<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 September 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 . 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 September 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
September 30, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I Financial Information:
Item 1. Financial Statements.
Consolidated Balance Sheets
September 30, 1999 (Unaudited) and December 31, 1998.............................................4
Consolidated Statements of Income (Unaudited)
Nine Months and Three Months Ended September 30, 1999 and 1998...................................5
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 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>
<PAGE> 3
Board of Directors
First Equity Properties, Inc. and Subsidiaries
The accompanying consolidated balance sheets of First Equity Properties, Inc.
and subsidiaries as of September 30, 1999 and December 31, 1998, and the related
consolidated statements of income for the three and nine month periods ended
September 30, 1999 and 1998 and cash flows for the nine month periods ended
September 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
October 28, 1999
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, 1999 December 31,
(Unaudited) 1998
------------------ ------------
<S> <C> <C>
Property and equipment, less accumulated
depreciation of $142,574 and $105,074,
respectively $ 220,608 $ 204,013
Cash and cash equivalents 294,818 325,699
Accounts receivable - trade 1,859,147 1,240,736
Accounts receivable - affiliates -- 3,020,755
Investments 54,600,710 40,573,000
Notes receivable 3,464,272 3,348,468
Other assets 2,931,098 2,986,120
------------ ------------
TOTAL ASSETS 63,370,653 51,698,791
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable 2,575,248 2,776,336
Notes payable - affiliate 2,904,210 2,747,347
Accounts payable - trade 1,094,379 302,853
Accounts payable - affiliates 5,222,945 240,762
Accrued liabilities 1,024,232 806,683
Income taxes payable 1,615,000 238,500
------------ ------------
Total liabilities 14,436,014 7,112,481
Minority interest in limited partnership 10,129,055 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 37,418,326 34,282,340
------------ ------------
Total shareholders' equity 38,805,584 35,669,598
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 63,370,653 $ 51,698,791
============ ============
</TABLE>
4
<PAGE> 5
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Commission income $ 10,213,526 $ 12,976,462 $ 3,670,703 $ 4,539,158
Management fee income 5,530,960 5,126,141 1,821,594 1,794,727
Consulting fee income 2,748,453 7,267,384 195,755 1,622,163
Motel -- 1,014,091 -- --
Other 1,317,934 1,997,470 362,030 879,705
------------ ------------ ------------ ------------
19,810,873 28,381,548 6,050,082 8,835,753
Operating expenses
Salaries and wages 5,293,721 3,698,943 1,191,776 1,111,168
Consulting fees expense 5,000,000 5,500,000 5,000,000 5,500,000
General and administrative 1,410,715 781,411 361,146 259,407
Minority interest in
limited partnership 1,212,340 2,144,825 282,982 586,079
Insurance and taxes 1,024,740 698,068 729,784 250,708
Legal and professional fees 261,197 201,844 44,520 64,940
Other operating expenses 240,868 1,117,424 38,932 202,950
Loss on sale of motel properties 97,129 865,159 94,095 6,580
Depreciation and amortization 94,406 179,467 26,469 18,968
Telephone and utilities 56,998 110,558 17,420 9,057
Repairs and maintenance 20,238 76,381 12,968 1,543
Advertising and promotion 5,410 79,408 1,640 2,940
Franchise fees -- 73,523 -- --
------------ ------------ ------------ ------------
Total operating expenses 14,717,762 15,527,011 7,801,732 8,014,340
------------ ------------ ------------ ------------
Income (loss) from operations 5,093,111 12,854,537 (1,751,650) 821,413
Other expenses
Interest expense (342,125) (365,616) (112,528) (161,678)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 4,750,986 12,488,921 (1,864,178) 659,735
Deferred tax benefit (expense) -- (3,975,000) -- (1,325,000)
Current tax (provision) benefit (1,615,000) (189,123) 635,000 1,146,877
------------ ------------ ------------ ------------
(1,615,000) (4,164,123) 635,000 (178,123)
------------ ------------ ------------ ------------
Net income $ 3,135,986 $ 8,324,798 $ (1,229,178) $ 481,612
============ ============ ============ ============
Earnings per share $ .30 $ .79 $ (.11) $ .05
============ ============ ============ ============
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>
Nine months ended September 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,135,986 $ 8,324,798
