<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
0-11777
Commission file number
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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.)
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
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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 . No X
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 1997, 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, 1997
INDEX
<TABLE>
<CAPTION>
Part I Financial Information: Page No.
Item 1. Financial Statements.
<S> <C>
Consolidated Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996.................................................3
Consolidated Statement of Operations (Unaudited)
Three Months Ended March 31, 1997................................................................4
Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31, 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
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 Dec. 31, 1996
-------------- --------------
<S> <C> <C>
Motel property and equipment, less accumulated
depreciation of $258,000 and $129,136, respectively $ 5,727,538 $ 5,678,361
Cash and cash equivalents 507,462 76,355
Account receivable - trade 721,470 47,657
Account receivable - affiliates 3,133,030 --
Prepaid expenses 106,646 20,492
Investments 32,044,508 --
Goodwill, net of amortization 3,016,004 --
Deferred tax asset 434,765 --
-------------- --------------
$ 45,691,423 $ 5,822,865
============== ==============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Notes payable $ 3,823,332 $ 3,875,538
Notes payable - related parties 809,286 511,627
Accounts payable - trade 158,597 181,494
Accrued liabilities 275,495 102,554
Other current liabilities -- 84,086
Income taxes payable 48,913 --
-------------- --------------
Total liabilities 5,115,623 4,755,299
Minority interest in limited partnership 4,208,098 --
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, $0.01 par, 40,000,000 shares
authorized, 10,570,944 shares issued and outstanding 105,710 105,710
Capital in excess of par value 1,281,548 1,281,548
Retained earnings (deficit) 2,480,444 (319,692)
-------------- --------------
Total shareholders' equity 36,367,702 1,067,566
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$ 45,691,423 $ 5,822,865
============== ==============
</TABLE>
3
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 1997
<TABLE>
<S> <C>
Revenue
Commission income $ 2,284,199
Management fee income 1,255,297
Motel 368,734
Consulting fee income 230,007
Other 555,900
--------------
4,694,137
Operating expenses
Salaries and wages 852,065
General and administrative 601,434
Other operating expenses 209,294
Minority interest in limited partnership 144,967
Depreciation and amortization 90,287
Telephone and utilities 65,996
Repairs and maintenance 61,679
Insurance and taxes 60,953
Franchise fees 35,345
Advertising and promotion 20,255
Legal and professional fees 12,962
--------------
Total operating expenses 2,155,237
Income from operations 2,538,900
Other expenses
Interest expense (124,616)
Earnings before income taxes 2,414,284
Deferred tax benefit 434,765
Current tax provision (48,913)
385,852
Net income $ 2,800,136
==============
</TABLE>
4
<PAGE> 5
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net income $ 2,800,136
Adjustments to reconcile net income to net cash used for operating activities
Depreciation and amortization 90,287
Minority interest in limited partnership 144,967
(Increase) decrease in
Accounts receivable - trade 344,863
Accounts receivable - affiliate (2,490,740)
Prepaid expenses and other 19,913
Deferred tax asset (434,765)
Increase (decrease) in
Accounts payable (97,153)
Accrued expenses (230,733)
Other current liabilities (439,992)
Accounts payable - affiliate 190,641
Income taxes payable 48,913
--------------
Net cash used for operating activities (53,663)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (58,788)
Net cash acquired from acquisition 298,105
Net cash provided by investing activities 239,317
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties 297,659
Payments on long term debt (52,206)
--------------
Net cash provided by financing activities 245,453
--------------
Net increase in cash and cash equivalents 431,107
Cash and cash equivalents at beginning of period 76,355
--------------
Cash and cash equivalents at end of period $ 507,462
==============
</TABLE>
5
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
For the three months ended March 31, 1997
<TABLE>
<S> <C>
Noncash investing and financing activities
Preferred stock issued for acquisition $ 32,500,000
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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10
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three months ended March 31, 1997
For the quarter, net income was $2,800,136. Revenues totaled $4,694,137.
Operating expenses were $2,155,237 and interest expense totaled $124,616. 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.
Financial Condition and Liquidity
At March 31, 1997, the Company had total assets of $45,691,423 and total
liabilities of $5,115,623. Of the total assets, $507,462 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
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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.
April 23, 1998 /s/ F. Terry Shumate, Director,
Vice President, Secretary and Treasurer
9
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 507,462
<SECURITIES> 0
<RECEIVABLES> 721,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,985,538
<DEPRECIATION> 258,000
<TOTAL-ASSETS> 45,691,423
<CURRENT-LIABILITIES> 0
<BONDS> 4,632,618
0
32,500,000
<COMMON> 105,710
<OTHER-SE> 3,761,992
<TOTAL-LIABILITY-AND-EQUITY> 45,691,423
<SALES> 4,694,137
<TOTAL-REVENUES> 4,694,137
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,155,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,616
<INCOME-PRETAX> 2,414,284
<INCOME-TAX> 385,852
<INCOME-CONTINUING> 2,800,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,800,136
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
