NATIONAL PROPERTIES CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549

FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2001

Commission file number: 0-305

Name of registrant: NATIONAL PROPERTIES CORPORATION
I.R.S. Employer Identification Number: 42-0860581
Address: 4500 Merle Hay Road, Des Moines, Iowa 50310
telephone number: (515) 278-1132

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $1.00 (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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 _____

State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. The aggregate market value shall be computed by the
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock as of a specified date within 60 days prior to
the date of filing.

$8,039,918 as of March 1, 2002

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

Common Stock, Par Value $1.00 - March 1, 2002 - 412,823 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the 2002 annual meeting of Stockholders See Part III

PART I

Item 1. Business

(a) General Development of Business. The Registrant, (also referred to as
the "Company") organized under the Iowa Business Corporation Act, is engaged
principally in the development of commercial real estate for lease to tenants
under net lease arrangements. The Registrant also derives revenues from its
portfolio of investment securities.

On February 8, 2001, the Company entered into a new financing agreement with
Wells Fargo Bank, N.A. that permits the Company to borrow at any time through
April 30, 2002 (amended on April 12, 2001 to extend the maturity to April 30,
2003) up to $15,000,000 under the line of credit at 0.75% below the bank's
prime rate of interest. The Company must pay an annual commitment fee of 1/8
of 1% (payable quarterly) on the unused portion of the commitment.

In March 2001, the Company completed the purchase of a property in Franklin
(Nashville) Tennessee at a cost of $4,208,000. The property is leased to
Academy LTD, (a Texas limited partnership) a full-line sporting goods retailer
on a net lease basis for a term of twenty years, that commenced December 1999,
with four (4), five (5) year renewal options. The lease provides for annual
rents of $386,386 during the first ten years and $425,025 during the last ten
years of the initial lease term. Funds required for the purchase were drawn
on the Company's bank credit line.

At the Company's annual meeting of stockholders held May 18, 2001, the Company
declared a $0.15 per share dividend payable July 31, 2001, to stockholders of
record June 30, 2001. The dividend amounted to $62,055.

In August 2001, the Company completed the purchase of a convenience store
property located in Rocky Mount, North Carolina at a price of $1,612,000. The
property was purchased and leased back to Gate Petroleum Company under a net
lease arrangement for an initial term of twenty years with four (4) five (5)
year renewal options. Annual rents range from $161,220 for the first five
years to $185,403 for the last five years of the initial term. Funds required
for the purchase were drawn on the Company's bank credit line.

On December 12, 2001, the Company completed a tax-free exchange of its
GTech office building in Des Moines, Iowa, for a convenience store
property located in Concord, North Carolina. The lease on the GTech
property expired on August 31, 2001. The fair market value of the GTech
property was $540,000 as determined by MAI appraisal. Upper Iowa
University paid $270,000 in cash to the Company for the GTech property,
with the remaining $270,000 in fair market value being gifted by the
Company to Upper Iowa University. The Company paid $2,127,000 for the
Concord convenience store property, with the additional funds required
in the amount of $1,857,000 being drawn on the Company's bank credit
line. For financial reporting purposes, the Company recognized a gain
of $490,000 on the sale of the GTech property. See "Management's
Discussion and Analysis of Financial Condition and results of Operations
- - Results of Operations 2001 Compared to 2000 - Provisions for Income
Tax" for a discussion of the treatment of this transaction for financial
reporting and income tax purposes. The Concord convenience store
property was immediately leased by the Company to its previous owner,
Gate Petroleum Company, under a net lease arrangement for an initial
term of twenty (20) years subject to four (4) renewal options, with each
renewal option being for an additional five (5) years. Annual rents
during the initial term will range from $212,724 for the first five (5)
years to $244,632 for the last five (5) years of the initial term.

(b) Financial Information About Industry Segments. The Company operates in
a single industry segment.

(c) Narrative Description of Business.

