<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, 1999
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
- --------------------------------------------- ----------------
(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
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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 X . No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 1999, registrant had 10,570,944 shares of Common Stock
issued and outstanding.
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
FORM 10-Q
June 30, 1999
INDEX
<TABLE>
<CAPTION>
Part I Financial Information: Page No.
<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets
June 30, 1999 (Unaudited) and December 31, 1998..................................................4
Consolidated Statements of Income (Unaudited)
Six Months and Three Months Ended June 30, 1999 and 1998.........................................5
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998..........................................................6
Notes to Consolidated Financial Statements.........................................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................9
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K..........................................................10
</TABLE>
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Board of Directors
First Equity Properties, Inc. and Subsidiaries
The accompanying consolidated balance sheets of First Equity Properties, Inc.
and subsidiaries as of June 30, 1999 and December 31, 1998, and the related
consolidated statements of income for the three and six month periods ended
June 30, 1999 and 1998 and cash flows for the six month periods ended June 30,
1999 and 1998 were not audited by us and, accordingly, we do not express an
opinion on them.
FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
August 13, 1999
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, 1999 December 31,
(Unaudited) 1998
------------- ------------
<S> <C> <C>
Property and equipment, less accumulated depreciation
of $135,074 and $105,074, respectively $ 225,152 $ 204,013
Cash and cash equivalents 94,700 325,699
Accounts receivable - trade 1,485,599 1,240,736
Accounts receivable - affiliates -- 3,020,755
Investments 55,220,710 40,573,000
Other assets 2,950,067 2,986,120
Notes receivable 3,471,605 3,348,468
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TOTAL ASSETS $63,447,833 $51,698,791
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 2,724,242 $ 2,776,336
Notes payable - affiliate 2,851,347 2,747,347
Accounts payable - trade 449,862 302,853
Accounts payable - affiliates 4,083,780 240,762
Accrued liabilities 969,271 806,683
Income taxes payable 2,488,500 238,500
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Total liabilities 13,567,002 7,112,481
Minority interest in limited partnership 9,846,073 8,916,712
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 38,647,500 34,282,340
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Total shareholders' equity 40,034,758 35,669,598
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $63,447,833 $51,698,791
=========== ===========
</TABLE>
4
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Commission income $ 6,542,823 $ 8,437,304 $ 4,323,986 $ 5,228,027
Management fee income 3,709,366 3,331,414 1,936,478 1,796,381
Consulting fee income 2,552,698 5,645,221 1,485,636 3,819,390
Other 955,904 1,117,765 553,042 696,750
Motel -- 1,014,091 -- 588,982
------------ ------------ ------------ ------------
13,760,791 19,545,795 8,299,142 12,129,530
Operating expenses
Salaries and wages 4,101,945 2,587,775 2,760,204 1,199,207
General and administrative 1,049,569 522,004 662,710 305,644
Minority interest in limited partnership 929,358 1,558,746 521,965 986,597
Insurance and taxes 294,956 447,360 134,396 242,683
Other operating expenses 204,974 914,474 51,900 582,263
Legal and professional fees 216,677 136,904 127,492 60,557
Depreciation and amortization 67,937 160,499 33,968 75,750
Telephone and utilities 39,578 101,501 23,956 46,728
Repairs and maintenance 7,270 74,838 4,245 37,674
Advertising and promotion 3,770 76,468 2,356 34,604
Franchise fees -- 73,523 -- 43,381
Loss on sale of motel properties -- 858,579 -- 858,579
------------ ------------ ------------ ------------
Total operating expenses 6,916,034 7,512,671 4,323,192 4,473,667
------------ ------------ ------------ ------------
Income from operations 6,844,757 12,033,124 3,975,950 7,655,863
Other expenses
Interest expense (229,597) (203,938) (112,624) (102,776)
------------ ------------ ------------ ------------
Earnings before income taxes 6,615,160 11,829,186 3,863,326 7,553,087
Deferred tax benefit (expense) -- (2,650,000) -- (1,325,000)
Current tax provision (2,250,000) (1,336,000) (1,310,000) (1,081,130)
------------ ------------ ------------ ------------
(2,250,000) (3,986,000) (1,310,000) (2,406,130)
------------ ------------ ------------ ------------
Net income $ 4,365,160 $ 7,843,186 $ 2,553,326 $ 5,146,957
============ ============ ============ ============
Earnings per share $ .41 $ .74 $ .24 $ .49
============ ============ ============ ============
Weighted average shares outstanding 10,570,944 10,570,944 10,570,944 10,570,944
============ ============ ============ ============
</TABLE>
5
<PAGE> 6
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,365,160 $ 7,843,186
Adjustments to reconcile net income to net cash
provided by (used for) operating activities
