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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 June 30, 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
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FIRST EQUITY PROPERTIES, INC.
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(Exact name of registrant as specified in the charter)
Nevada 95-6799846
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1800 Valley View Lane, Suite 160, Dallas, Texas 75234
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(Address of principal executive offices)
214-750-5800
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(Registrant's telephone number, including area code)
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(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
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 2001, registrant had 10,570,944 shares of Common Stock
issued and outstanding.
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
FORM 10-Q
June 30, 2001
INDEX
<Table>
<Caption>
Part I Financial Information: Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2001 (Unaudited) and December 31, 2000..................................................3
Consolidated Statement of Earnings (Unaudited)
Three Months and Six Months Ended June 30, 2001 and 2000.........................................4
Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30, 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
</Table>
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
ASSETS
June 30, 2001 December 31,
(Unaudited) 2000
------------ ------------
Cash and cash equivalents $ 8,492 $ 44,679
Investments 45,836,720 51,137,790
Accounts receivable - affiliate 1,466,415 966,359
Notes receivable 585,000 3,110,588
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$ 47,896,627 $ 55,259,416
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ -- $ 2,048,559
Accounts payable - trade 5,548,224 5,548,224
Accounts payable - affiliate 4,330,003 27,322
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Total liabilities 9,878,227 7,624,105
Minority interest in limited partnership 547,499 10,074,447
Shareholders' equity
Common stock, $0.01 par, 40,000,000 shares
authorized, 10,570,944 shares issued and outstanding 105,710 105,710
Capital in excess of par value 1,281,548 1,281,548
Retained earnings 36,083,643 36,173,606
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Total shareholders' equity 37,470,901 37,560,864
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$ 47,896,627 $ 55,259,416
============ ============
</Table>
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<Table>
<Caption>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue
Interest income $ 4,073 $ 72,909 $ 48,895 $ 142,505
Other -- 756 -- 2,632
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4,073 73,665 48,895 145,137
Operating expenses
General and administrative 835 -- 1,587 607
Other operating expenses -- -- -- 7,500
Legal and professional fees 22,456 32,671 31,363 35,880
Bad debt expense 76,800 -- 76,800 --
------------ ------------ ------------ ------------
Total operating expenses 100,091 32,671 109,750 43,987
------------ ------------ ------------ ------------
Income (loss) from operations (96,018) 40,994 (60,855) 101,150
Other expenses
Interest expense -- (165,190) (29,108) (218,029)
------------ ------------ ------------ ------------
Net loss $ (96,018) $ (124,196) $ (89,963) $ (116,879)
============ ============ ============ ============
Loss per share $ (.01) $ (.01) $ (.01) $ (.01)
============ ============ ============ ============
Weighted average shares outstanding 10,570,944 10,570,944 10,570,944 10,570,944
============ ============ ============ ============
</Table>
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001 and 2000
(Unaudited)
<Table>
<Caption>
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (89,963) $ (116,879)
Adjustments to reconcile net income to net cash
used for operating activities
Bad debt expense 76,800 --
Minority interest in limited partnership -- (456)
Increase in accounts payable - affiliate -- 125,823
Increase in accounts receivable - affiliate (500,053) (765,036)
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Net cash used for operating activities (513,216) (756,548)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections from note receivable 2,525,588 18,821
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Net cash provided by investing activities 2,525,588 18,821
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties (2,048,559) 802,194
Payments on long term debt -- (56,174)
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Net cash provided by (used for) financing activities (2,048,559) 746,020
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Net increase (decrease) in cash and cash equivalents (36,187) 8,293
Cash and cash equivalents at beginning of period 44,679 550
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Cash and cash equivalents at end of period $ 8,492 $ 8,843
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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 $ -- $ 3,495,833
</Table>
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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., a partnership with no active business
or management contracts, from 81.6% to 99%. This subsidiary will
continue to be consolidated with the Company.
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three months ended June 30, 2001 compared to three months ended June 30, 2000
Revenues decreased to $4,073 versus prior year of $73,665. The decrease was due
to lower interest income resulting from the paydown of a note receivable. Total
operating expenses increased to $100,091 in 2001 from $32,671 in 2000 due to
higher bad debt expense. Interest expense decreased due to a note payoff in
prior year.
Results of Operations
Six months ended June 30, 2001 compared to six months ended June 30, 2000
Revenues decreased to $48,895 versus prior year of $145,137. The decrease was
due to lower interest income due to the paydown of a note receivable. Total
operating expenses increased to $109,750 in 2001 from $43,987 in 2000 primarily
due to higher bad debt expense.
Financial Condition and Liquidity
At June 30, 2001, the Company had total assets of $47,896,627 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 $8,492.
At June 30, 2001 the Company had total illiquid investments of $45,836,720 which
consists of preferred stock of Realty Advisors, Inc., an affiliated company.
Total liabilities were $9,878,227 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
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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.
August 6, 2001 /s/ Ronald E. Kimbrough, Vice President,
Secretary, and Treasurer
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