Real Estate Held For Investment

The Company seeks to acquire or develop improved real estate properties
suitable for lease to commercial tenants. It is the Company's policy to
invest in properties that are fully leased to a single tenant which is
responsible for payment of real estate taxes, insurance, utilities and
repairs. Under such circumstances, the Company has limited management
responsibilities for such properties once they are constructed and leased. In
most cases, properties are constructed by the tenant and conveyed to the
Company under a sale and leaseback arrangement. It is not the policy of the
Company to invest in multiple tenant office buildings or residential
facilities. Primary factors considered by the Company in developing a
property for lease are the use to be made of the property, its location, the
nature and credit standing of the tenant, the rental income to be derived
under the lease, and the ability of the Company to utilize the property or
dispose of it upon termination of the lease.

All of the investment properties now owned by the Company are located in
Arizona, Colorado, Georgia, Iowa, Kansas, Missouri, Nebraska, North Carolina,
Oklahoma, South Dakota, Tennessee and Texas. The Company has placed no
limitations, however, on the locations in which it is willing to develop
properties in the future.

The commercial real estate acquired by the Company is normally purchased with
funds drawn on the Company's lines of credit. In most cases, the Company
gives careful consideration to the rate of return which it will receive from
an investment based on the original cost thereof to the Company without regard
to possible mortgage financing. While the rate of return varies, it has
ranged generally from 8.5% to 13%.

Real estate investments acquired or developed by the Company are not held for
resale, but are held as productive assets. The Company may, however, dispose
of properties depending upon the circumstances then existing.

Virtually all of the Company's development activity is handled by its
President, including lease negotiations, site acquisitions, construction
activities, and financing.

The real estate investment activity engaged in by the Company is highly
competitive, with numerous investors seeking to develop properties for lease
to qualified tenants. These competitors include numerous major national
financial institutions with resources and abilities to attract tenants which
are far greater than those of the Company; as well as many other types of
full-time and part-time real estate investors.

At December 31, 2001, the Company owned 39 leased properties having an
aggregate cost of $39,382,225. The rental income for 2001 on these leased
properties amounted to $4,795,749. Eight of the properties are leased to
three restaurant operators and account for 19.8% of rental income; two
telephone service center buildings and one Goodyear Tire Service Center
building account for 5.1% of rental income; eighteen QuikTrip, one Kum & Go,
and two Gate Petroleum convenience store properties account for 49.1% of
rental income; two nurseries (garden centers) account for 5.4%; four office
buildings, a supermarket building and a retail sports building account for
19.3%; and other properties held for future development account for 1.3% of
rental income.

As of December, 2001, the tenants of all 39 leased properties were in
compliance with the terms of their respective leases.

Leases of real property to QuikTrip Corporation represent, in the aggregate, a
significant portion of the Company's business in terms of revenues and real
estate portfolio. The Company has done business with QuikTrip Corporation
since 1980, during which time QuikTrip Corporation has made all of its lease
payments to the Company on a timely basis. QuikTrip Corporation is a private
company which operates convenience stores in seven southern and midwestern
states. For its fiscal year ending April 28, 2001, QuikTrip Corporation
reported revenues of $2,929,000,000 and net income of $26,000,000.

Other Investments

The Company has a portion of its assets invested in marketable securities
which had a market value of $1,438,706 as of December 31, 2001.

Employees

The Company currently employs 6 persons; 3 full-time employees and 3 part-time
employees.

a Mortgaged to Lender - See Note 5 of Notes to Financial Statements.
b 50% Used by Registrant; 50% Leased

Other Properties

The following unencumbered properties are held for future development by the
Company .

(1) Real Estate, S. E. Delaware and Oralabor Road, Ankeny, Iowa.

This commercially zoned property is located in Ankeny, Iowa, at the Industrial
Exit of Interstate 35. It contains three approximately 1.5 acre platted lots.

(2) Real Estate, 4745 - 2nd Avenue, Des Moines, Iowa.

106,000 sq. ft. of land and a 3,200 sq. ft. building leased for $4,300 per
month, the lease expires July 1, 2002. 56,000 sq. ft. of unused land is
available for development.

(3) Real Estate, 845 Sixth Avenue, Des Moines, Iowa

This 6,000 square foot concrete block building and lot was purchased in 1974.
This building is rented for $1,500 per month, and the lease expires April 30,
2002.

Item 3. Legal Proceedings.