Loss on sale of motel properties -- 745,017
Depreciation and amortization 67,938 160,499
Minority interest in limited partnership 929,361 1,558,746
Other -- 47,032
(Increase) decrease in
Accounts receivable - trade (244,863) 217,001
Accounts receivable - affiliates (7,965,515) (14,608,125)
Prepaid expenses and other (1,885) 14,500
Deferred tax asset -- 2,650,000
Notes receivable (123,137) --
Increase (decrease) in
Accounts payable 147,009 51,391
Accounts payable - affiliates 181,578 151,478
Accrued expenses 162,588 27,701
Income taxes payable 2,250,000 1,336,000
------------ ------------
Net cash provided by (used for) operating activities (231,766) 194,426
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (51,139) (146,947)
Proceeds from sale of motel properties -- 275,354
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Net cash provided by (used for) investing activities (51,139) 128,407
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties 104,000 --
Payments on long term debt (52,094) (206,998)
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Net cash provided by (used for) financing activities 51,906 (206,998)
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Net increase in cash and cash equivalents (230,999) 115,835
Cash and cash equivalents at beginning of period 325,699 144,906
------------ ------------
Cash and cash equivalents at end of period $ 94,700 $ 260,741
============ ============
</TABLE>
6
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Noncash investing and financing activities:
Reduction of receivable from affiliate in exchange for:
Investment in preferred stock of affiliate ................ $ 14,647,710 $ --
Redemption of preferred stock ............................. -- 26,325,000
Payment of dividends ...................................... -- 3,009,000
Exchange of investment for account
receivable from affiliates ................................ -- 1,573,000
Assets received and liabilities assumed in connection
with sale of Motel properties:
Notes receivable .......................................... -- 3,600,000
Investment in real property ............................... -- 750,000
Mortgage payable on investment in real property ........... $ -- $ 290,000
</TABLE>
7
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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, 1999. For further information,
refer to the Company's annual report on Form 10-K for the year ended
December 31, 1998.
NOTE B - MOTEL PROPERTIES
In June 1998, the company sold its three motel properties located in
the Spokane, Washington area for $4,660,000. The properties were sold
for a combination of cash, notes receivable and real estate. Revenues
and income from the properties sold are not material to the future
operations of the company.
8
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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 June 30, 1999 compared to three months ended June 30, 1998
Revenues decreased to $8,299,142 versus prior year of $12,129,530. The decrease
was due to lower commission and consulting fee income. Total operating expenses
decreased from $4,473,667 to $4,323,192. The decrease resulted from lower
operating expenses and the sale of the motel properties in 1998.
The decrease in income tax expense to $1,310,000 was due to lower pre-tax
earnings.
Results of Operations
Six months ended June 30, 1999 compared to six months ended June 30, 1998
Revenues decreased to $13,760,791 versus prior year of $19,545,795. The decrease
resulted from lower commission income, lower consulting fees and the sale of
motel properties in 1998..
Total operating expenses decreased to $6,916,034 due to lower minority interest
income, lower operating costs and the sale of the motel properties in 1998.
Earnings before income taxes decreased to $6,615,160 compared to prior year of
$11,829,186. The decrease in income tax expense to $2,250,000 was due to lower
pre-tax earnings.
Financial Condition and Liquidity
At June 30, 1999, the company had total assets of $63,447,833. Cash and cash
equivalents were $94,700.
Total liabilities increased to $13,567,002 primarily due to increase in income
tax payable and accounts payable affiliate.
Other
Effective July 1, 1999, the Company modified its consulting fee relationship
with an affiliate. This change will significantly reduce consulting fee income
going forward.
9
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
Part II Other Information
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
27.0 Financial Data Schedule, filed herewith
(b) Reports on Form 8-K - None
10
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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.
August 13, 1999 /s/ F. Terry Shumate, Director,
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
27.0 Financial Data Schedule, filed herewith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 94,700
<SECURITIES> 0
<RECEIVABLES> 1,485,599
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 360,226
<DEPRECIATION> 135,074
<TOTAL-ASSETS> 63,447,833
<CURRENT-LIABILITIES> 0
<BONDS> 5,575,589
0
0
<COMMON> 105,710
<OTHER-SE> 39,929,048
<TOTAL-LIABILITY-AND-EQUITY> 63,447,833
<SALES> 13,760,791
<TOTAL-REVENUES> 13,760,791
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,916,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229,597
<INCOME-PRETAX> 6,615,160
<INCOME-TAX> 2,250,000
<INCOME-CONTINUING> 4,365,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,365,160
<EPS-BASIC> .41
<EPS-DILUTED> .41
</TABLE>
