclassified to conform to the presentation required for general corporate entities and to provide comparability of financial results across reporting periods. The reclassification of account balances for prior years, which are summarized below, did not impact the Company’s financial position or reported net results of operations:

 

   

Components of Stockholders’ Equity on the Consolidated Balance Sheets as of November 30, 2010 have been combined. Accumulated net investment loss, net of income taxes of $(3,308,522), accumulated realized loss, net of income taxes of $(18,532,648), and net unrealized appreciation of investments, net of income taxes of $17,495,544 have been combined into Accumulated Deficit.

 

   

Items on the Consolidated Statements of Income for the year ended November 30, 2010 have been reclassified and aggregated to conform to the presentation of the results of operations for the years ended November 30, 2012 and 2011. However, there was no impact to net income or earnings per share. Income from investment securities are no longer considered to be part of the Company’s operations and therefore have been classified as other income.

 

   

Components of cash flows for the year ended November 30, 2010 have been reclassified and aggregated to conform to the presentation of cash flows for the years ended November 30, 2012 and 2011.

 

The accompanying consolidated financial statements reflect the results of the Company’s operations for the year ended November 30, 2010 and the period from December 1, 2010 to September 21, 2011, during which time the Company reported under the Guide, and therefore reported and accounted for Mowood as an investment carried at fair value. Subsequent to September 21, 2011, the Company ceased reporting under the Guide. The results of operations for Mowood for the year ended November 30, 2012 and for the period from September 21, 2011 to November 30, 2011, and related balances at November 30, 2012 and 2011, are included in the Company’s consolidated financial statements as of and for the years ended November 30, 2012 and 2011.

Significant Accounting Policies
Significant Accounting Policies

2. Significant Accounting Policies

A. Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.

B. Investment Securities – The Company’s investments in securities are classified as either trading or other equity securities:

 

   

Trading securities – the Company’s publicly traded equity securities are classified as trading securities and are reported at fair value because the Company intends to sell these securities in order to acquire real asset investments.

 

   

Other equity securities – the Company’s other equity securities represent interests in private companies for which the Company has elected to report these at fair value under the fair value option.

 

   

Realized and unrealized gains (losses) on trading securities and other equity securities – Changes in the fair values of the Company’s securities during the period reported and the gains or losses realized upon sale of securities during the period are reflected as other income within the accompanying Consolidated Statements of Income.

C. Security Transactions and Fair Value – Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis.

For equity securities that are freely tradable and listed on a securities exchange or over-the-counter market, the Company fair values those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Company will use the price from the exchange that it considers to be the principal exchange on which the security is traded. Securities listed on the NASDAQ will be valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. If there has been no sale on such exchange or over-the-counter market on such day, the security will be valued at the mean between the last bid price and last ask price on such day.

An equity security of a publicly traded company acquired in a private placement transaction without registration is subject to restrictions on resale that can affect the security’s liquidity and fair value. Such securities that are convertible into or otherwise will become freely tradable will be valued based on the market value of the freely tradable security less an applicable discount. Generally, the discount will initially be equal to the discount at which the Company purchased the securities. To the extent that such securities are convertible or otherwise become freely tradable within a time frame that may be reasonably determined, an amortization schedule may be used to determine the discount.

The major components of net realized and unrealized gain on trading securities for the years ended November 30, 2012, 2011 and 2010 are as follows:

 

                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Net unrealized gain on trading securities

  $ 3,985,269     $ 238,617     $ 3,119,424  

Net realized gain on trading securities

    24,664       2,061,358       (4,013,955
   

 

 

   

 

 

   

 

 

 

Total net realized and unrealized gain (loss) on trading securities

  $ 4,009,933     $ 2,299,975     $ (894,531
   

 

 

   

 

 

   

 

 

 

 

The Company holds investments in illiquid securities including debt and equity securities of privately-held companies. These investments generally are subject to restrictions on resale, have no established trading market and are fair valued on a quarterly basis. Because of the inherent uncertainty of valuation, the fair values of such investments, which are determined in accordance with procedures approved by the Company’s Board of Directors, may differ materially from the values that would have been used had a ready market existed for the investments. The Company’s Board of Directors may consider other methods of valuing investments as appropriate and in conformity with GAAP.

The Company determines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has determined the principal market, or the market in which the Company exits its private portfolio investments with the greatest volume and level of activity, to be the private secondary market. Typically, private companies are bought and sold based on multiples of EBITDA, cash flows, net income, revenues, or in limited cases, book value.

For private company investments, value is often realized through a liquidity event of the entire company. Therefore, the value of the company as a whole (enterprise value) at the reporting date often provides the best evidence of the value of the investment and is the initial step for valuing the Company’s privately issued securities. For any one company, enterprise value may best be expressed as a range of fair values, from which a single estimate of fair value will be derived. In determining the enterprise value of a portfolio company, an analysis is prepared consisting of traditional valuation methodologies including market and income approaches. The Company considers some or all of the traditional valuation methods based on the individual circumstances of the portfolio company in order to derive its estimate of enterprise value.

The fair value of investments in private portfolio companies is determined based on various factors, including enterprise value, observable market transactions, such as recent offers to purchase a company, recent transactions involving the purchase or sale of the equity securities of the company, or other liquidation events. The determined equity values may be discounted when the Company has a minority position, or is subject to restrictions on resale, has specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other comparable factors exist.

The Company undertakes a multi-step valuation process each quarter in connection with determining the fair value of private investments. An independent valuation firm has been engaged by the Company to provide independent, third-party valuation consulting services based on procedures that the Company has identified and may ask them to perform from time to time on all or a selection of private investments as determined by the Company. The multi-step valuation process is specific to the level of assurance that the Company requests from the independent valuation firm. For positive assurance, the process is as follows:

 

   

The independent valuation firm prepares the valuations and the supporting analysis.

 

   

The Investment Committee of the Adviser reviews the valuations and supporting analyses, prior to approving the valuations.

D. Cash and Cash Equivalents – The Company maintains cash balances at financial institutions in amounts that regularly exceed FDIC insured limits. The Company’s cash equivalents are comprised of short-term, liquid money market instruments.

E. Accounts Receivable – Accounts receivable are presented at face value net of an allowance for doubtful accounts. Accounts are considered past due based on the terms of sale with the customers. The Company reviews accounts for collectability based on an analysis of specific outstanding receivables, current economic conditions and past collection experience. At November 30, 2012, Management determined that an allowance for doubtful accounts related to our leases was not required. Lease payments by our Major Tenant, as defined within Note 9, have remained timely and without lapse.

F. Revenue and Other Income Recognition – Specific policies for the Company’s revenue and other income items are as follows:

 

   

Sales Revenue – Omega, acting as a principal, provides for transportation services and natural gas supply for its customers on a firm basis. In addition, Omega is paid fees for the operation and maintenance of its natural gas distribution system, including any necessary expansion of the distribution system. Omega is responsible for the coordination, supervision and quality of the expansions while actual construction is generally performed by third party contractors. Revenues related to natural gas distribution are recognized upon delivery of natural gas and upon the substantial performance of management and supervision services related to the expansion of the natural gas distribution system. Revenues from expansion efforts are recognized in accordance with GAAP using either a completed contract or percentage of completion method based on the level and volume of estimates utilized, as well as the certainty or uncertainty of our ability to collect those revenues.

 

   

Lease Income – Income related to the Company’s leased property is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured. Prior to November 1, 2012 rental payments on the leased property were typically received on a semi-annual basis and were included as lease income within the accompanying Consolidated Statements of Income.

Upon the November 1, 2012 execution of the Asset Purchase Agreement related to our leased property (see Note 7 for further information), rental payments on the leased property are to be received in advance and are classified as unearned income and included in liabilities within the Consolidated Balance Sheets. Unearned income is amortized ratably over the lease period as revenue recognition criteria are met.

 

   

Dividends and distributions from investments – Dividends and distributions from investments are recorded on their ex-dates and are reflected as other income within the accompanying Consolidated Statements of Income. Distributions received from the Company’s investments generally are characterized as ordinary income, capital gains and distributions received from investment securities. The portion characterized as return of capital is paid by our investees from their cash flow from operations. The Company records investment income, capital gains and/or distributions received from investment securities based on estimates made at the time such distributions are received. Such estimates are based on information available from each company and/or other industry sources. These estimates may subsequently be revised based on information received from the entities after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company.

For the year ended November 30, 2012, the Company estimated the allocation of investment income and distributions received from investment securities for the distributions received during the period from its portfolio companies within the Consolidated Statements of Income. For this period, the Company has estimated approximately 3 percent as investment income and approximately 97 percent distributions received from investment securities. The return of capital portions of the distributions are reflected on the Consolidated Cash Flow Statements as “distributions received from investment securities.”

 

   

Securities Transactions and Investment Income Recognition — Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Distributions received from our equity investments generally are comprised of ordinary income, capital gains and distributions received from investment securities from the portfolio company. The Company records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on information available from each portfolio company and/or other industry sources. These estimates may subsequently be revised based on information received from the portfolio companies after their tax reporting periods are concluded, as the actual character of these distributions are not known until after our fiscal year end.

During the year ended November 30, 2012, the Company reallocated the amount of 2011 investment income and return of capital it recognized based on the 2011 tax reporting information received from individual portfolio companies. This reclassification amounted to a decrease in net distributions and dividend income on securities of approximately $448,000 or $.05 per share ($281,000 or $0.03 per share, net of deferred tax benefit); an increase in net realized and unrealized gains on trading and other equity securities of $448,000 or $.05 per share ($281,000 or $0.03 per share, net of deferred tax expense) for the year ended November 30, 2011.

G. Cost of Sales – Included in the Company’s cost of sales are the amounts paid for gas and propane, along with related transportation, which are delivered to customers, as well as the cost of material and labor related to the expansion of the natural gas distribution system.

H. Distributions to Stockholders – The amount of any quarterly distributions to stockholders will be determined by the Board of Directors. Distributions to stockholders are recorded on the ex-dividend date. The character of distributions made during the year may differ from their ultimate characterization for federal income tax purposes. For the years ended November 30, 2012, November 30, 2011 and November 30, 2010, the source of the Company’s distributions for book purposes was primarily received from investment securities. For the year ended November 30, 2012, the Company’s distributions for tax purposes were comprised of 100 percent return of capital. For the year ended November 30, 2011, the Company’s distributions for tax purposes were comprised of 100 percent qualified dividend income. For the year ended November 30, 2010, the Company’s distributions for tax purposes were comprised of 100 percent return of capital.

 

I. Federal and State Income Taxation – The Company, as a corporation, is obligated to pay federal and state income tax on its taxable income. Currently, the highest regular marginal federal income tax rate for a corporation is 35 percent. The Company may be subject to a 20 percent federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.

The Company’s trading securities and other equity securities are limited partnerships or limited liability companies which are treated as partnerships for federal and state income tax purposes. As a limited partner, the Company reports its allocable share of taxable income in computing its own taxable income. The Company’s tax expense or benefit is included in the Consolidated Statement of Income based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

J. Leases – The Company includes assets subject to lease arrangements within Leased property, net of accumulated depreciation in the Consolidated Balance Sheets. Lease payments received are reflected in lease income on the Consolidated Statements of Income, net of amortization of any off market adjustments.

Certain initial direct costs incurred related to a lease are capitalized and amortized over the lease term. As of November 30, 2012, approximately $754,000 of deferred lease costs related to probable leases are included in Other Assets within the Consolidated Balance Sheets. The deferred costs will be amortized over the anticipated 15 year life of the new lease and will be included in Amortization expense within the Consolidated Income Statement. See Footnote 15 for further discussion.

