<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 March 31, 1998
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.)
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 [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, 1998, registrant had 10,570,944 shares of Common Stock
issued and outstanding.
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
FORM 10-Q
March 31, 1998
INDEX
<TABLE>
<CAPTION>
Part I Financial Information: Page No.
<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets
March 31, 1998 (Unaudited) and December 31, 1997.................................................3
Consolidated Statement of Earnings (Unaudited)
Three Months Ended March 31, 1998 and 1997.......................................................4
Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and 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..........................................................9
</TABLE>
2
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, 1998 December 31,
(Unaudited) 1997
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<S> <C> <C>
Motel and other property and equipment, less
accumulated depreciation of $480,094 and
$414,313, respectively $ 5,653,445 $ 5,693,509
Cash and cash equivalents 169,509 144,906
Accounts receivable - trade 1,091,172 1,190,357
Accounts receivable - affiliates 17,248,199 17,217,713
Prepaid expenses 17,920 10,500
Investments 41,527,000 41,526,000
Other assets 3,043,025 3,065,995
Deferred tax asset 3,975,000 5,300,000
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$72,725,270 $74,148,980
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 2,802,843 $ 2,830,913
Notes payable - affiliate 2,321,432 2,279,578
Accounts payable - trade 497,649 444,274
Accounts payable - affiliate 527,690 74,597
Accrued liabilities 540,036 557,242
Income taxes payable 851,085 596,215
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Total liabilities 7,540,735 6,782,819
Minority interest in limited partnership 6,735,613 6,163,464
Shareholders' Equity
Series A preferred stock, $.01 par value; 40,000 shares
authorized; 32,500 shares issued and outstanding;
stated at liquidation value 27,500,000 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 29,561,664 27,315,439
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Total shareholders' equity 58,448,922 61,202,697
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$72,725,270 $74,148,980
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Revenue
Commission income $ 3,209,277 $ 2,284,199
Consulting fee income 1,825,831 230,007
Management fee income 1,535,033 1,255,297
Motel 425,109 368,734
Other 421,015 555,900
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7,416,265 4,694,137
Operating expenses
Salaries and wages 1,388,568 852,065
Minority interest in limited partnership 572,149 144,967
Other operating expenses 332,211 209,294
General and administrative 216,360 601,434
Insurance and taxes 204,677 60,953
Depreciation and amortization 84,749 90,287
Legal and professional fees 76,347 12,962
Telephone and utilities 54,773 65,996
Advertising and promotion 41,864 20,255
Repairs and maintenance 37,164 61,679
Franchise fees 30,142 35,345
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Total operating expenses 3,039,004 2,155,237
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Earnings from operations 4,377,261 2,538,900
Other expenses
Interest expense (101,162) (124,616)
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Earnings before income taxes 4,276,099 2,414,284
Income tax benefit (expense)
Deferred (1,325,000) 434,765
Current (254,870) (48,913)
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(1,579,870) 385,852
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NET EARNINGS $ 2,696,229 $ 2,800,136
============ ============
Earnings per share $ .26 $ .26
============ ============
Weighted average shares outstanding 10,570,944 10,570,944
============ ============
</TABLE>
4
<PAGE> 5
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,696,229 $ 2,800,136
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Deferred tax (benefit) expense 1,325,000 (434,765)
Depreciation and amortization 84,749 90,287
Minority interest in limited partnership 572,149 144,967
(Increase) decrease in
Accounts receivable - trade 99,185 344,863
Accounts receivable - affiliate (5,480,487) (2,490,740)
Prepaid expenses and other (7,420) 19,913
Increase (decrease) In
Accounts payable 53,375 (97,153)
Accrued expenses (17,206) (230,733)
Other current liabilities -- (439,992)
Accounts payable - affiliate 453,093 190,641
Income taxes payable 254,870 48,913
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Net cash provided (used) by operating activities 33,537 (53,663)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (25,717) (58,788)
Other 2,999 --
Net cash acquired from acquisition -- 298,105
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Net cash provided (used) by investing activities (22,718) 239,317
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties 41,854 297,659
Payments on long term debt (28,070) (52,206)
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Net cash provided by financing activities 13,784 245,453
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Net increase in cash and cash equivalents 24,603 431,107
Cash and cash equivalents at beginning of period 144,906 76,355
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Cash and cash equivalents at end of period $ 169,509 $ 507,462
=========== ===========
</TABLE>
5
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Noncash investing and financing activities
Preferred stock issued for acquisition $ -- $ 32,500,000
Redemption of preferred stock in exchange for
reduction of receivable from affiliate 5,000,000 --
Payment of dividend in exchange for reduction
of receivable from affiliate 450,000 --
</TABLE>
6
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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, 1998. For further information, refer to the Company's annual report on
Form 10-K for the year ended December 31, 1997.
NOTE B - SHAREHOLDERS' EQUITY
During the quarter, preferred stock of $5,000,000 was redeemed in exchange
for reduction of a receivable from affiliate.
7
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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, 1998 compared to three months ended March 31, 1997
Revenues increased to $7,416,265 versus prior year of $4,694,137. The increase
was due to higher commission income and timing of consulting fee income. Total
operating expenses increased from $2,155,237 in 1997 to $3,039,004 in 1998. The
increase was primarily due to higher salaries and wages and higher minority
interest earnings.
Earnings from operations increased from $2,538,900 in 1997 to $4,377,261 in
1998. The increase in income tax expense to $1,579,870 was due to utilization of
existing net operating loss carryforwards and utilization of the deferred tax
asset.
Financial Condition and Liquidity
At March 31, 1998, the Company had total assets of $72,725,270 compared to prior
year of $74,148,980. Cash and cash equivalents were $169,509.
Total liabilities were $7,540,735 versus prior year of $6,782,819. Preferred
stock decreased from $32,500,000 to $27,500,000 due to a redemption in exchange
for reduction of receivable from an affiliate.
8
<PAGE> 9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
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27.0 Financial Data Schedule, filed herewith
(b) Reports on Form 8-K - None
9
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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.
May 11, 1998 /s/ F. Terry Shumate, Director,
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
10
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 169,509
<SECURITIES> 0
<RECEIVABLES> 1,091,172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,133,539
<DEPRECIATION> 480,094
<TOTAL-ASSETS> 72,725,270
<CURRENT-LIABILITIES> 0
<BONDS> 5,124,275
0
27,500,000
<COMMON> 105,710
<OTHER-SE> 30,843,212
<TOTAL-LIABILITY-AND-EQUITY> 72,725,270
<SALES> 7,416,265
<TOTAL-REVENUES> 7,416,265
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,039,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,162
<INCOME-PRETAX> 4,276,099
<INCOME-TAX> 1,579,870
<INCOME-CONTINUING> 2,696,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,696,229
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
