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, 2002 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 June 30, 2002, registrant had 10,570,944 shares of Common Stock issued and outstanding. FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES FORM 10-Q June 30, 2002 INDEX <Table> <Caption> Part I Financial Information: Page No. Item 1. Financial Statements Consolidated Balance Sheets June 30, 2002 (Unaudited) and December 31, 2001..................................................3 Consolidated Statement of Earnings (Unaudited) Three Months and Six Months Ended June 30, 2002 and 2001.........................................4 Consolidated Statement of Cash Flows (Unaudited) Six Months Ended June 30, 2002 and 2001..........................................................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> 2 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <Table> <Caption> ASSETS June 30, 2002 December 31, (Unaudited) 2001 ------------- ------------ Cash and cash equivalents $ 13,901 $ 8,985 Investments 46,421,719 46,421,719 Accounts receivable - affiliate 885,264 851,946 ----------- ----------- $47,320,884 $47,282,650 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable - trade $ 5,548,224 $ 5,548,224 Accounts payable - affiliate 3,582,977 3,622,977 ----------- ----------- Total liabilities 9,131,201 9,171,201 Minority interest in limited partnership 547,498 547,498 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 36,254,927 36,176,693 ----------- ----------- Total shareholders' equity 37,642,185 37,563,951 ----------- ----------- $47,320,884 $47,282,650 =========== =========== </Table> 3 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) <Table> <Caption> Three months ended June 30, Six months ended June 30, ------------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Revenue Management fees $ 49,984 $ -- $ 94,943 $ -- Interest income 9 4,073 28 48,895 ------------ ------------ ------------ ------------ 49,993 4,073 94,971 48,895 Operating expenses General and administrative 859 835 1,711 1,587 Other operating expenses -- -- -- -- Legal and professional fees 12,425 22,456 15,026 31,363 Bad debt expense -- 76,800 -- 76,800 ------------ ------------ ------------ ------------ Total operating expenses 13,284 100,091 16,737 109,750 ------------ ------------ ------------ ------------ Income (loss) from operations 36,709 (96,018) 78,234 (60,855) Other expenses Interest expense -- -- -- (29,108) ------------ ------------ ------------ ------------ Net earnings (loss) $ 36,709 $ (96,018) $ 78,234 $ (89,963) ============ ============ ============ ============ Earnings (loss) per share $ -- $ (.01) $ .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 six months ended June 30, 2002 and 2001 (Unaudited) <Table> <Caption> 2002 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 78,234 $ (89,963) Adjustments to reconcile net income to net cash provided by (used for) operating activities Bad debt expense -- 76,800 Decrease in accounts payable - affiliate (40,000) -- Increase in accounts receivable - affiliate (33,318) (500,053) ----------- ----------- Net cash provided by (used for) operating activities 4,916 (513,216) CASH FLOWS FROM INVESTING ACTIVITIES Collections from note receivable -- 2,525,588 ----------- ----------- Net cash provided by investing activities -- 2,525,588 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of notes payable - related parties -- (2,048,559) ----------- ----------- Net cash used for financing activities -- (2,048,559) ----------- ----------- Net increase (decrease) in cash and cash equivalents 4,916 (36,187) Cash and cash equivalents at beginning of period 8,985 44,679 ----------- ----------- Cash and cash equivalents at end of period $ 13,901 $ 8,492 =========== =========== 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 </Table> 5 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with U.S. 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 U.S. 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, 2002. For further information, refer to the Company's annual report on Form 10-K for the year ended December 31, 2001. 6 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, 2002 compared to three months ended June 30, 2001 Revenues increased to $49,993 versus prior year of $4,073. The increase was due to management fee income in the current quarter that was not present in the same quarter last year. Total operating expenses decreased to $13,284 in 2001 from $100,091 in 2001 due to the drop in bad debt expense. Results of Operations Six months ended June 30, 2002 compared to six months ended June 30, 2001 Revenues increased to $94,971 versus prior year of $48,895. The increase was due to management fee income in the current year that was not present last year. Total operating expenses decreased to $16,737 in 2002 from $109,750 in 2001 primarily due to lower bad debt expense. Financial Condition and Liquidity At June 30, 2002, the Company had total assets of $47,320,884 compared to $47,282,650 at December 31, 2001. Cash and cash equivalents were $13,901. At June 30, 2002 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 $9,131,201 versus $9,171,201 at December 31, 2001. Part II Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K - None 7 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST EQUITY PROPERTIES, INC. August 13, 2002 /s/ Ronald E. Kimbrough, Vice President, Secretary, and Treasurer 8 INDEX TO EXHIBITS <Table> <Caption> EXHIBIT NUMBER DESCRIPTION - ------- ----------- 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </Table>