<PAGE> 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 June 30, 1997
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.
- --------------------------------------------------------------------------------
(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.)
10670 N. Central Expressway, Suite 410, Dallas, Texas 75231
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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 . 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 . No X
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 1997, registrant had 10,570,944 shares of Common Stock
issued and outstanding.
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
June 30, 1997
INDEX
<TABLE>
<CAPTION>
Part I Financial Information: Page No.
Item 1. Financial Statements.
<S> <C>
Consolidated Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996...............................................3
Consolidated Statement of Operations (Unaudited)
Six Months Ended June 30, 1997................................................................4
Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30, 1997................................................................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.......................................................8
</TABLE>
2
<PAGE> 3
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
Motel property and equipment, less accumulated
depreciation of $310,680 and $129,136, respectively $ 5,725,845 $ 5,678,361
Cash and cash equivalents 250,505 76,355
Account receivable - trade 992,009 47,657
Account receivable - affiliates 3,589,463 ---
Prepaid expenses 106,896 20,492
Investments 41,526,000 ---
Goodwill, net of amortization 2,997,035 ---
Deferred tax asset 2,588,183 ---
----------- -----------
$57,775,936 $ 5,822,865
=========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Notes payable $ 2,873,161 $ 3,875,538
Notes payable - related parties 2,172,165 511,627
Accounts payable - trade 64,845 181,494
Accrued liabilities 207,803 102,554
Other current liabilities --- 84,086
Income taxes payable 291,185 ---
----------- -----------
Total liabilities 5,609,159 4,755,299
Minority interest in limited partnership 5,102,805 ---
Shareholders' Equity
Series A preferred stock, $.01 par value; 40,000
shares authorized; 32,500
shares issued and outstanding;
stated at liquidation value 32,500,000 ---
Other preferred stock, $.01 par value; 4,960,000 shares
authorized; none issued or outstanding --- ---
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 (deficit) 13,176,714 (319,692)
----------- -----------
Total shareholders' equity 47,063,972 1,067,566
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$57,775,936 $ 5,822,865
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months Six Months
ended ended
June 30, 1997 June 30, 1997
------------- ------------
<S> <C> <C>
Revenue
Commission income $ 5,482,515 $ 7,766,714
Consulting fee income 3,995,576 4,225,583
Management fee income 1,412,973 2,668,270
Motel 532,430 901,164
Other 541,338 1,097,238
------------ ------------
11,964,832 16,658,969
Operating expenses
Salaries and wages 667,678 1,519,743
General and administrative 859,241 1,460,675
Minority interest in limited partnership 894,707 1,039,674
Other operating expenses 325,900 535,194
Depreciation and amortization 71,650 161,937
Insurance and taxes 59,255 120,208
Repairs and maintenance 40,973 102,652
Franchise fees 37,565 72,910
Telephone and utilities 5,315 71,311
Advertising and promotion 30,448 50,703
Legal and professional fees 78,527 91,489
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Total operating expenses 3,071,259 5,226,496
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Income from operations 8,893,573 11,432,473
Other expenses
Interest expense (108,449) (233,065)
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Earnings before income taxes 8,785,124 11,199,408
Deferred tax benefit 2,153,418 2,588,183
Current tax provision (242,272) (291,185)
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1,911,146 2,296,998
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Net income $ 10,696,270 $ 13,496,406
============ ============
</TABLE>
4
<PAGE> 5
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net income $ 13,496,406
Adjustments to reconcile net income to net cash used for operating
activities
Depreciation and amortization 161,937
Minority interest in limited partnership 1,039,674
(Increase) decrease in
Accounts receivable - trade 74,328
Accounts receivable - affiliates (13,317,028)
Prepaid expenses and other 20,166
Deferred tax asset (2,588,183)
Increase (decrease) in
Accounts payable (118,360)
Accrued expenses (180,329)
Other current liabilities (439,992)
Income taxes payable 291,185
------------
Net cash used for operating activities (1,560,196)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (109,775)
Net cash acquired from acquisition 298,105
Net cash provided by investing activities 188,330
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties 1,660,538
Payments on long term debt (114,522)
------------
Net cash provided by financing activities 1,546,016
------------
Net increase in cash and cash equivalents 174,150
Cash and cash equivalents at beginning of period 76,355
------------
Cash and cash equivalents at end of period $ 250,505
============
</TABLE>
5
<PAGE> 6
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
For the six months ended June 30, 1997
<TABLE>
Noncash investing and financing activities:
<S> <C>
Preferred stock issued for acquisition $ 32,500,000
Long term debt paid by related party 887,855
Stock issued to company to retire debt 9,482,000
Details of acquisition:
Fair value of assets acquired 34,171,349
Liabilities assumed (4,706,322)
Goodwill 3,034,973
Stock issued (32,500,000)
------------
Cash paid ---
Plus: cash acquired 298,105
------------
Net cash acquired from acquisition $ 298,105
============
</TABLE>
6
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(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, 1997. For further information, refer to the Company's
annual report on Form 10-K for the year ended December 31, 1996.