K. Long-Lived Assets and Intangibles – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from five to twenty years. Expenditures for repairs and maintenance are charged to operations as incurred, and improvements, which extend the useful lives of assets, are capitalized and depreciated over the remaining estimated useful life of the asset.

The Company initially records long-lived assets at their acquisition cost, unless the transaction is accounted for as a business combination. If the transaction is accounted for as a business combination, the Company allocates the purchase price to the acquired tangible and intangible assets and liabilities based on their estimated fair values. The Company determines the fair values of assets and liabilities based on discounted cash flow models using current market assumptions, appraisals, recent transactions involving similar assets or liabilities and/or other objective evidence, and depreciates the asset values over the estimated remaining useful lives.

In connection with these transactions, the Company may acquire long-lived assets that are subject to an existing lease contract with the seller or other lessee party and the Company may assume outstanding debt of the seller as part of the consideration paid. If, at the time of acquisition, the existing lease or debt contract is not at current market terms, the Company will record an asset or liability at the time of acquisition representing the amount by which the fair value of the lease or debt contract differs from its contractual value. Such amount is then amortized over the remaining contract term as an adjustment to the related lease revenue or interest expense.

The Company periodically reviews its long-lived assets, primarily real estate, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company’s review involves comparing current and future operating performance of the assets, the most significant of which is undiscounted operating cash flows, to the carrying value of the assets. Based on this analysis, a provision for possible loss is recognized, if any. No impairment write-downs were recognized during the year ended November 30, 2012 and 2011.

Costs in connection with the direct acquisition of a new asset are capitalized and amortized over the life of the asset. As of November 30, 2012, approximately $189,000 in asset acquisition costs related to the Pinedale LGS acquisition is included in Other Assets within the Consolidated Balance Sheets. The asset acquisition costs will be depreciated over the anticipated 26 year life of the newly acquired asset and will be included in Depreciation expense within the Consolidated Income Statement. See Footnote 15 for further discussion.

 

L. Asset Acquisition Expenses – Costs in connection with the research of real property acquisitions are expensed as incurred until determination that the acquisition of the real property is probable. Upon the determination, costs in connection with the acquisition of the property are capitalized as per above.

M. Offering Costs – Offering costs related to the issuance of common stock are charged to additional paid-in capital when the stock is issued.

As of November 30, 2012, approximately $617,000 in offering costs is included in Prepaid Expenses and Other Assets within the Consolidated Balance Sheets.

N. Debt Issuance Costs – Costs in connection with the issuance of new debt are capitalized and amortized over the debt term.

As of November 30, 2012, approximately $437,000 in debt issuance costs is included in Other Assets on the Balance Sheets. The deferred costs will be amortized over the anticipated 3 year term of the newly acquired debt and will be included in Interest Expense within the Consolidated Income Statement. See Footnote 15 for further discussion.

O. Recent Accounting Pronouncement – In May 2011, the FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements” in GAAP and the International Financial Reporting Standards (“IFRSs”). ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years.

Concentrations
Concentrations

3. Concentrations

The Company has historically invested in securities of privately-held and publicly-traded companies in the midstream and downstream segments of the U.S. energy infrastructure sector. As of November 30, 2012, investments in securities of energy infrastructure companies represented approximately 67 percent of the Company’s total assets. The Company is now focused on identifying and acquiring real property assets in the U.S. energy infrastructure sector that are REIT qualified.

The Company’s leased property at November 30, 2012 was leased to a single entity, Public Service Company of New Mexico (“PNM”), as further described in Note 7 below. PNM’s financial condition and ability and willingness to satisfy its obligations under its leases with the Company has a considerable impact on the Company’s results of operations.

Mowood, the Company’s wholly owned subsidiary, has a ten-year contract, expiring in 2015, with the Department of Defense (“DOD”) to provide natural gas and gas distribution services to Fort Leonard Wood. Revenue related to the DOD contract accounted for 83 and 88 percent of sales revenues for the fiscal year ended November 30, 2012, and for the period from September 21, 2011 through November 30, 2011, respectively. Mowood, through its wholly owned subsidiary Omega, performs management and supervision services related to the expansion of the natural gas distribution system used by the DOD. The amount due from the DOD accounts for 84 and 85 percent of the consolidated accounts receivable balances at November 30, 2012 and 2011, respectively.

Mowood’s contracts for its supply of natural gas are concentrated among select providers. Payments to its largest supplier of natural gas during 2012 accounted for 29 percent of cost of sales for the year ended November 30, 2012.

Agreements
Agreements

4. Agreements

On December 1, 2011, the Company executed a Management Agreement with Corridor InfraTrust Management, LLC (“Corridor”). The Management Agreement has a current expiration date of June 30, 2012. The terms of the Management Agreement include a quarterly management fee equal to 0.25 percent (1.00 percent annualized) of the value of the Company’s average monthly Managed Assets for such quarter. For purposes of the Management Agreement, “Managed Assets” means all of the securities of the Company and all of the real property assets of the Company (including any securities or real property assets purchased with or attributable to any borrowed funds) minus all of the accrued liabilities other than (1) deferred taxes and (2) debt entered into for the purpose of leverage. For purposes of the definition of Managed Assets, “securities” includes the Company’s security portfolio, valued at then current market value. For purposes of the definition of Managed Assets, “real property assets” includes the assets of the Company invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and acquisition costs that may be allocated to intangibles or are unallocated, valued at the aggregate historical cost, before reserves for depreciation, amortization, impairment charges or bad debts or other similar noncash reserves.) The Management Agreement also includes a quarterly incentive fee of 10 percent of the increase in distributions paid over a threshold distribution equal to $0.125 per share per quarter. The Management Agreement also requires at least half of any incentive fees to be reinvested in the Company’s common stock.

During the fourth quarter of 2012, Corridor assumed the Company’s Administrator Agreement, retroactive to August 7, 2012. Tortoise Capital Advisors, L.L.C. (“TCA”) served as the Company’s administrator until that date. The Company pays the administrator a fee equal to an annual rate of 0.04 percent of aggregate average daily managed assets, with a minimum annual fee of $30,000.

On December 1, 2011, we entered into an Advisory Agreement by and among the Company, TCA and Corridor, under which TCA provided certain securities focused investment services necessary to evaluate, monitor and liquidate the Company’s remaining securities portfolio (“Designated Advisory Services”), and also provide the Company with certain operational (i.e. non-investment) services (“Designated Operational Services”). Effective December 21, 2012, that agreement was replaced by an Amended Advisory Agreement pursuant to which TCA provides investment services related to the monitoring and disposition of our current securities portfolio.

U.S. Bancorp Fund Services, LLC serves as the Company’s fund accounting services provider. The Company pays the provider a monthly fee computed at an annual rate of $24,000 on the first $50,000,000 of the Company’s Net Assets, 0.0125 percent on the next $200,000,000 of Net Assets, 0.0075 percent on the next $250,000,000 of Net Assets and 0.0025 percent on the balance of the Company’s Net Assets.

Income Taxes
Income Taxes

5. Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of November 30, 2012 and November 30, 2011 are as follows:

 

                 

Description

  November 30,
2012
    November 30,
2011
 

Deferred Tax Assets:

               

Organization costs

  $ (17,668   $ (20,068

Net operating loss carryforwards

    (6,411,230     (2,624,525

Cost recovery of leased assets

    (36,443     (119,970

Asset acquisition costs

    (134,415     —    

AMT and State of Kansas credit

    (196,197     (205,039
   

 

 

   

 

 

 

Sub-total

  $ (6,795,953   $ (2,969,602
   

 

 

   

 

 

 

Deferred Tax Liabilities:

               

Basis reduction of investment in partnerships

  $ 11,655,817     $ 2,244,914  

Net unrealized gain on investment securities

    2,312,269       697,152  
   

 

 

   

 

 

 

Sub-total

  $ 13,968,086     $ 2,942,066  
   

 

 

   

 

 

 

Total net deferred tax liability (asset)

  $ 7,172,133     $ (27,536
   

 

 

   

 

 

 

At November 30, 2012, a valuation allowance on deferred tax assets was not deemed necessary because the Company believes it is more likely than not that there is an ability to realize its deferred tax assets through future taxable income. Any adjustments to the Company’s estimates of future taxable income will be made in the period such determination is made. The Company recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. As of November 30, 2012, the Company had no uncertain tax positions and no penalties and interest were accrued. The Company does not expect any change to its unrecognized tax positions in the twelve months subsequent to November 30, 2012. Tax years subsequent to the year ending November 30, 2006 remain open to examination by federal and state tax authorities.

Total income tax expense differs from the amount computed by applying the federal statutory income tax rates of 35 percent for the years ended November 30, 2012 and 2011 and 34 percent for the year ended November 30, 2010 to gain (loss) from operations and other income for the years presented , as follows:

 

 

                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Application of statutory income tax rate

  $ 6,852,179     $ 1,331,750     $ 6,609,437  

State income taxes, net of federal tax benefit

    442,455       133,158       353,799  

Dividends received deduction

    (1,221     (86     —    

Change in deferred tax liability due to change in overall tax rate

    (64,479     (23,432     288,968  

Change in deferred tax valuation allowance

    —         (558,533     (2,479,556
   

 

 

   

 

 

   

 

 

 

Total income tax expense

  $ 7,228,934     $ 882,857     $ 4,772,648  
   

 

 

   

 

 

   

 

 

 

Total income taxes are computed by applying the federal statutory rate plus a blended state income tax rate. During the year, the Company re-evaluated its overall federal and state income tax rate, decreasing it from 37.62 percent to 37.26 percent, due to anticipated state apportionment of income and gains.

The components of income tax expense include the following for the years presented:

 

                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Current tax expense

                       

AMT expense (benefit)

  $ (8,842   $ 200,000     $ —    

State (reflects a federal tax benefit in deferred tax expense)

    38,107       53,650       —    
   

 

 

   

 

 

   

 

 

 

Total current tax expense

  $ 29,265     $ 253,650     $ —     
   

 

 

   

 

 

   

 

 

 

Deferred tax expense

                       

Federal

  $ 6,762,974     $ 585,386     $ 4,530,152  

State (net of federal tax benefit)

    436,695       43,821       242,496  
   

 

 

   

 

 

   

 

 

 

Total deferred tax expense

  $ 7,199,669     $ 629,207     $ 4,772,648  
   

 

 

   

 

 

   

 

 

 

Total income tax expense

  $ 7,228,934     $ 882,857     $ 4,772,648  
   

 

 

   

 

 

   

 

 

 

The deferred income tax expense for the years ended November 30, 2011 and 2010 includes the impact of the change in valuation allowance for such respective years.

As of November 30, 2012, the Company had a net operating loss for federal income tax purposes of approximately $17,234,000. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $8,000, $4,002,000, $3,353,000, $24,000 and $9,847,000 in the years ending November 30, 2028, 2029, 2030, 2031 and 2032 respectively. As of November 30, 2012, an alternative minimum tax credit of $194,267 was available, which may be credited in the future against regular income tax. This credit may be carried forward indefinitely.

The aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation, were as follows:

 

                 

Description

  November 30,
2012
    November 30,
2011
 

Aggregate cost for federal income tax purposes

  $ 41,995,195     $ 65,471,208  
   

 

 

   

 

 

 

Gross unrealized appreciation

    33,892,176       8,307,122  

Gross unrealized depreciation

    (801,340     (4,883,958
   

 

 

   

 

 

 

Net unrealized appreciation

  $ 33,090,836     $ 3,423,164  
   

 

 

   

 

 

 
Fair Value of Financial Instruments
Fair Value of Financial Instruments

6. Fair Value of Financial Instruments

Various inputs are used in determining the fair value of the Company’s assets and liabilities. These inputs are summarized in the three broad levels listed below:

 

   

Level 1 – quoted prices in active markets for identical investments

 

   

Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

 

   

Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

In general, and where applicable, the Company uses readily available market quotations based upon the last updated sales price from the principal market to determine fair value. This pricing methodology applies to the Company’s Level 1 trading securities.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables provide the fair value measurements of applicable Company assets and liabilities by level within the fair value hierarchy as of November 30, 2012 and November 30, 2011. These assets and liabilities are measured on a recurring basis.