Adjustments to reconcile net income to net cash
used for operating activities
Loss on sale of motel properties 97,129 865,159
Depreciation and amortization 94,406 179,467
Minority interest in limited partnership 1,212,340 2,144,826
Noncash litigation settlement 175,000 --
Other (2,125) 195,016
(Increase) decrease in
Accounts receivable - trade (618,411) 150,942
Accounts receivable - affiliates (7,965,515) (19,139,698)
Prepaid expenses and other (1,885) 14,500
Deferred tax asset -- 3,975,000
Notes receivable (115,804) --
Increase (decrease) in
Accounts payable 791,526 (224,992)
Accounts payable - affiliates 1,320,743 3,758,539
Accrued expenses 217,549 (391,345)
Accrued Interest - notes payable - affiliate 156,863 --
Income taxes payable 1,376,500 (262,215)
------------ ------------
Net cash provided by (used for) operating activities (125,698) (410,003)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (54,095) (172,341)
Proceeds from sale 525,000 275,354
------------ ------------
Net cash provided by investing activities 470,905 103,013
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties -- 505,761
Payments on long term debt (376,088) (97,286)
------------ ------------
Net cash provided by (used for) financing activities (376,088) 408,475
------------ ------------
Net increase (decrease) in cash and cash equivalents (30,881) 101,485
Cash and cash equivalents at beginning of period 325,699 144,906
------------ ------------
Cash and cash equivalents at end of period $ 294,818 $ 246,391
============ ============
</TABLE>
6
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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 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 -- 32,500,000
Payment of dividends -- 3,791,167
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
<PAGE> 8
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 disposed of its three motel properties
located in the Spokane, Washington area for $4,660,000. The properties
were exchanged 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 September 30, 1999 compared to three months ended September
30, 1998
Revenues decreased to $6,050,082 versus prior year of $8,835,753. The decrease
was due to lower commission and consulting fee income. Total operating expenses
decreased from $8,014,340 to $7,801,732. The decrease resulted from lower
consulting fees, lower minority interest income, and lower operating expenses.
Results of Operations
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998
Revenues decreased to $19,810,873 versus prior year of $28,381,548. The decrease
resulted from lower commission income, lower consulting fees and the sale of
motel properties in 1998.
Total operating expenses decreased to $14,717,762 due to lower minority interest
income, lower operating costs and the sale of the motel properties in 1998.
These decreases were largely offset by higher salaries, wages and general and
administrative expenses.
Earnings before income taxes decreased to $4,750,986 compared to prior year of
$12,488,921. The decrease in income tax expense to $1,615,000 was due to lower
pre-tax earnings.
Financial Condition and Liquidity
At September 30, 1999, the company had total assets of $63,370,653. Cash and
cash equivalents were $294,818.
Total liabilities increased to $14,436,014 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. Also, effective October 1, 1999, the Company modified certain
brokerage fee contracts. These changes will significantly reduce revenues going
forward.
9
<PAGE> 10
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
Part II Other Information
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
-------------- ----------------------
<S> <C>
27.0 Financial Data Schedule, filed herewith
</TABLE>
(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.
October 28, 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 of Exhibit
-------------- ----------------------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 294,818
<SECURITIES> 0
<RECEIVABLES> 5,323,419
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 363,182
<DEPRECIATION> 142,574
<TOTAL-ASSETS> 63,370,653
<CURRENT-LIABILITIES> 0
<BONDS> 5,479,458
0
0
<COMMON> 105,710
<OTHER-SE> 38,699,874
<TOTAL-LIABILITY-AND-EQUITY> 63,370,653
<SALES> 19,810,873
<TOTAL-REVENUES> 19,810,873
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,717,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342,125
<INCOME-PRETAX> 4,750,986
<INCOME-TAX> 1,615,000
<INCOME-CONTINUING> 3,135,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,135,986
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
