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 September 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
---------------------------------------------------------
FIRST EQUITY PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in the charter)
Nevada 95-6799846
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
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 September 30, 2001, registrant had 10,570,944 shares of Common Stock
issued and outstanding.
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
FORM 10-Q
September 30, 2001
INDEX
<Table>
<Caption>
Part I Financial Information: Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2001 (Unaudited) and December 31, 2000.............................................3
Consolidated Statement of Earnings (Unaudited)
Three Months and Nine Months Ended September 30, 2001 and 2000...................................4
Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 2001 and 2000....................................................5
Notes to Consolidated Financial Statements.........................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................8
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K.............................................................9
</Table>
2
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
ASSETS
September 30, 2001 December 31,
(Unaudited) 2000
------------------ ------------
Cash and cash equivalents $ 5,570 $ 44,679
Investments 46,421,720 51,137,790
Accounts receivable - affiliate 753,391 966,359
Notes receivable -- 3,110,588
------------ ------------
$ 47,180,681 $ 55,259,416
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ -- $ 2,048,559
Accounts payable - trade 5,548,224 5,548,224
Accounts payable - affiliate 3,616,980 27,322
------------ ------------
Total liabilities 9,165,204 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 36,080,720 36,173,606
------------ ------------
Total shareholders' equity 37,467,978 37,560,864
------------ ------------
$ 47,180,681 $ 55,259,416
============ ============
</Table>
3
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<Table>
<Caption>
Three months ended September 30, Nine months ended September 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue
Interest income $ 111 $ 70,077 $ 49,006 $ 212,582
Other -- 35 -- 2,667
------------ ------------ ------------ ------------
111 70,112 49,006 215,249
Operating expenses
General and administrative 1,363 5,187 2,950 5,794
Other operating expenses -- -- -- 7,500
Legal and professional fees 1,671 9,739 33,034 45,619
Bad debt expense -- -- 76,800 --
------------ ------------ ------------ ------------
Total operating expenses 3,034 14,926 112,784 58,913
------------ ------------ ------------ ------------
Income (loss) from operations (2,923) 55,186 (63,778) 156,336
Other expenses
Interest expense -- (47,709) (29,108) (265,738)
------------ ------------ ------------ ------------
Net loss $ (2,923) $ 7,477 $ (92,886) $ (109,402)
============ ============ ============ ============
Loss per share $ -- $ -- $ (.01) $ (.01)
============ ============ ============ ============
Weighted average shares outstanding 10,570,944 10,570,944 10,570,944 10,570,944
============ ============ ============ ============
</Table>
4
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2001 and 2000
(Unaudited)
<Table>
<Caption>
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (92,886) $ (109,402)
Adjustments to reconcile net income to net cash
used for operating activities
Bad debt expense 76,800 --
Minority interest in limited partnership -- (491)
Increase in accounts receivable - affiliate (500,052) (939,036)
Increase in accounts payable - affiliate -- 125,823
Decrease in income taxes payable -- (72,000)
------------ ------------
Net cash used for operating activities (516,138) (995,106)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections from note receivable 2,525,588 329,404
------------ ------------
Net cash provided by investing activities 2,525,588 329,404
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties -- 879,087
Payments on long term debt (2,048,559) (157,008)
------------ ------------
Net cash provided by (used for) financing activities (2,048,559) 722,079
------------ ------------
Net increase (decrease) in cash and cash equivalents (39,109) 56,377
Cash and cash equivalents at beginning of period 44,679 550
------------ ------------
Cash and cash equivalents at end of period $ 5,570 $ 56,927
============ ============
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 a note receivable for investment in
preferred stock of an affiliate $ 585,000 $ --
</Table>
5
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2001 and 2000
(Unaudited)
<Table>
<Caption>
2001 2000
------------ ------------
Exchange of investment in preferred stock of
an affiliate for a note payable from affiliate $ -- $ 4,374,920
Exchange of account payable from affiliate
for a note payable from affiliate $ -- $ 3,495,833
</Table>
6
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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.
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 September 30, 2001 compared to three months ended September
30, 2000
Revenues decreased to $111 versus prior year of $70,112. The decrease was due to
lower interest income resulting from the paydown of a note receivable. Total
operating expenses decreased from $14,926 in 2000 to $3,034 in 2001.
Interest expense decreased due to a note payoff in prior year.
Results of Operations
Nine months ended September 30, 2001 compared to nine months ended September 30,
2000
Revenues decreased to $49,006 versus prior year of $215,249. The decrease was
due to lower interest income due to the paydown of a note receivable. Total
operating expenses increased to $112,784 in 2001 from $58,913 in 2000 primarily
due to higher bad debt expense.
Financial Condition and Liquidity
At September 30, 2001, the Company had total assets of $47,180,681 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 $5,570.
At September 30, 2001 the Company had total illiquid investments of $46,421,720
which consists mainly of preferred stock of Realty Advisors, Inc., an affiliated
company.
Total liabilities were $9,165,204 versus $7,624,105 at December 31, 2000.
8
Part II Other Information
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits - None
(b) Reports on Form 8-K - None
9
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.
November 12, 2001 /s/ Ronald E. Kimbrough, Vice President,
Secretary, and Treasurer
10