November 30, 2012

 

                                 
          Fair Value  

Description

  November 30, 2012     Level 1     Level 2     Level 3  

Investments:

                               

Trading securities

  $ 55,219,411     $ 27,480,191     $ 27,739,220     $ —    

Other equity securities

    19,866,621       —         —         19,866,621  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 75,086,032     $ 27,480,191     $ 27,739,220     $ 19,866,621  
   

 

 

   

 

 

   

 

 

   

 

 

 

November 30, 2011

 

                                     
      Fair Value  

Description

  November 30, 2011     Level 1     Level 2     Level 3  

Assets:

                                   

Trading securities

  $ 27,037,642     $ 27,037,642     $  —     $ —    

Other equity securities

    41,856,730       —         —         41,856,730  
       

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 68,894,372     $ 27,037,642     $ —       $ 41,856,730  
       

 

 

   

 

 

   

 

 

   

 

 

 

The changes for all Level 3 securities measured at fair value on a recurring basis using significant unobservable inputs for the years ended November 30, 2012 and November 30, 2011, are as follows:

 

                 
    Year ended
November 30, 2012
    Year ended
November 30, 2011
 

Fair value beginning balance

  $ 41,856,730     $ 72,929,409  

Total realized and unrealized gains included in net income

    16,190,428       1,026,134  

Purchases

    —         20,987,605  

Sales

    (35,919,672     (42,275,886

Return of capital adjustments impacting cost basis of securities

    (2,260,865     (1,518,285

Transfers out

    —         (9,292,247
   

 

 

   

 

 

 

Fair value ending balance

  $ 19,866,621     $ 41,856,730  
   

 

 

   

 

 

 

The amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to securities still held at the reporting date which are included in net realized and unrealized gain on other equity securities within the statement of income

  $ 5,018,152     $ (3,287,478

 

As of November 30, 2011, the Company’s other equity securities, which represented security interests in private companies, and were classified as Level 3 assets, included High Sierra Energy, LP. On June 19, 2012, NGL Energy Partners, LP and certain of its affiliates (collectively “NGL”) acquired High Sierra Energy, LP and High Sierra Energy GP, LLC (collectively “High Sierra”) pursuant to which NGL, a New York Stock Exchange listed company, paid to the limited partners of High Sierra approximately $9.4 million in cash and approximately 1.2 million newly issued units of NGL. A realized gain of $15.8 million was recognized during the third quarter of 2012 upon the sale. NGL is classified as a Level 2 Trading security above.

The Company utilizes the beginning of reporting period method for determining transfers between levels. There were no transfers between levels 1, 2 or 3 for the year ended November 30, 2012. For the year ended November 30, 2011, there were transfers out of Level 3 assets in the amount of $9,292,247, which represents the values of the Company’s equity interest in Mowood and subordinated debt issued to Mowood at the beginning of the year that were eliminated upon consolidation. There were no transfers between Level 1 and Level 2 for the year ended November 30, 2011.

Valuation Techniques and Unobservable Inputs

An equity security of a publicly traded company acquired in a private placement transaction without registration under the Securities Act of 1933, as amended (the “1933 Act”), is subject to restrictions on resale that can affect the security’s liquidity (and hence its fair value). If the security has a common share counterpart trading in a public market, the Company generally determines an appropriate percentage discount for the security in light of the restrictions that apply to its resale (taking into account, for example, whether the resale restrictions of Rule 144 under the 1933 Act apply). This pricing methodology applies to the Company’s Level 2 trading securities.

The Company’s other equity securities, which represent security interests in private companies, are classified as Level 3 assets. Valuation of these investments is determined by weighting various valuation metrics for each security. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. See Notes to Consolidated Financial Statements, Note 2, Significant Accounting Policies.

The Company’s investments in private companies are typically valued using one of or a combination of the following the following valuation techniques: (i) analysis of valuations for publicly traded companies in a similar line of business (“public company analysis”), (ii) analysis of valuations for comparable M&A transactions (“M&A analysis”) and (iii) discounted cash flow analysis. The table entitled “Quantitative Table for Valuation Techniques” outlines the valuation technique(s) used for each asset category.

The public company analysis utilizes valuation multiples for publicly traded companies in a similar line of business as the portfolio company to estimate the fair value of such investment. Typically, the Company’s analysis focuses on the ratio of enterprise value to earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) which is commonly referred to as an EV/EBITDA multiple. The Company selects a range of multiples given the trading multiples of similar publicly traded companies and applies such multiples to the portfolio company’s EBITDA to estimate the portfolio company’s trailing, proforma, projected or average (as appropriate) EBITDA to estimate the portfolio company’s enterprise value and equity value. The Company also selects a range of trading market yields of similar public companies and applies such yields to the portfolio company’s estimated distributable cash flow. When calculating these values, the Company applies a discount, when applicable, to the portfolio company’s estimated equity value for the size of the company and the lack of liquidity in the portfolio company’s securities.

The M&A analysis utilizes valuation multiples for historical M&A transactions for companies or assets in a similar line of business as the portfolio company to estimate the fair value of such investment. Typically, the Company’s analysis focuses on EV/EBITDA multiples. The Company selects a range of multiples based on EV/EBITDA multiples for similar M&A transactions or similar companies and applies such ranges to the portfolio company’s analytical EBITDA to estimate the portfolio company’s enterprise value.

The discounted cash flow analysis is used to estimate the equity value for the portfolio company based on estimated DCF of such portfolio company. Such cash flows include an estimate of terminal value for the portfolio company. A present value of these cash flows is determined by using estimated discount rates (based on the Company’s estimate for weighted average cost of capital for such portfolio company).

Under all of these valuation techniques, the Company estimates operating results of its portfolio companies (including EBITDA). These estimates utilize unobservable inputs such as historical operating results, which may be unaudited, and projected operating results, which will be based on expected operating assumptions for such portfolio company. The Company also consults with management of the portfolio companies to develop these financial projections. These estimates will be sensitive to changes in assumptions specific to such portfolio company as well as general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: possible discounts for lack of marketability, selection of publicly-traded companies, selection of similar M&A transactions, selected ranges for valuation multiples, selected range of yields and expected required rates of return and weighted average cost of capital. The various techniques will be weighted as appropriate; and other factors may be weighted into the valuation, including recent capital transactions of the Company.

Changes in EBITDA multiples, or discount rates may change the fair value of the Company’s portfolio investments. Generally, a decrease in EBITDA multiples or DCF multiples, or an increase in discount rates, when applicable, may result in a decrease in the fair value of the Company’s portfolio investments.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize.

The following table summarizes the significant unobservable inputs that the Company uses to value its portfolio investments categorized as Level 3 as of November 30, 2012.

Quantitative Table for Valuation Techniques

 

                                         
Assets at                 Range     Weighted  

Fair Value

  Fair Value    

Valuation Technique

 

Unobservable Inputs

  Low     High     Average  

Other equity securities, at fair value

  $ 19,866,621     Public company historical EBITDA analysis   Historical EBITDA Valuation Multiples     9.4x       10.4x       9.95x  
            Public company projected EBITDA analysis   Projected EBITDA Valuation Multiples     8.1x       9.8x       8.95x  
            Public company yield analysis   Distributable Cash Flow Yield     8.11     9.11     8.61
            M&A company analysis   EV/LTM 2012 EBITDA     9.3x       9.9x       9.6x  
            Discounted cash flow   Weighted Average Cost of Capital     9.5     13.0     11.25

Certain condensed financial information of the unconsolidated affiliates follows. The information is the most recently available financial information for these companies, which is the last twelve months ending September 30, 2012 as reported by the portfolio companies for VantaCore Partners LP ( 11.09 percent equity interest) and Lightfoot Capital Partners LP (6.67 percent equity interest).

 

                     

Revenues

  $ 83,969,000     Current assets   $ 33,430,000  
       

Operating expenses

  $ 65,351,000     Noncurrent assets   $ 295,658,000  
       

Net income

  $ 4,643,000     Current liabilities   $ 16,248,000  
       
            Noncurrent liabilities   $ 110,549,000  
       
            Partner’s equity   $ 202,291,000  

The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments not recorded at fair value, but fair value is included for disclosure purposes only, as required under disclosure guidance related to the fair value of financial instruments.

Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.

 

Escrow Receivable — The escrow receivable due the Company, which relates to the sale of International Resource Partners, LP, is anticipated to be released upon satisfaction of certain post-closing obligations and/or the expiration of certain time periods (the shortest of which was to be 14 months from the April 2011 closing date of the sale). The fair value of the escrow receivable reflects a discount for the potential that the full amount due to the Company will not be realized. During the third quarter, the carrying value of the escrow receivable was reduced by $335,486 to its fair value. In addition, during September of 2012, the Company received $628,863 of the escrow receivable due the Company, and during the fourth quarter, the carrying value of the escrow receivable was further reduced by $13,974. No clear agreement has been reached as to the remaining escrow balance and Management anticipates that it may take more than a year to satisfy other post-closing obligations, prior to receiving the approximately $699,000 escrow balance remaining.

Long-term Debt — The fair value of the Company’s long-term debt is calculated, for disclosure purposes, by discounting future cash flows by a rate equal to the Company’s current expected rate for an equivalent transaction. The remaining principal balance outstanding on the debt assumed in the Eastern Interconnect Project (“EIP”) was paid in full on the maturity date of October 1, 2012.

Line of Credit — The carrying value of the line of credit approximates the fair value due to its short term nature.

 

                                     
    Level within   November 30, 2012     November 30, 2011  

Description

  the Fair Value
Hierarchy
  Carrying
Amount
    Fair Value     Carrying
Amount
    Fair Value  

Financial Assets

                                   

Cash and cash equivalents

  Level 1   $ 14,333,456     $ 14,333,456     $ 2,793,326     $ 2,793,326  

Escrow receivable

  Level 2   $ 698,729     $ 698,729     $ 1,677,052     $ 1,677,052  

Financial Liabilities

                                   

Long-term debt

  Level 2   $ —       $ —       $ 2,279,883     $ 2,320,851  

Line of credit

  Level 1   $ 120,000     $ 120,000     $ —       $ —    
Eastern Interconnect Project
Eastern Interconnect Project

7. Eastern Interconnect Project

Acquisition of Eastern Interconnect Project

On June 30, 2011, the Company purchased 100 percent ownership of a 40 percent undivided interest in the EIP for approximately $15.6 million, including the assumption of $3.4 million of debt. The acquisition of the EIP was accounted for as a business combination, in accordance with ASC 805. The Company incurred costs of approximately $600,000 in connection with the acquisition which were expensed during the year ended November 30, 2011. The transaction resulted in the acquisition of assets and liabilities as follows:

 

         

Physical assets

  $ 14,126,849  

Lease receivable

    711,229  

Intangible lease asset

    1,094,771  

Debt

    (3,409,000

Fair value premium on debt

    (186,493

Interest payable

    (87,356
   

 

 

 

Net cash consideration paid

  $ 12,250,000  
   

 

 

 

Physical Assets:

The EIP transmission assets move electricity across New Mexico between Albuquerque and Clovis. The physical assets include 216 miles of 345 kilovolts transmission lines, towers, easement rights, converters and other grid support components. Originally, the assets were depreciated for book purposes over an estimated useful life of 20 years.