The Company is not engaged in any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

NOT APPLICABLE

PART II

Item 5. Market for the Company's Common Stock and Related Security Holder
Matters

The Common Stock of the Company (symbol NAPE) is traded on the over-the-
counter bulletin board; a product of the National Association of Security
Dealers, Inc., sponsored by market makers. Quotations are inter-dealer
prices, without retail mark-up, or mark-down, or commission and may not
necessarily represent actual transactions. The prices shown below are by
calendar quarters for 2001 and 2000. N/A indicates prices were not available.

There was a cash dividend of fifteen cents a share paid in 2001. Future
dividend declarations will be dependent upon the earnings of the Company, its
financial condition, its capital requirements and general business conditions.

There were approximately 600 stockholders of record as of March 1, 2002.

*Based on weighted average shares outstanding

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Liquidity and Capital Resources

At December 31, 2001, the Company's primary sources of liquidity were $341,000
in cash; marketable securities with a market value of approximately
$1,439,000; and a $4,750,000 remaining loan balance available on a revolving
line of credit with a local bank. (See Note 6 of the Notes to Financial
Statements). In addition, the Company owns unencumbered real estate having an
aggregate depreciated cost of approximately $23,000,000. Management believes
that its cash flow from operations and other potential sources of cash will be
sufficient to finance current and projected operations.

Each year for many years the Company has reacquired a limited amount of its
common stock. During 2001, the Company reacquired 1,300 shares of its
outstanding common stock at an average cost of $39.66. During the three years
ended December 31, 2001, 5,543 shares were repurchased in the open market and
negotiated transactions. The total cost of the reacquired shares amounted to
$204,647; an average per share cost of $36.92.

Leases of real property to QuikTrip Corporation represent, in the aggregate, a
significant portion of the Company's business in terms of revenues and real
estate portfolio. Each lease pertains to an individual convenience store.
Rent payments to be made by QuikTrip Corporation under the leases are payable
irrespective of the performance of the convenience store location under lease,
except that a few of the leases provide for additional rent based on a
percentage of merchandise sales at that location in excess of a fixed amount.
The terms of the leases are triple-net. The leases have expiration dates and
renewal options as shown in the table included as part of Item 2. QuikTrip
Corporation is a private company which operates convenience stores in seven
southern and midwestern states. For its fiscal year ending April 28, 2001,
QuikTrip Corporation reported revenues of $2,929,000,000 and net income of
$26,000,000. The percentage of the Company's business conducted with QuikTrip
Corporation has materially increased in recent years. Management considers
this increased concentration of the Company's business with QuikTrip
Corporation to be a favorable development and does not believe it represents
an unacceptable risk. Management considers QuikTrip Corporation to be a
highly desirable commercial tenant. During the course of the Company's
dealings with QuikTrip Corporation over more than 20 years, QuikTrip
Corporation has made all of its lease payments to the Company on a timely
basis. Management has concluded, following its review of the current audited
financial statements of the QuikTrip Corporation, that the financial position,
operating results and cash flows of QuikTrip Corporation continue to justify
confidence in its ability to meet all of its obligations under its leases with
the Company.

Results of Operations
2001 Compared to 2000

Net income in 2001 totaled $2,100,000 or $5.08 per share compared with
$1,679,000, or $4.05 per share in 2000.

Revenues

Lease revenues in 2001 was $4,796,000 up $443,000 or 10.2% over 2000. The
increase in lease revenues, relative to 2000, was attributable to: (1) the
acquisition of a sporting goods store property and two convenience store
properties in 2001 and a restaurant property added in September 2000, which
when combined added $558,000 to lease revenue in 2001; (2) a decrease in lease
revenues of $81,000 due to the disposition of an office building in the
current year and two telephone buildings and a garden center in 2000; (3) a
decrease of $51,000 in contingent rents based on sales overages, and (4) an
increase in lease revenues of $17,000 due to scheduled rent increases for
several tenants in 2001.

The Company recorded gains on the sale of securities of $122,000 in 2001, as
compared to $10,000 in 2000, while other portfolio income decreased $10,000
from the prior year as a result of the sale of marketable securities.

