1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to Commission file number 0-11777 --------------------------------------------------------- FIRST EQUITY PROPERTIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in the charter) Nevada 95-6799846 - -------------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1800 Valley View Lane, Suite 160, Dallas, Texas 75234 --------------------------------------------------------- (Address of principal executive offices) 214-750-5800 --------------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X]. No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 31, 2001, registrant had 10,570,944 shares of Common Stock issued and outstanding. 2 FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES FORM 10-Q March 31, 2000 INDEX Page No. Part I Financial Information: Item 1. Financial Statements Consolidated Balance Sheets March 31, 2001 (Unaudited) and December 31, 2000.................................................3 Consolidated Statement of Earnings (Unaudited) Three Months Ended March 31, 2001 and 2000.......................................................4 Consolidated Statement of Cash Flows (Unaudited) Three Months Ended March 31, 2001 and 2000.......................................................5 Notes to Consolidated Financial Statements.........................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................7 Part II Other Information: Item 6. Exhibits and Reports on Form 8-K..........................................................7 2 3 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, 2001 December 31, (Unaudited) 2000 -------------- ------------- Cash and cash equivalents $ 57,953 $ 44,679 Accounts receivable - affiliate 966,359 966,359 Investments 45,836,720 51,137,790 Notes receivable 1,526,261 3,110,588 ----------- ----------- $48,387,293 $55,259,416 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $ 471,449 $ 2,048,559 Accounts payable - trade 5,548,224 5,548,224 Accounts payable - affiliate 4,253,202 27,322 ----------- ----------- Total liabilities 10,272,875 7,624,105 Minority interest in limited partnership 547,499 10,074,447 Shareholders' equity Common stock, $0.01 par, 40,000,000 shares authorized, 10,570,944 shares issued and ou 105,710 105,710 Capital in excess of par value 1,281,548 1,281,548 Retained earnings 36,179,661 36,173,606 ----------- ----------- Total shareholders' equity 37,566,919 37,560,864 ----------- ----------- $48,387,293 $55,259,416 =========== =========== 3 4 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the three months ended March 31, 2001 and 2000 (Unaudited) 2001 2000 ---------- ---------- Revenue Interest income $ 44,822 $ 69,596 Other --- 1,876 ---------- ---------- 44,822 71,472 Operating expenses General and administrative 752 607 Other operating expenses --- 7,500 Legal and professional fees 8,907 3,209 ---------- ---------- Total operating expenses 9,659 11,316 ---------- ---------- Earnings from operations 35,163 60,156 Other expenses Interest expense (29,108) (52,839) ---------- ---------- Earnings before income taxes 6,055 7,317 Income tax benefit (expense) Deferred --- --- Current --- --- ---------- ---------- NET EARNINGS $ 6,055 $ 7,317 ========== ========== Earnings per share $ --- $ --- ========== ========== Weighted average shares outstanding 10,570,944 10,570,944 ========== ========== 4 5 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2001 and 2000 (Unaudited) 2001 2000 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 6,055 $ 7,317 Adjustments to reconcile net income to net cash provided by operating activities Minority interest in limited partnership --- (10) Increase (decrease) in Accounts payable - affiliate --- 20,000 ----------- ---------- Net cash provided by operating activities 6,055 27,307 CASH FLOWS FROM INVESTING ACTIVITIES Collections from note receivable 1,584,329 11,065 ----------- ---------- Net cash provided by investing activities 1,584,329 11,065 CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt (1,577,110) (27,816) ----------- ---------- Net cash used for financing activities (1,577,110) (27,816) ----------- ---------- Net increase in cash and cash equivalents 13,274 10,556 Cash and cash equivalents at beginning of period 44,679 550 ----------- ---------- Cash and cash equivalents at end of period $ 57,953 $ 11,106 =========== ========== Noncash investing and financing activities: Exchange of account payable from affiliate for minority interest in subsidiary and effective writedown of investment due to application of purchase method of accounting for the acquisition of minority interest $ 4,225,879 $ --- Exchange of account payable from affiliate for a note payable from affiliate $ --- $3,390,010 5 6 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the Company's annual report on Form 10-K for the year ended December 31, 2000. NOTE B - ACQUISITION OF MINORITY INTEREST IN SUBSIDIARY The Company acquired the 17.4% ownership interest of Carmel Realty Services, Ltd., a consolidated subsidiary, from a related party in exchange for a payable to the related party in the amount of $4,225,879. This acquisition increases the Company's ownership interest in Carmel Realty Services, Ltd. from 81.6% to 99%. This subsidiary will continue to be consolidated with the Company. 6 7 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three months ended March 31, 2001 compared to three months ended March 31, 2000 Revenues decreased to $44,822 versus prior year of $71,472. The decrease was due to lower interest income. Total operating expenses decreased to $9,659 in 2001 from $11,316 in 2000. The decrease in interest expense was due to lower debt. Financial Condition and Liquidity At March 31, 2001, the Company had total assets of $48,387,293 compared to $55,259,416 at December 31, 2000. The decrease in total assets resulted primarily from the write-down of investments due to the application of the purchase method of accounting for the acquisition of the minority interest. Cash and cash equivalents were $57,953. Total liabilities were $10,272,875 versus $7,624,105 at December 31, 2000. Part II Other Information Item 6. Exhibits and Reports on Form 8 - K (a) Exhibits - none (b) Reports on Form 8-K - None 7 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to he signed on its behalf by the undersigned thereunto duly authorized. FIRST EQUITY PROPERTIES, INC. May 11, 2001 /s/ F. Terry Shumate, Director, Vice President, Secretary and Treasurer 8