 

The amount of depreciation of leased property reflected during the year ended November 30, 2012 and 2011 was $837,371 and $294,309, respectively. The 2012 amount includes one month of incremental depreciation of $131,028 (see second paragraph under Pending Sale heading below).

Lease:

EIP is leased on a triple net basis through April 1, 2015 to PNM, an independent electric utility company serving approximately 500,000 customers in New Mexico. Public Service Company of New Mexico is a subsidiary of PNM Resources (NYSE: PNM). Per the Lease Agreement, at the time of expiration of the lease, the Company could choose to renew the lease with the lessee, the lessee could offer to repurchase the EIP, or the lease could be allowed to expire and the Company could find another lessee. Under the terms of the Lease Agreement, the Company was to receive semi-annual lease payments.

At the time of acquisition, the rate of the lease was determined to be above market rates for similar leased assets and the Company recorded an intangible asset of $1,094,771 for this premium which is being amortized as contra-lease income over the remaining lease term. See Note 10 below for further information as to the intangible asset.

Debt

The Company assumed a note with an outstanding principal balance of $3.4 million. The debt was collateralized by the EIP transmission assets. The note matured on October 1, 2012 and accrued interest at an annual rate of 10.25 percent, with principal and interest payments due on a semi-annual basis. At the time of acquisition, the interest rate on the assumed debt was determined to be above market rates for similar debt and the Company recorded an intangible of $186,493 for this premium, which was fully amortized as of November 30, 2012, and was a contra-interest expense over the remaining debt term.

Pending Sale of Eastern Interconnect Project

On November 1, 2012 the Company entered into a definitive Asset Purchase Agreement (“Purchase Agreement”) with PNM to sell the Company’s 40 percent undivided interest in the EIP upon lease termination on April 1, 2015 for $7.68 million. Per the Purchase Agreement, PNM will also accelerate its remaining lease payments to the Company. Both lease payments due in 2013 were paid to the Company upon execution of the Purchase Agreement on November 1, 2012. In addition, per the Purchase Agreement, PNM paid $100,000 during the fourth quarter to compensate the Company for legal costs resulting from its filings with the Federal Energy Regulatory Commission. The three remaining lease payments due April 1, 2014, October 1, 2014 and April 1, 2015 will be paid on January 1, 2014 in full.

The Company changed its estimated residual value used to calculate depreciation of the EIP, which will result in higher depreciation expenses beginning in November of 2012 through the expiration of the lease in April 2015. The incremental depreciation amounts to approximately $393,000 per quarter.

The negotiation of the end-of-lease purchase option was prompted in part by a directive from the Federal Energy Regulatory Commission (“FERC”). FERC directed PNM, in consultation with the Company, to identify the party that would provide transmission service over the leased portion of the EIP beyond the lease expiration in 2015. The Purchase Agreement completes the response to FERC’s order.

Property and Equipment
Property and Equipment

8. Property and Equipment

Property and equipment consists of the following:

 

                 

Description

  November 30, 2012     November 30, 2011  

Natural gas pipeline

  $ 5,215,424     $ 5,215,424  

Vehicles and trailers

    110,782       98,717  

Computers

    14,018       12,150  
   

 

 

   

 

 

 

Gross property and equipment

    5,340,224       5,326,291  

Less accumulated depreciation

    (1,751,202     (1,483,616
   

 

 

   

 

 

 

Net property and equipment

  $ 3,589,022     $ 3,842,675  
   

 

 

   

 

 

 

 

The amount of depreciation of property and equipment recognized for the year ended November 30, 2012 was $280,898. The amount of depreciation of property and equipment recognized for the period from September 21, 2011 through November 30, 2011 was $69,945.

Leases
Leases

9. Leases

The Company’s investment in EIP is leased to PNM under net operating leases with various terms. PNM is referred to as the “Major Tenant”. Upon the execution of the Purchase Agreement on November 1, 2012, the schedule of the rental payments under the lease, prior to the anticipated April 1, 2015 closing date, were changed from a semi-annual basis. The last scheduled semi-annual lease payment per the Lease Agreement was received by the Company on October 1, 2012. In accordance with the Purchase Agreement, PNM’s remaining basic rent payments due to the Company are to be accelerated. The semi-annual payments of approximately $1.42 million that were originally scheduled to be due on April 1, and October 1, 2013, respectively, were received by the Company on November 1, 2012. Therefore, as of November 30, 2012, PNM had paid $2,370,762 in future minimum rental payments in advance. The amount is reported as an unearned income liability within the Consolidated Balance Sheets.

The future contracted minimum rental receipts for all net leases as of November 30, 2012 are as follows:

 

         
Years Ending November 30,   Amount  

2013

    —    

2014

  $ 4,267,371  

Thereafter

    —    
   

 

 

 

Total

  $ 4,267,371  
   

 

 

 

See discussion within Footnote 7 as to the $7.68 million that is anticipated to be received by the Company from PNM upon the pending sale of the Company’s 40 percent undivided interest in the EIP to PNM on April 1, 2015.

In view of the fact that the Major Tenant leases a substantial portion of the Company’s net leased property which is a significant source of revenues and operating income, its financial condition and ability and willingness to satisfy its obligations under its lease with the Company, have a considerable impact on the results of operation.

The Major Tenant is currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of the Major Tenant can be found on the SEC’s website at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of the Major Tenant but has no reason not to believe the accuracy or completeness of such information. In addition, the Major Tenant has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of the Major Tenant that are filed with the SEC is incorporated by reference into, or in any way form part of this filing.

On February 9, 2010, Mowood sold one of its wholly owned subsidiaries to an unrelated third party. As part of that agreement, Mowood retained a lease obligation, including insurance and other maintenance costs, for office space to be used by the subsidiary that was sold through April 2013. The fair value of the future minimum lease payments and estimated costs were recorded as a liability upon the sale of the subsidiary.

 

                                 
    Lease
Obligation
    Interest
Portion
    Estimated
Expenses
    Total
Obligation
 

Year Ending November 30, 2012

  $ 26,708     $ (245   $ 1,059     $ 27,522  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 26,708     $ (245   $ 1,059     $ 27,522  
   

 

 

   

 

 

   

 

 

   

 

 

 
Intangibles
Intangibles

10. Intangibles

The Company has recorded an intangible lease asset for the fair value of the amount by which the remaining contractual lease payments exceed market lease rates at the time of acquisition. The intangible lease asset is being amortized on a straight-line basis over the life of the lease term, which expires on April 1, 2015 Amortization of the intangible lease asset is reflected in the accompanying Consolidated Statements of Income as a reduction to lease income.

 

 

                 

Description

  November 30, 2012     November 30, 2011  

Intangible lease asset

  $ 1,094,771     $ 1,094,771  

Accumulated amortization

    (413,580     (121,641
   

 

 

   

 

 

 

Net intangible lease asset

  $ 681,191     $ 973,130  
   

 

 

   

 

 

 

Remaining estimated amortization on the lease is as follows:

 

         

Year ending November 30,

  Amount  

2013

  $ 291,939  

2014

    291,939  

2015

    97,313  
   

 

 

 
    $ 681,191  
   

 

 

 
Credit Facilities
Credit Facilities

11. Credit Facilities

On November 30, 2011, the Company entered into a 180-day rolling evergreen Margin Loan Facility Agreement (“Margin Loan Agreement”) with Bank of America, N.A. The terms of the Margin Loan Agreement provide for a $10,000,000 facility that is secured by certain of the Company’s assets. Outstanding balances generally will accrue interest at a variable rate equal to one-month LIBOR plus 0.75 percent and unused portions of the facility will accrue a fee equal to an annual rate of 0.25 percent. The Company did not have any borrowings outstanding as of November 30, 2012, and the facility was not utilized during the year ended November 30, 2012. As of November 30, 2012, the Company had segregated trading securities with an aggregate fair value of $1,225,160 to serve as collateral for potential borrowings under the Margin Loan facility.

On October 29, 2010, Mowood entered into a Revolving Note Payable Agreement (“Note Payable Agreement”) with a financial institution with a maximum borrowing base of $1,250,000. The Note Payable Agreement was amended and restated on October 29, 2011 and then second amended and restated on October 29, 2012. Borrowings on the Note Payable are secured by all of Mowood’s assets. Interest accrues at LIBOR, plus 4 percent (4.209 percent at November 30, 2012), is payable monthly, with all outstanding principal and accrued interest payable on the termination date of October 29, 2013. As of November 30, 2012 the outstanding borrowings under this Note Payable Agreement totaled $120,000. The Note Payable Agreement contains various restrictive covenants, with the most significant relating to minimum consolidated fixed charge ratio, the incidence of additional indebtedness, member distributions, extension of guaranties, future investments in other subsidiaries and change in ownership. Mowood was in compliance with the various covenants of the Note Payable Agreement as of November 30, 2012.

Warrants
Warrants

12. Warrants

At November 30, 2012 and 2011, the Company had 945,594 warrants issued and outstanding. The warrants were issued to stockholders that invested in the Company’s initial private placements and became exercisable on February 7, 2007 (the closing date of the Company’s initial public offering of common shares), subject to a lock-up period with respect to the underlying common shares. As of November 30, 2012, each warrant entitles the holder to purchase one common share at the exercise price of $11.41 per common share. Warrants were issued as separate instruments from the common shares and are permitted to be transferred independently from the common shares. The warrants have no voting rights and the common shares underlying the unexercised warrants have no voting rights until such common shares are received upon exercise of the warrants. All warrants expire on February 6, 2014.

Earnings Per Share
Earnings Per Share

13. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

 

                         
    For the Years Ended  
    November 30,
2012
    November 30,
2011
    November 30,
2010
 

Net income

  $ 12,348,721     $ 2,922,143     $ 14,666,874  

Basic and diluted weighted average shares (1)

    9,182,425       9,159,809       9,107,070  

Basic and diluted earnings per share

  $ 1.34     $ 0.32     $ 1.61  

 

(1) Warrants to purchase shares of common stock were outstanding during the periods reflected in the table above, but were not included in the computation of diluted earnings per share because the warrants’ exercise price was greater than the average market value of the common shares and, therefore, the effect would be anti-dilutive.

The changes in earnings per share for the year ended November 30, 2012 to the year ended November 30, 2011, reflected the weighted average change in overall net income upon the consolidation of Mowood financial information and lease operating and securities transactions.