The Company also recorded a gain of $490,000 from the disposition of its
GTech office building in 2001. See discussion in Item 1 above. The
sale of two telephone buildings in 2000 resulted in gains totaling
$300,000.

Operating Expenses

Operating expenses were $2,226,000 in 2001, up $194,000 or 9.4% from a total
of $2,072,000 in 2000. The increase was primarily the result of higher
depreciation and interest expense resulting from the acquisition of $7.7
million in new property during 2001 and $1.8 million in new property in
September of 2000. Depreciation expense increased $125,000 in 2001 over 2000
as a result of these acquisitions.

Interest expenses increased $45,000 to $512,000 in 2001 due to funding new
property acquisitions. The Company borrowed $7.5 million on its credit line
and repaid $2.85 million during 2001 resulting in an increase of $4.65 million
in debt at December 31, 2001. The average outstanding debt in 2001 was
$7,988,000 compared to $5,249,000 in 2000. Partially offsetting the higher
average debt was lower interest rates paid by the Company as rates fell from
9% at the beginning of 2001 to 4% at December 31, 2001. The average interest
rate paid by the Company in 2001 was 6.4% compared to 8.9% in 2000.

Other general and administrative expense (G & A) include personnel cost, real
estate taxes, repairs and cost of corporate functions including legal,
accounting, directors, and corporate donations. G & A expenses, excluding
donations, increased approximately $59,000 in 2001 over 2000, and primarily
reflected increases in compensation cost, property taxes on the Company's
Ankeny, Iowa property, repairs and professional fees.

Donations of $270,000 in connection with the exchange of an office building in
2001, noted above, decreased by $35,000 from the prior year.

Provision for Income taxes

The Company's effective income tax rate was 34.6% in 2001, compared to
37.1% in 2000. The lower effective rate for 2001 is the result of
reporting the Company's 2001 tax-free exchange of real estate
differently for financial and income tax purposes. As noted above, the
Company acquired a convenience store property in Concord, North Carolina
in this tax-free exchange by paying some cash and giving up its GTech
office building located in Des Moines, Iowa. Excluding the effects of
the 2001 tax-free exchange, the effective tax rate for 2001 would have
been 37.4% compared to 37.1% in 2000 and 37.0% in 1999. The Company
follows the accounting policy of not recognizing gain on exchanges but
recording the investment in the property acquired in the exchange at the
basis of the property given up. The 2001 tax-free exchange of the GTech
property involved a gift. Statement of Financial Accounting Standards
No. 116 requires that such a gift be recorded at fair market value.
Therefore the Company was forced to treat this transaction as an
exception to its accounting policy of not recognizing gain on an
exchange and recorded a gain on the transactions for financial statement
purposes.

Results of Operations
2000 Compared to 1999

Net income in 2000 totaled $1,679,000 or $4.05 per share compared with
$1,678,000, or $4.02 per share in 1999.

Lease revenues in 2000 were $4,353,000 up $164,000 or 3.9% over 1999. The
increase in lease revenues, relative to 1999, was attributable to: (1) revenue
from the Company's convenience store properties which increased a net $214,000
with the addition in 1999 of the Olathe, Kansas and Lee's Summit, Missouri
store properties; (2) the acquisition of a restaurant property in September
2000 which added $65,000 to lease revenues and (3) a decline in lease revenues
of $144,000 due to the sale of two telephone service centers and a garden
center in 2000 and the sale of the Newton, Iowa land in 1999. Contingent
rentals based on overages increased $29,000 in 2000 over 1999.

In 2000, the Company recorded gains on the sale of marketable securities of
$10,000 as compared to $280,000 for 1999.

The Company also recorded gains of $300,000 in 2000 from the sale of its two
GTE Telephone Service Centers. The gains were based on fair market values
totaling $505,000 for the two buildings as determined by MAI appraisals. The
properties were sold for $200,000 cash with remaining fair market value of
$305,000 gifted on an income tax deductible basis to the organizations that
purchased the properties.

The increase in total expenses for 2000 as compared to 1999 was primarily due
to the charitable donation of $305,000 recorded in connection with the sale of
the two GTE Telephone Service Centers noted above. Total expenses excluding
donations, declined by $120,000 in 2000 from their 1999 level.