As discussed in the Company's annual report on Form 10-K for the year
ended December 31, 1996, effective with the opening of business on June
15, 1996, the Company's plan of reorganization became effective. At that
time, the Company was required to adopt fresh start reporting. As a result
of the Company's emergence from the plan of reorganization and the
adoption of "fresh start" reporting, comparative quarterly information was
not available for inclusion in this Form 10-WQ.
NOTE B - ACQUISITION
Effective January 1, 1997, the Company acquired from a related party, 100%
of the outstanding common stock of Carmel Realty, Inc. and an 81.6%
limited partnership interest in Carmel Realty Services, Ltd (the "
Acquired Companies"), for a purchase price of $32,500,000, consisting of
32,500 shares of Series A 8% Cumulative Preferred Stock having a
liquidation value of $1,000 per share (the "Preferred Stock"). The
Preferred Stock has a right to cumulative cash dividends of $80 per share
per annum; payment of $1,000 per share in the event of dissolution,
liquidation or winding up of the Company before any distribution is made
by the Company to its common shareholders; optional redemption at any time
at a price of $1,000 per share, plus cumulative dividends; no right of
conversion into any other securities of the Company; and no voting rights,
except as may be required by law. The acquisition has been accounted for
using the purchase method of accounting. Accordingly, the Acquired
Companies' results of operations are included in the consolidated
financial statements since the date of acquisition. The excess of the
purchase price over assets acquired approximated $3,035,000 and is being
amortized over 40 years.
7
<PAGE> 8
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
Item 2. Managements Discussion and Analysis of
of Financial Condition and Results of Operations
Results of Operations
Six months ended June 30, 1997
Net income for the period was $13,496,406. Revenues totaled $16,658,969.
Operating expenses were $5,226,496 and interest expense totaled $233,065. The
income tax benefit was due to utilization of operating loss carryforwards
generated in prior years. All these categories are significantly higher than
prior periods due to the previously mentioned acquisition of Carmel Realty, Inc.
and Carmel Realty Services, Ltd.
Three months ended June 30, 1997
For the quarter, revenues were $11,964,832. Total operating expenses were
$3,071,259 and interest expense totaled $108,449. The income tax benefit was due
to utilization of operating loss carryforwards generated in prior years. Net
income was $10,696,270. All these categories are significantly higher than prior
year due to the previously mentioned acquisition.
Financial Condition and Liquidity
At June 30, 1997, the Company had total assets of $57,775,936 and total
liabilities of $5,609,159. Of the total assets, $250,505 was held in cash. The
increases from the December 31, 1996 year end are due to the previously
mentioned acquisition.
Part II Other Information
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - None
8
<PAGE> 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.
April 23, 1998 /s/ F. Terry Shumate, Director
Vice President, Secretary
and Treasurer
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 250,505
<SECURITIES> 0
<RECEIVABLES> 992,009
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,036,525
<DEPRECIATION> 310,680
<TOTAL-ASSETS> 57,775,936
<CURRENT-LIABILITIES> 0
<BONDS> 5,045,326
0
32,500,000
<COMMON> 105,710
<OTHER-SE> 14,458,262
<TOTAL-LIABILITY-AND-EQUITY> 57,775,936
<SALES> 16,658,969
<TOTAL-REVENUES> 16,658,969
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,226,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,065
<INCOME-PRETAX> 11,199,408
<INCOME-TAX> 2,296,998
<INCOME-CONTINUING> 13,496,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,496,406
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 0
</TABLE>