Quarterly Financial Data
Quarterly Financial Data (Unaudited)

14. Quarterly Financial Data (Unaudited)

 

                                 
    For the Fiscal Quarter Ended  
    February 28,
2012
    May 31,
2012
    August 31,
2012
    November 30,
2012
 

Sales revenue

  $ 2,437,310     $ 1,439,958     $ 1,927,626     $ 2,216,128  

Lease income

    638,244       638,244       638,244       638,243  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    3,075,554       2,078,202       2,565,870       2,854,371  
   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

    2,004,672       1,031,114       1,381,161       1,661,155  

Management fees, net of expense reimbursements

    247,381       254,965       298,051       246,399  

All other expenses

    599,865       892,759       1,082,911       1,117,268  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    2,851,918       2,178,838       2,762,123       3,024,822  
   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations, before income taxes

    223,636       (100,636     (196,253     (170,451
   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and unrealized gain on securities transactions, before income taxes

    8,931,466       3,237,325       8,492,502       (479,416

Distributions and income from investments, net

    85,262       55,462       (502,176     82,057  

Interest Expense

    (27,409     (25,229     (16,780     (11,705
   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss) and expense, net, before income taxes

    8,989,319       3,267,558       7,973,546       (409,064
   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    9,212,955       3,166,922       7,777,293       (579,515
   

 

 

   

 

 

   

 

 

   

 

 

 

Current and deferred tax expense, net

    (3,465,914     (1,190,162     (2,788,785     215,927  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 5,747,041     $ 1,976,760     $ 4,988,508     $ (363,588
   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per share

  $ 0.63     $ 0.21     $ 0.54     $ (.04
   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                 
    For the Fiscal Quarter Ended  
    February 28,
2011
    May 31,
2011
    August 31,
2011
    November 30,
2011 (1)
 

Sales revenue

  $ —       $ —       $ —       $ 2,161,723  

Lease income

    —         —         425,496       638,244  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    —         —         425,496       2,799,967  
   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

    —         —         —         1,689,374  

Management fees, net of expense reimbursements

    234,680       241,193       248,367       243,923  

All other expenses

    153,843       157,012       944,404       746,580  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    388,523       398,205       1,192,771       2,679,877  
   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations, before income taxes

    (388,523     (398,205     (767,275     120,090  
   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on securities transactions, before income taxes

    677,745       4,441,071       2,043,019       (2,578,087

Distributions and income from investments, net

    561,786       253,396       (189,001     25,492  

Other income

    —         40,000       —         —    

Interest Expense

    —         —         (14,064     (22,444
   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss) and expense, net, before income taxes

    1,239,531       4,734,467       1,839,954       (2,575,039
   

 

 

   

 

 

   

 

 

   

 

 

 

Income before Income Taxes

    851,008       4,336,262       1,072,679       (2,454,949
   

 

 

   

 

 

   

 

 

   

 

 

 

Current and deferred tax benefit (expense), net

    262,262       (1,553,250     (482,040     890,171  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 1,113,270     $ 2,783,012     $ 590,639     $ (1,564,778
   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per share

  $ 0.12     $ 0.30     $ 0.07     $ (0.17
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Results of operations for the fiscal quarter ended November 30, 2011 reflect the consolidation of the Company’s wholly-owned subsidiary, Mowood, LLC, effective September 21, 2011.

 

Subsequent Events
Subsequent Events

15. Subsequent Events

Name Change

On November 30, 2012, Tortoise Capital Resources Corporation filed Articles of Amendment with the State Department of Assessments and Taxation of Maryland to change its name to CorEnergy Infrastructure Trust, Inc. effective as of December 3, 2012.

Asset Acquisition

On December 20, 2012, our subsidiary, Pinedale Corridor, LP (“Pinedale LP”), closed on a Purchase and Sale Agreement with an indirect wholly-owned subsidiary of Ultra Petroleum Corp. (NYSE: UPL) (“Ultra Petroleum”). Pinedale LP acquired a system of gathering, storage and pipeline facilities (the “Liquids Gathering System” or “LGS”), with associated real property rights in the Pinedale Anticline in Wyoming (the “Acquisition”) for $205 million in cash and certain investment securities having an approximate market value of $23.0 million.

Lease Agreement

Pinedale LP entered into a customized long-term triple net Lease Agreement on December 20, 2012, relating to the use of the LGS (the “Lease Agreement”) with Ultra Wyoming LGS, LLC, another indirect wholly-owned subsidiary of Ultra Petroleum (“Ultra Newco”). Ultra Newco will utilize the LGS to gather and transport a commingled stream of oil, natural gas and water, then further using the LGS to separate this stream into its separate components. Ultra Newco’s obligations under the Lease Agreement will be guaranteed by Ultra Petroleum and Ultra Petroleum’s operating subsidiary, Ultra Resources, Inc. (“Ultra Resources”), pursuant to the terms of a Parent Guaranty (the “Guaranty”). Annual rent for the initial term under the Lease Agreement will be a minimum of $20 million (as adjusted annually for changes based on the Consumer Price Index (“CPI”)) and a maximum of $27.5 million, with the exact rental amount determined the actual volume of the components handled by the LGS, subject to Pinedale LP not being in default under the Lease Agreement.

Subscription Agreement

On December 14, 2012, Pinedale LP and Pinedale GP, Inc., a newly formed subsidiary of the Company and the general partner of Pinedale LP (“Pinedale GP”), entered into a Subscription Agreement with Ross Avenue Investments, LLC, an indirect wholly-owned subsidiary of Prudential Financial, Inc. (collectively “Prudential”), pursuant to which Prudential agreed to fund a portion of the Acquisition by investing $30 million in cash in Pinedale LP. Pinedale GP funded a portion of the Acquisition by contributing approximately $108.31 million in cash and certain equity securities to Pinedale LP. The investments contemplated by the Subscription Agreement closed on December 20, 2012. Prudential holds a limited partner interest in Pinedale LP, and Pinedale GP holds a general partner interest. Prudential holds 18.95% of the economic interest in Pinedale LP, and Pinedale GP holds approximately 81.05% of the economic interest.

Underwriting Agreement

On December 18, 2012 we closed a follow on public offering of 13,000,000 shares of common stock, raising approximately $78 million in gross proceeds at $6.00 per share (net proceeds of approximately $73.6 million after underwriters’ discount). On December 24, 2012 we closed the sale of an additional 1,950,000 shares of common stock at $6.00 per share, less the same underwriting discount, for total net proceeds of $11.04 million. The additional shares were sold pursuant to an over-allotment option granted to the underwriters of the Company’s public offering of 13,000,000 shares. Approximately $73.6 million of the net proceeds from this offering were used to finance the Acquisition.

Credit Agreement

On December 20, 2012, Pinedale LP closed on a $70 million secured term credit facility with KeyBank National Association (“KeyBank”) serving as a lender and the administrative agent on behalf of other lenders participating in the credit facility. Funding of the credit facility was conditioned on our contribution of the proceeds of the public offering to Pinedale LP and the receipt by Pinedale LP of the $30,000,000 co-investment funds from Prudential. Outstanding balances under the credit facility will generally accrue interest at a variable annual rate equal to LIBOR plus 3.25%. The credit facility will remain in effect through December 2015, with an option to extend through December 2016. The credit facility will be secured by the LGS.

 

Pursuant to the credit facility, in January of 2013, the Company executed interested rate swap derivatives. Interest rate swaps involved the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Margin Loan Facility Agreement

On November 30, 2011, the Company entered into a 180-day rolling evergreen Margin Loan Facility Agreement (“Margin Loan Agreement”) with Bank of America, N.A. In December of 2012, the assets which secured this facility were sold, and as a result, this Margin Loan Agreement was terminated effective December 20, 2012.

Distributions

On February 5, 2013, the Board of Directors of the Company declared a first quarter distribution of $0.125 per share to be paid on March 19, 2013 to stockholders of record on March 8, 2013.

Change in Fiscal Year End

On February 5, 2013, the Board of Directors of the Company approved a change in the Company’s fiscal year end from November 30 to December 31. This change to the calendar year reporting cycle began January 1, 2013. As a result of the change, the Company will be reporting a December 2012 fiscal month transition period, which will be separately reported in the Company’s Quarterly Report on Form 10-Q for the calendar quarter ending March 31, 2013 and in the Company’s Annual Report on Form 10-K for the calendar year ending December 31, 2013.

 

ADDITIONAL INFORMATION (Unaudited)

Officers and Directors as of December 1, 2012

 

     

Name

  CORR Position

Conrad S. Ciccotello

  Director

John R. Graham

  Director

Charles E. Heath

  Director

Richard C. Green

  Director and Chairman of the Board

David J. Schulte

  Director and Chief Executive Officer/President

Rebecca M. Sandring

  Chief Accounting Officer/Treasurer/Secretary

Rachel A. Stroer

  Assistant Secretary

Director and Officer Compensation

The Company does not compensate any of its directors who are “interested persons” (as defined in Section 2 (a) (19) of the 1940 Act) or any of its officers. For the year ended November 30, 2012, the aggregate compensation paid by the Company to the independent directors was $84,000. The Company did not pay any special compensation to any of its directors or officers.

Forward-Looking Statements

This report contains “forward-looking statements.” By their nature, all forward-looking statements involve risk and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements.

Certifications

The Company’s Chief Executive Officer submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.

The Company has filed with the SEC the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.

Proxy Voting Policies

A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities owned by the Company is available to stockholders (i) without charge, upon request by calling the Company at (913) 981-1020 or toll-free at (877) 699-2677 and on the Company’s Web site at http://corenergy.corridortrust.com; and (ii) on the SEC’s Web site at www.sec.gov.

Privacy Policy

The Company is committed to maintaining the privacy of its stockholders and safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Company collects, how the Company protects that information and why, in certain cases, the Company may share information with select other parties.

Generally, the Company does not receive any non-public personal information relating to its stockholders, although certain non-public personal information of its stockholders may become available to the Company. The Company does not disclose any non-public personal information about its stockholders or a former stockholder to anyone, except as required by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent).

The Company restricts access to non-public personal information about its stockholders to employees of its Adviser with a legitimate business need for the information. The Company maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its stockholders.

Automatic Dividend Reinvestment Plan

If a stockholder’s shares of common stock (“common shares”) of the Company are registered directly with the Company or with a brokerage firm that participates in the Automatic Dividend Reinvestment Plan (the “Plan”) through the facilities of the Depository Trust Company and such stockholder’s account is coded dividend reinvestment by such brokerage firm, all distributions are automatically reinvested for stockholders by the Plan Agent, Computershare Trust Company, Inc. (the “Agent”) in additional common shares (unless a stockholder is ineligible or elects otherwise).

 

The Company will use primarily newly-issued shares of the Company’s common stock to implement the Plan, whether its shares are trading at a premium or discount to net asset value (“NAV”). However, the Company reserves the right to instruct the Agent to purchase shares in the open market in connection with the Company’s obligations under the Plan. The number of newly issued shares will be determined by dividing the total dollar amount of the distribution payable to the participant by the closing price per share of the Company’s common stock on the distribution payment date, or the average of the reported bid and asked prices if no sale is reported for that day. If distributions are reinvested in shares purchased on the open market, then the number of shares received by a stockholder shall be determined by dividing the total dollar amount of the distribution payable to such stockholder by the weighted average price per share (including brokerage commissions and other related costs) for all shares purchased by the Agent on the open-market in connection with such distribution. Such open-market purchases will be made by the Agent as soon as practicable, but in no event more than 30 days after the distribution payment date.

There will be no brokerage charges with respect to shares issued directly by us as a result of distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of distributions. If a participant elects to have the Plan Agent sell part or all of his or her common shares and remit the proceeds, such participant will be charged his or her pro rata share of brokerage commissions on the shares sold plus a $15.00 transaction fee. The automatic reinvestment of distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such distributions.

Participation in the Plan is completely voluntary and may be terminated at any time without penalty by giving notice in writing to the Agent at the address set forth below, or by contacting the Agent as set forth below; such termination will be effective with respect to a particular distribution if notice is received prior to the record date for such distribution.

Additional information about the Plan may be obtained by writing to Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078, by contacting them by phone at (800) 426-5523, or by visiting their Web site at www.computershare.com.

Significant Accounting Policies (Policies)

A. Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.

B. Investment Securities – The Company’s investments in securities are classified as either trading or other equity securities:

 

   

Trading securities – the Company’s publicly traded equity securities are classified as trading securities and are reported at fair value because the Company intends to sell these securities in order to acquire real asset investments.

 

   

Other equity securities – the Company’s other equity securities represent interests in private companies for which the Company has elected to report these at fair value under the fair value option.

 

   

Realized and unrealized gains (losses) on trading securities and other equity securities – Changes in the fair values of the Company’s securities during the period reported and the gains or losses realized upon sale of securities during the period are reflected as other income within the accompanying Consolidated Statements of Income.

C. Security Transactions and Fair Value – Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis.

For equity securities that are freely tradable and listed on a securities exchange or over-the-counter market, the Company fair values those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Company will use the price from the exchange that it considers to be the principal exchange on which the security is traded. Securities listed on the NASDAQ will be valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. If there has been no sale on such exchange or over-the-counter market on such day, the security will be valued at the mean between the last bid price and last ask price on such day.

An equity security of a publicly traded company acquired in a private placement transaction without registration is subject to restrictions on resale that can affect the security’s liquidity and fair value. Such securities that are convertible into or otherwise will become freely tradable will be valued based on the market value of the freely tradable security less an applicable discount. Generally, the discount will initially be equal to the discount at which the Company purchased the securities. To the extent that such securities are convertible or otherwise become freely tradable within a time frame that may be reasonably determined, an amortization schedule may be used to determine the discount.

The major components of net realized and unrealized gain on trading securities for the years ended November 30, 2012, 2011 and 2010 are as follows:

 

                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Net unrealized gain on trading securities

  $ 3,985,269     $ 238,617     $ 3,119,424  

Net realized gain on trading securities

    24,664       2,061,358       (4,013,955
   

 

 

   

 

 

   

 

 

 

Total net realized and unrealized gain (loss) on trading securities

  $ 4,009,933     $ 2,299,975     $ (894,531
   

 

 

   

 

 

   

 

 

 

 

The Company holds investments in illiquid securities including debt and equity securities of privately-held companies. These investments generally are subject to restrictions on resale, have no established trading market and are fair valued on a quarterly basis. Because of the inherent uncertainty of valuation, the fair values of such investments, which are determined in accordance with procedures approved by the Company’s Board of Directors, may differ materially from the values that would have been used had a ready market existed for the investments. The Company’s Board of Directors may consider other methods of valuing investments as appropriate and in conformity with GAAP.

The Company determines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has determined the principal market, or the market in which the Company exits its private portfolio investments with the greatest volume and level of activity, to be the private secondary market. Typically, private companies are bought and sold based on multiples of EBITDA, cash flows, net income, revenues, or in limited cases, book value.

For private company investments, value is often realized through a liquidity event of the entire company. Therefore, the value of the company as a whole (enterprise value) at the reporting date often provides the best evidence of the value of the investment and is the initial step for valuing the Company’s privately issued securities. For any one company, enterprise value may best be expressed as a range of fair values, from which a single estimate of fair value will be derived. In determining the enterprise value of a portfolio company, an analysis is prepared consisting of traditional valuation methodologies including market and income approaches. The Company considers some or all of the traditional valuation methods based on the individual circumstances of the portfolio company in order to derive its estimate of enterprise value.

The fair value of investments in private portfolio companies is determined based on various factors, including enterprise value, observable market transactions, such as recent offers to purchase a company, recent transactions involving the purchase or sale of the equity securities of the company, or other liquidation events. The determined equity values may be discounted when the Company has a minority position, or is subject to restrictions on resale, has specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other comparable factors exist.

The Company undertakes a multi-step valuation process each quarter in connection with determining the fair value of private investments. An independent valuation firm has been engaged by the Company to provide independent, third-party valuation consulting services based on procedures that the Company has identified and may ask them to perform from time to time on all or a selection of private investments as determined by the Company. The multi-step valuation process is specific to the level of assurance that the Company requests from the independent valuation firm. For positive assurance, the process is as follows:

 

   

The independent valuation firm prepares the valuations and the supporting analysis.

 

   

The Investment Committee of the Adviser reviews the valuations and supporting analyses, prior to approving the valuations.

D. Cash and Cash Equivalents – The Company maintains cash balances at financial institutions in amounts that regularly exceed FDIC insured limits. The Company’s cash equivalents are comprised of short-term, liquid money market instruments.

E. Accounts Receivable – Accounts receivable are presented at face value net of an allowance for doubtful accounts. Accounts are considered past due based on the terms of sale with the customers. The Company reviews accounts for collectability based on an analysis of specific outstanding receivables, current economic conditions and past collection experience. At November 30, 2012, Management determined that an allowance for doubtful accounts related to our leases was not required. Lease payments by our Major Tenant, as defined within Note 9, have remained timely and without lapse.

F. Revenue and Other Income Recognition – Specific policies for the Company’s revenue and other income items are as follows:

 

   

Sales Revenue – Omega, acting as a principal, provides for transportation services and natural gas supply for its customers on a firm basis. In addition, Omega is paid fees for the operation and maintenance of its natural gas distribution system, including any necessary expansion of the distribution system. Omega is responsible for the coordination, supervision and quality of the expansions while actual construction is generally performed by third party contractors. Revenues related to natural gas distribution are recognized upon delivery of natural gas and upon the substantial performance of management and supervision services related to the expansion of the natural gas distribution system. Revenues from expansion efforts are recognized in accordance with GAAP using either a completed contract or percentage of completion method based on the level and volume of estimates utilized, as well as the certainty or uncertainty of our ability to collect those revenues.

 

   

Lease Income – Income related to the Company’s leased property is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured. Prior to November 1, 2012 rental payments on the leased property were typically received on a semi-annual basis and were included as lease income within the accompanying Consolidated Statements of Income.

Upon the November 1, 2012 execution of the Asset Purchase Agreement related to our leased property (see Note 7 for further information), rental payments on the leased property are to be received in advance and are classified as unearned income and included in liabilities within the Consolidated Balance Sheets. Unearned income is amortized ratably over the lease period as revenue recognition criteria are met.

 

   

Dividends and distributions from investments – Dividends and distributions from investments are recorded on their ex-dates and are reflected as other income within the accompanying Consolidated Statements of Income. Distributions received from the Company’s investments generally are characterized as ordinary income, capital gains and distributions received from investment securities. The portion characterized as return of capital is paid by our investees from their cash flow from operations. The Company records investment income, capital gains and/or distributions received from investment securities based on estimates made at the time such distributions are received. Such estimates are based on information available from each company and/or other industry sources. These estimates may subsequently be revised based on information received from the entities after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company.

For the year ended November 30, 2012, the Company estimated the allocation of investment income and distributions received from investment securities for the distributions received during the period from its portfolio companies within the Consolidated Statements of Income. For this period, the Company has estimated approximately 3 percent as investment income and approximately 97 percent distributions received from investment securities. The return of capital portions of the distributions are reflected on the Consolidated Cash Flow Statements as “distributions received from investment securities.”

 

   

Securities Transactions and Investment Income Recognition — Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Distributions received from our equity investments generally are comprised of ordinary income, capital gains and distributions received from investment securities from the portfolio company. The Company records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on information available from each portfolio company and/or other industry sources. These estimates may subsequently be revised based on information received from the portfolio companies after their tax reporting periods are concluded, as the actual character of these distributions are not known until after our fiscal year end.

During the year ended November 30, 2012, the Company reallocated the amount of 2011 investment income and return of capital it recognized based on the 2011 tax reporting information received from individual portfolio companies. This reclassification amounted to a decrease in net distributions and dividend income on securities of approximately $448,000 or $.05 per share ($281,000 or $0.03 per share, net of deferred tax benefit); an increase in net realized and unrealized gains on trading and other equity securities of $448,000 or $.05 per share ($281,000 or $0.03 per share, net of deferred tax expense) for the year ended November 30, 2011.

G. Cost of Sales – Included in the Company’s cost of sales are the amounts paid for gas and propane, along with related transportation, which are delivered to customers, as well as the cost of material and labor related to the expansion of the natural gas distribution system.

H. Distributions to Stockholders – The amount of any quarterly distributions to stockholders will be determined by the Board of Directors. Distributions to stockholders are recorded on the ex-dividend date. The character of distributions made during the year may differ from their ultimate characterization for federal income tax purposes. For the years ended November 30, 2012, November 30, 2011 and November 30, 2010, the source of the Company’s distributions for book purposes was primarily received from investment securities. For the year ended November 30, 2012, the Company’s distributions for tax purposes were comprised of 100 percent return of capital. For the year ended November 30, 2011, the Company’s distributions for tax purposes were comprised of 100 percent qualified dividend income. For the year ended November 30, 2010, the Company’s distributions for tax purposes were comprised of 100 percent return of capital.

I. Federal and State Income Taxation – The Company, as a corporation, is obligated to pay federal and state income tax on its taxable income. Currently, the highest regular marginal federal income tax rate for a corporation is 35 percent. The Company may be subject to a 20 percent federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.

The Company’s trading securities and other equity securities are limited partnerships or limited liability companies which are treated as partnerships for federal and state income tax purposes. As a limited partner, the Company reports its allocable share of taxable income in computing its own taxable income. The Company’s tax expense or benefit is included in the Consolidated Statement of Income based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

J. Leases – The Company includes assets subject to lease arrangements within Leased property, net of accumulated depreciation in the Consolidated Balance Sheets. Lease payments received are reflected in lease income on the Consolidated Statements of Income, net of amortization of any off market adjustments.

Certain initial direct costs incurred related to a lease are capitalized and amortized over the lease term. As of November 30, 2012, approximately $754,000 of deferred lease costs related to probable leases are included in Other Assets within the Consolidated Balance Sheets. The deferred costs will be amortized over the anticipated 15 year life of the new lease and will be included in Amortization expense within the Consolidated Income Statement. See Footnote 15 for further discussion.

K. Long-Lived Assets and Intangibles – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from five to twenty years. Expenditures for repairs and maintenance are charged to operations as incurred, and improvements, which extend the useful lives of assets, are capitalized and depreciated over the remaining estimated useful life of the asset.

The Company initially records long-lived assets at their acquisition cost, unless the transaction is accounted for as a business combination. If the transaction is accounted for as a business combination, the Company allocates the purchase price to the acquired tangible and intangible assets and liabilities based on their estimated fair values. The Company determines the fair values of assets and liabilities based on discounted cash flow models using current market assumptions, appraisals, recent transactions involving similar assets or liabilities and/or other objective evidence, and depreciates the asset values over the estimated remaining useful lives.

In connection with these transactions, the Company may acquire long-lived assets that are subject to an existing lease contract with the seller or other lessee party and the Company may assume outstanding debt of the seller as part of the consideration paid. If, at the time of acquisition, the existing lease or debt contract is not at current market terms, the Company will record an asset or liability at the time of acquisition representing the amount by which the fair value of the lease or debt contract differs from its contractual value. Such amount is then amortized over the remaining contract term as an adjustment to the related lease revenue or interest expense.

The Company periodically reviews its long-lived assets, primarily real estate, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company’s review involves comparing current and future operating performance of the assets, the most significant of which is undiscounted operating cash flows, to the carrying value of the assets. Based on this analysis, a provision for possible loss is recognized, if any. No impairment write-downs were recognized during the year ended November 30, 2012 and 2011.

Costs in connection with the direct acquisition of a new asset are capitalized and amortized over the life of the asset. As of November 30, 2012, approximately $189,000 in asset acquisition costs related to the Pinedale LGS acquisition is included in Other Assets within the Consolidated Balance Sheets. The asset acquisition costs will be depreciated over the anticipated 26 year life of the newly acquired asset and will be included in Depreciation expense within the Consolidated Income Statement. See Footnote 15 for further discussion.

L. Asset Acquisition Expenses – Costs in connection with the research of real property acquisitions are expensed as incurred until determination that the acquisition of the real property is probable. Upon the determination, costs in connection with the acquisition of the property are capitalized as per above.

M. Offering Costs – Offering costs related to the issuance of common stock are charged to additional paid-in capital when the stock is issued.

As of November 30, 2012, approximately $617,000 in offering costs is included in Prepaid Expenses and Other Assets within the Consolidated Balance Sheets.

N. Debt Issuance Costs – Costs in connection with the issuance of new debt are capitalized and amortized over the debt term.

As of November 30, 2012, approximately $437,000 in debt issuance costs is included in Other Assets on the Balance Sheets. The deferred costs will be amortized over the anticipated 3 year term of the newly acquired debt and will be included in Interest Expense within the Consolidated Income Statement. See Footnote 15 for further discussion.

O. Recent Accounting Pronouncement – In May 2011, the FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements” in GAAP and the International Financial Reporting Standards (“IFRSs”). ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years.

Significant Accounting Policies (Tables)
Major components of net realized and unrealized gain on trading securities
                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Net unrealized gain on trading securities

  $ 3,985,269     $ 238,617     $ 3,119,424  

Net realized gain on trading securities

    24,664       2,061,358       (4,013,955
   

 

 

   

 

 

   

 

 

 

Total net realized and unrealized gain (loss) on trading securities

  $ 4,009,933     $ 2,299,975     $ (894,531
   

 

 

   

 

 

   

 

 

 
Income Taxes (Tables)
                 

Description

  November 30,
2012
    November 30,
2011
 

Deferred Tax Assets:

               

Organization costs

  $ (17,668   $ (20,068

Net operating loss carryforwards

    (6,411,230     (2,624,525

Cost recovery of leased assets

    (36,443     (119,970

Asset acquisition costs

    (134,415     —    

AMT and State of Kansas credit

    (196,197     (205,039
   

 

 

   

 

 

 

Sub-total

  $ (6,795,953   $ (2,969,602
   

 

 

   

 

 

 

Deferred Tax Liabilities:

               

Basis reduction of investment in partnerships

  $ 11,655,817     $ 2,244,914  

Net unrealized gain on investment securities

    2,312,269       697,152  
   

 

 

   

 

 

 

Sub-total

  $ 13,968,086     $ 2,942,066  
   

 

 

   

 

 

 

Total net deferred tax liability (asset)

  $ 7,172,133     $ (27,536
   

 

 

   

 

 

 
                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Application of statutory income tax rate

  $ 6,852,179     $ 1,331,750     $ 6,609,437  

State income taxes, net of federal tax benefit

    442,455       133,158       353,799  

Dividends received deduction

    (1,221     (86     —    

Change in deferred tax liability due to change in overall tax rate

    (64,479     (23,432     288,968  

Change in deferred tax valuation allowance

    —         (558,533     (2,479,556
   

 

 

   

 

 

   

 

 

 

Total income tax expense

  $ 7,228,934     $ 882,857     $ 4,772,648  
   

 

 

   

 

 

   

 

 

 
                         
    For the Years Ended  

Description

  November 30,
2012
    November 30,
2011
    November 30,
2010
 

Current tax expense

                       

AMT expense (benefit)

  $ (8,842   $ 200,000     $ —    

State (reflects a federal tax benefit in deferred tax expense)

    38,107       53,650       —    
   

 

 

   

 

 

   

 

 

 

Total current tax expense

  $ 29,265     $ 253,650     $ —     
   

 

 

   

 

 

   

 

 

 

Deferred tax expense

                       

Federal

  $ 6,762,974     $ 585,386     $ 4,530,152  

State (net of federal tax benefit)

    436,695       43,821       242,496  
   

 

 

   

 

 

   

 

 

 

Total deferred tax expense

  $ 7,199,669     $ 629,207     $ 4,772,648  
   

 

 

   

 

 

   

 

 

 

Total income tax expense

  $ 7,228,934     $ 882,857     $ 4,772,648  
   

 

 

   

 

 

   

 

 

 
                 

Description

  November 30,
2012
    November 30,
2011
 

Aggregate cost for federal income tax purposes

  $ 41,995,195     $ 65,471,208  
   

 

 

   

 

 

 

Gross unrealized appreciation

    33,892,176       8,307,122  

Gross unrealized depreciation

    (801,340     (4,883,958
   

 

 

   

 

 

 

Net unrealized appreciation

  $ 33,090,836     $ 3,423,164  
   

 

 

   

 

 

 
Fair Value of Financial Instruments (Tables)
                                 
          Fair Value  

Description

  November 30, 2012     Level 1     Level 2     Level 3  

Investments:

                               

Trading securities

  $ 55,219,411     $ 27,480,191     $ 27,739,220     $ —    

Other equity securities

    19,866,621       —         —         19,866,621  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 75,086,032     $ 27,480,191     $ 27,739,220     $ 19,866,621  
   

 

 

   

 

 

   

 

 

   

 

 

 

November 30, 2011

 

                                     
      Fair Value  

Description

  November 30, 2011     Level 1     Level 2     Level 3  

Assets:

                                   

Trading securities

  $ 27,037,642     $ 27,037,642     $  —     $ —    

Other equity securities

    41,856,730       —         —         41,856,730  
       

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 68,894,372     $ 27,037,642     $ —       $ 41,856,730  
       

 

 

   

 

 

   

 

 

   

 

 

 
                 
    Year ended
November 30, 2012
    Year ended
November 30, 2011
 

Fair value beginning balance

  $ 41,856,730     $ 72,929,409  

Total realized and unrealized gains included in net income

    16,190,428       1,026,134  

Purchases

    —         20,987,605  

Sales

    (35,919,672     (42,275,886

Return of capital adjustments impacting cost basis of securities

    (2,260,865     (1,518,285

Transfers out

    —         (9,292,247
   

 

 

   

 

 

 

Fair value ending balance

  $ 19,866,621     $ 41,856,730  
   

 

 

   

 

 

 

The amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to securities still held at the reporting date which are included in net realized and unrealized gain on other equity securities within the statement of income

  $ 5,018,152     $ (3,287,478
                                         
Assets at                 Range     Weighted  

Fair Value

  Fair Value    

Valuation Technique

 

Unobservable Inputs

  Low     High     Average  

Other equity securities, at fair value

  $ 19,866,621     Public company historical EBITDA analysis   Historical EBITDA Valuation Multiples     9.4x       10.4x       9.95x  
            Public company projected EBITDA analysis   Projected EBITDA Valuation Multiples     8.1x       9.8x       8.95x  
            Public company yield analysis   Distributable Cash Flow Yield     8.11     9.11     8.61
            M&A company analysis   EV/LTM 2012 EBITDA     9.3x       9.9x       9.6x  
            Discounted cash flow   Weighted Average Cost of Capital     9.5     13.0     11.25
                     

Revenues

  $ 83,969,000     Current assets   $ 33,430,000  
       

Operating expenses

  $ 65,351,000     Noncurrent assets   $ 295,658,000  
       

Net income

  $ 4,643,000     Current liabilities   $ 16,248,000  
       
            Noncurrent liabilities   $ 110,549,000  
       
            Partner’s equity   $ 202,291,000  
                                     
    Level within   November 30, 2012     November 30, 2011  

Description

  the Fair Value
Hierarchy
  Carrying
Amount
    Fair Value     Carrying
Amount
    Fair Value  

Financial Assets

                                   

Cash and cash equivalents

  Level 1   $ 14,333,456     $ 14,333,456     $ 2,793,326     $ 2,793,326  

Escrow receivable

  Level 2   $ 698,729     $ 698,729     $ 1,677,052     $ 1,677,052  

Financial Liabilities

                                   

Long-term debt

  Level 2   $ —       $ —       $ 2,279,883     $ 2,320,851  

Line of credit

  Level 1   $ 120,000     $ 120,000     $ —       $ —    
Eastern Interconnect Project (Tables)
Summary of transactions resulted in the acquisition of assets and liabilities
         

Physical assets

  $ 14,126,849  

Lease receivable

    711,229  

Intangible lease asset

    1,094,771  

Debt

    (3,409,000

Fair value premium on debt

    (186,493

Interest payable

    (87,356
   

 

 

 

Net cash consideration paid

  $ 12,250,000  
   

 

 

 
Property and Equipment (Tables)
Property and Equipment
                 

Description

  November 30, 2012     November 30, 2011  

Natural gas pipeline

  $ 5,215,424     $ 5,215,424  

Vehicles and trailers

    110,782       98,717  

Computers

    14,018       12,150  
   

 

 

   

 

 

 

Gross property and equipment

    5,340,224       5,326,291  

Less accumulated depreciation

    (1,751,202     (1,483,616
   

 

 

   

 

 

 

Net property and equipment

  $ 3,589,022     $ 3,842,675  
   

 

 

   

 

 

 
Leases (Tables)
         
Years Ending November 30,   Amount  

2013

    —    

2014

  $ 4,267,371  

Thereafter

    —    
   

 

 

 

Total

  $ 4,267,371  
   

 

 

 
                                 
    Lease
Obligation
    Interest
Portion
    Estimated
Expenses
    Total
Obligation
 

Year Ending November 30, 2012

  $ 26,708     $ (245   $ 1,059     $ 27,522  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 26,708     $ (245   $ 1,059     $ 27,522  
   

 

 

   

 

 

   

 

 

   

 

 

 
Intangibles (Tables)
                 

Description

  November 30, 2012     November 30, 2011  

Intangible lease asset

  $ 1,094,771     $ 1,094,771  

Accumulated amortization

    (413,580     (121,641
   

 

 

   

 

 

 

Net intangible lease asset

  $ 681,191     $ 973,130  
   

 

 

   

 

 

 
         

Year ending November 30,

  Amount  

2013

  $ 291,939  

2014

    291,939  

2015

    97,313  
   

 

 

 
    $ 681,191  
   

 

 

 
Earnings Per Share (Tables)
Computation of basic and diluted earnings per share
                         
    For the Years Ended  
    November 30,
2012
    November 30,
2011
    November 30,
2010
 

Net income

  $ 12,348,721     $ 2,922,143     $ 14,666,874  

Basic and diluted weighted average shares (1)

    9,182,425       9,159,809       9,107,070  

Basic and diluted earnings per share

  $ 1.34     $ 0.32     $ 1.61  
Quarterly Financial Data (Tables)
Summary of quarterly financial data
                                 
    For the Fiscal Quarter Ended  
    February 28,
2012
    May 31,
2012
    August 31,
2012
    November 30,
2012
 

Sales revenue

  $ 2,437,310     $ 1,439,958     $ 1,927,626     $ 2,216,128  

Lease income

    638,244       638,244       638,244       638,243  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    3,075,554       2,078,202       2,565,870       2,854,371  
   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

    2,004,672       1,031,114       1,381,161       1,661,155  

Management fees, net of expense reimbursements

    247,381       254,965       298,051       246,399  

All other expenses

    599,865       892,759       1,082,911       1,117,268  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    2,851,918       2,178,838       2,762,123       3,024,822  
   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations, before income taxes

    223,636       (100,636     (196,253     (170,451
   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and unrealized gain on securities transactions, before income taxes

    8,931,466       3,237,325       8,492,502       (479,416

Distributions and income from investments, net

    85,262       55,462       (502,176     82,057  

Interest Expense

    (27,409     (25,229     (16,780     (11,705
   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss) and expense, net, before income taxes

    8,989,319       3,267,558       7,973,546       (409,064
   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    9,212,955       3,166,922       7,777,293       (579,515
   

 

 

   

 

 

   

 

 

   

 

 

 

Current and deferred tax expense, net

    (3,465,914     (1,190,162     (2,788,785     215,927  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 5,747,041     $ 1,976,760     $ 4,988,508     $ (363,588
   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per share

  $ 0.63     $ 0.21     $ 0.54     $ (.04
   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                 
    For the Fiscal Quarter Ended  
    February 28,
2011
    May 31,
2011
    August 31,
2011
    November 30,
2011 (1)
 

Sales revenue

  $ —       $ —       $ —       $ 2,161,723  

Lease income

    —         —         425,496       638,244  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    —         —         425,496       2,799,967  
   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

    —         —         —         1,689,374  

Management fees, net of expense reimbursements

    234,680       241,193       248,367       243,923  

All other expenses

    153,843       157,012       944,404       746,580  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    388,523       398,205       1,192,771       2,679,877  
   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations, before income taxes

    (388,523     (398,205     (767,275     120,090  
   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on securities transactions, before income taxes

    677,745       4,441,071       2,043,019       (2,578,087

Distributions and income from investments, net

    561,786       253,396       (189,001     25,492  

Other income

    —         40,000       —         —    

Interest Expense

    —         —         (14,064     (22,444
   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss) and expense, net, before income taxes

    1,239,531       4,734,467       1,839,954       (2,575,039
   

 

 

   

 

 

   

 

 

   

 

 

 

Income before Income Taxes

    851,008       4,336,262       1,072,679       (2,454,949
   

 

 

   

 

 

   

 

 

   

 

 

 

Current and deferred tax benefit (expense), net

    262,262       (1,553,250     (482,040     890,171  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 1,113,270     $ 2,783,012     $ 590,639     $ (1,564,778
   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per share

  $ 0.12     $ 0.30     $ 0.07     $ (0.17
   

 

 

   

 

 

   

 

 

   

 

 

 
Introduction and Basis of Presentation (Details Textual) (USD $)
Nov. 30, 2010
Introduction and Basis of Presentation (Textual) [Abstract]
 
Accumulated net investment loss, net of income taxes
$ (3,308,522)
Accumulated realized loss, net of income taxes
(18,532,648)
Net unrealized appreciation of investments, net of income taxes
$ 17,495,544 
Significant Accounting Policies (Details) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Major components of net realized and unrealized gain on trading securities
 
 
 
Net unrealized gain on trading securities
$ 3,985,269 
$ 238,617 
$ 3,119,424 
Net realized gain on trading securities
24,664 
2,061,358 
(4,013,955)
Total net realized and unrealized gain (loss) on trading securities
$ 4,009,933 
$ 2,299,975 
$ (894,531)
Significant Accounting Policies (Details Textual) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Significant Accounting Policies (Textual) [Abstract]
 
 
 
Estimated useful lives of assets
20 years 
 
 
Other costs
$ 1,940,793 
$ 107,679 
 
Significant Accounting Policies (Additional Textual) [Abstract]
 
 
 
Estimated percentage of income allocated to investment income
3.00% 
 
 
Estimated percentage of income allocated to distributions received from investment securities
97.00% 
 
 
Net distributions and dividend income on securities
 
448,000 
 
Net distributions and dividend income on securities, per share
 
$ 0.05 
 
Net distributions and dividend income on securities, Net of Deferred Tax
 
281,000 
 
Distributions and dividend income on securities per share net of deferred tax
 
$ 0.03 
 
Realized and unrealized gains on trading and other equity securities
 
448,000 
 
Realized and unrealized gains on trading and other equity securities, per share
 
$ 0.05 
 
Realized and unrealized gains on trading and other equity securities, Net of Deferred Tax
 
281,000 
 
Realized and unrealized gains on trading and other equity securities, per share, Net of Deferred Tax
 
$ 0.03 
 
Percentage of qualified dividend income included in the distribution of company's tax
100.00% 
100.00% 
100.00% 
Federal income tax rate for a corporation
35.00% 
35.00% 
34.00% 
Percentage of federal alternative minimum tax
20.00% 
 
 
Deferred lease costs
754,000 
 
 
Deferred lease costs, amortization period
15 years 
 
 
Issuance of Equity [Member]
 
 
 
Significant Accounting Policies (Textual) [Abstract]
 
 
 
Offering costs
617,000 
 
 
Issuance of Debt [Member]
 
 
 
Significant Accounting Policies (Textual) [Abstract]
 
 
 
Other costs
437,000 
 
 
Deferred costs amortization period
3 years 
 
 
Pinedale Liquids Gathering System [Member]
 
 
 
Significant Accounting Policies (Textual) [Abstract]
 
 
 
Asset acquisition costs related to the Pinedale LGS acquisition
$ 189,000 
 
 
Asset acquisition costs depreciation period
26 years 
 
 
Maximum [Member]
 
 
 
Significant Accounting Policies (Textual) [Abstract]
 
 
 
Estimated useful lives of assets
20 years 
 
 
Minimum [Member]
 
 
 
Significant Accounting Policies (Textual) [Abstract]
 
 
 
Estimated useful lives of assets
5 years 
 
 
Concentrations (Details Textual)
3 Months Ended 12 Months Ended
Nov. 30, 2011
Nov. 30, 2012
Concentrations (Textual) [Abstract]
 
 
Percentage of investments in securities of energy infrastructure companies in relation to aggregate assets
 
67.00% 
Term of contract
 
10 years 
Natural gas contract with Mowood, expiration year
 
2015 
Revenue related to the DOD contract
88.00% 
83.00% 
Percentage of amounts due from the department of defense in relation to consolidated accounts receivable
85.00% 
84.00% 
Percentage of payment to supplier of natural gas in relation to cost of sales
 
29.00% 
Agreements (Details Textual) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Agreements (Textual) [Abstract]
 
 
Annually rate of fee percentage on the value of company's average daily managed assets
0.04% 
 
Monthly fee payable to accounting services provider
$ 24,000 
 
Company net asset, year one
50,000,000 
 
Annual rate of monthly fee payable to accounting services provider on company assets, year one
0.0125% 
 
Company net asset, year two
200,000,000 
 
Annual rate of monthly fee payable to accounting services provider on company assets, year two
0.0075% 
 
Company net asset, year three
250,000,000 
 
Annual rate of monthly fee payable to accounting services provider on company assets, year three
0.0025% 
 
Minimum [Member]
 
 
Agreements (Textual) [Abstract]
 
 
Administrator minimum annual fee
$ 30,000 
 
Corridor Infra Trust Management [Member]
 
 
Agreements (Textual) [Abstract]
 
 
Management agreement expiration date
Jun. 30, 2012 
 
Quarterly management fee percentage on the value of company's average monthly managed assets
 
0.25% 
Annual management fee percentage on the value of company's average monthly managed assets
 
1.00% 
Quarterly incentive fee on increase in distributions paid
 
10.00% 
Threshold distribution per quarter
 
$ 0.125 
Income Taxes (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Deferred Tax Assets:
 
 
Organization costs
$ (17,668)
$ (20,068)
Net operating loss carry forwards
(6,411,230)
(2,624,525)
Cost recovery of leased assets
(36,443)
(119,970)
Asset acquisition costs
(134,415)
 
AMT and State of Kansas credit
(196,197)
(205,039)
Sub-total
(6,795,953)
(2,969,602)
Deferred Tax Liabilities:
 
 
Basis reduction of investment in partnerships
11,655,817 
2,244,914 
Net unrealized gain on investment securities
2,312,269 
697,152 
Sub-total
13,968,086 
2,942,066 
Total net deferred tax liability (asset)
$ 7,172,133 
$ (27,536)
Income Taxes (Details 1) (USD $)
3 Months Ended 12 Months Ended
Nov. 30, 2012
Aug. 31, 2012
May 31, 2012
Feb. 28, 2012
Nov. 30, 2011
Aug. 31, 2011
May 31, 2011
Feb. 28, 2011
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rates net investment income and net realized and unrealized gains on investments
 
 
 
 
 
 
 
 
 
 
 
Application of statutory income tax rate
 
 
 
 
 
 
 
 
$ 6,852,179 
$ 1,331,750 
$ 6,609,437 
State income taxes, net of federal tax benefit
 
 
 
 
 
 
 
 
442,455 
133,158 
353,799 
Dividends received deduction
 
 
 
 
 
 
 
 
(1,221)
(86)
 
Change in deferred tax liability due to change in overall tax rate
 
 
 
 
 
 
 
 
(64,479)
(23,432)
288,968 
Change in deferred tax valuation allowance
 
 
 
 
 
 
 
 
 
(558,533)
(2,479,556)
Total Income tax expense
$ 215,927 
$ (2,788,785)
$ (1,190,162)
$ (3,465,914)
$ 890,171 
$ (482,040)
$ (1,553,250)
$ 262,262 
$ 7,228,934 
$ 882,857 
$ 4,772,648 
Income Taxes (Details 2) (USD $)
3 Months Ended 12 Months Ended
Nov. 30, 2012
Aug. 31, 2012
May 31, 2012
Feb. 28, 2012
Nov. 30, 2011
Aug. 31, 2011
May 31, 2011
Feb. 28, 2011
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Current tax expense
 
 
 
 
 
 
 
 
 
 
 
AMT expense (benefit)
 
 
 
 
 
 
 
 
$ (8,842)
$ 200,000 
 
State (reflects a federal tax benefit in deferred tax expense)
 
 
 
 
 
 
 
 
38,107 
53,650 
 
Total current tax expense
 
 
 
 
 
 
 
 
29,265 
253,650 
 
Deferred tax expense
 
 
 
 
 
 
 
 
 
 
 
Federal
 
 
 
 
 
 
 
 
6,762,974 
585,386 
4,530,152 
State (net of federal tax benefit)
 
 
 
 
 
 
 
 
436,695 
43,821 
242,496 
Total deferred tax expense
 
 
 
 
 
 
 
 
7,199,669 
629,207 
4,772,648 
Total Income tax expense
$ 215,927 
$ (2,788,785)
$ (1,190,162)
$ (3,465,914)
$ 890,171 
$ (482,040)
$ (1,553,250)
$ 262,262 
$ 7,228,934 
$ 882,857 
$ 4,772,648 
Income Taxes (Details 3) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation
 
 
Aggregate cost for federal income tax purposes
$ 41,995,195 
$ 65,471,208 
Gross unrealized appreciation
33,892,176 
8,307,122 
Gross unrealized depreciation
(801,340)
(4,883,958)
Net unrealized appreciation
$ 33,090,836 
$ 3,423,164 
Income Taxes (Details Textual) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Nov. 30, 2010
Income Taxes (Textual) [Abstract]
 
 
 
Uncertain tax positions
$ 0 
 
 
Penalties and interest
 
 
Federal statutory income tax rate
35.00% 
35.00% 
34.00% 
Federal and State income tax rate
37.26% 
37.62% 
 
Net operating loss for federal income tax purposes
17,234,000 
 
 
Net operating loss carry forward period
20 years 
 
 
Net operating loss expiring on November 30, 2028 if not utilized
8,000 
 
 
Net operating loss expiring on November 30, 2029 if not utilized
4,002,000 
 
 
Net operating loss expiring on November 30, 2030 if not utilized
3,353,000 
 
 
Net operating loss expiring on November 30, 2031 if not utilized
24,000 
 
 
Net operating loss expiring on November 30, 2032 if not utilized
9,847,000 
 
 
Alternative minimum tax credit
$ 194,267 
 
 
Fair Value of Financial Instruments (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Assets:
 
 
Other equity securities
$ 19,866,621 
 
Fair Value, Measurements, Recurring [Member]
 
 
Assets:
 
 
Trading securities
55,219,411 
27,037,642 
Other equity securities
19,866,621 
41,856,730 
Total Assets
75,086,032 
68,894,372 
Fair Value, Measurements, Recurring [Member] |
Level 1 [Member]
 
 
Assets:
 
 
Trading securities
27,480,191 
27,037,642 
Total Assets
27,480,191 
27,037,642