Depreciation and interest expense, two key figures for the Company declined by
$84,000 and $65,000, respectively in 2000 from their 1999 level. The amounts
of depreciation expense from new property acquisition in 1999 and 2000 were
more than offset by the loss of depreciation on other properties that were
sold or exchanged during this period or that reached the end of their economic
lives for depreciation purposes during the current year.

Interest expense declined from $532,000 for 1999 to $467,000 for 2000 as the
Company continued to pay down its borrowings on its three bank credit lines.
The average outstanding debt in 2000 was $5,249,000 compared to $6,790,000 in
1999. Partially offsetting the lower average debt was higher interest rates
in 2000. The average interest rate paid by the Company in 2000 was 8.75%
compared to 7.71% in 1999.

Compensation costs increased $24,000 in 2000 due to cost of living adjustments
paid to the Company's officers and employees.

Other general and administrative expenses (excluding donations) as a
percentage of revenue remained flat at 4.7% in 2000 and 1999.

The effective income tax rate was 37.0% in 2000 and 1999.

Item 8. Financial Statements and Supplementary Data.

Financial statements filed herewith:

Balance Sheets as of December 31, 2001 and December 31, 2000.

Statements of Income and Comprehensive Income for the years ended
December 31, 2001, December 31, 2000 and December 31, 1999.

Statements of Stockholders' Equity for the years ended December 31,
2001, December 31, 2000 and December 31, 1999.

Statements of Cash Flows for the years ended December 31, 2001,
December 31, 2000 and December 31, 1999.

Notes to Financial Statements.

Accountant's Report.

Item 9. Disagreements on Accounting and Financial Disclosures.

NONE

PART III

In answer to Items 10, 11, 12 and 13 of Part III, the Company incorporates by
reference the required information which is contained in its definitive Proxy
Statement. The Proxy Statement is for the 2002 annual meeting of stockholders
and will be filed with the Commission not later than 120 days after December
31, 2001.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of this report.
1. All financial statements.
See Item 8 of Part II.
2. Financial statement schedules.
Schedule III as of December 31, 2001.
Note to schedule III as of December 31, 2001 and 2000.
All other Schedules are omitted because they are inapplicable or not
required.
(b) The Company filed no report on Form 8-K during the last quarter of
2001.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

___NATIONAL PROPERTIES CORPORATION___ (Registrant)

Date __3/15/02__ By _____/S/__Raymond_Di_Paglia_________
Raymond Di Paglia, President and Chief
Executive Officer

Date __3/15/02__ By _____/S/__Kristine_M._Fasano__________
Kristine M. Fasano, Vice President,
Secretary and Treasurer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the
dates indicated.

DIRECTORS OF THE COMPANY

Date __3/15/02__ By _____/S/__William_D._Buzard________
William D. Buzard

Date __3/15/02__ By _____/S/__Raymond_Di_Paglia________
Raymond Di Paglia

Date __3/15/02__ By _____/S/__Kristine_M._Fasano_______
Kristine M. Fasano

Date __3/15/02__ By _____/S/__Robert_H._Jamerson_______
Robert H. Jamerson

NORTHUP, HAINES, KADUCE, SCHMID, MACKLIN, P.C.
Certified Public Accountants

Board of Directors and Stockholders
National Properties Corporation

INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying balance sheets of National Properties
Corporation as of December 31, 2001 and 2000 and the related statements of
income and comprehensive income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Properties
Corporation as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item 14(a)(2)
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly state in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

/S/ NORTHUP, HAINES, KADUCE, SCHMID, MACKLIN, P.C.
NORTHUP, HAINES, KADUCE, SCHMID, MACKLIN, P.C.

February 7, 2002
West Des Moines, Iowa

1501 - 42nd Street, Suite 130, West Des Moines, IA 50266-3500, Phone (515)
223-0221 Fax: (515) 223-1030

See Notes to Financial Statements

See Notes to Financial Statements

See Notes to Financial Statements

See Notes to Financial Statements

NOTES TO FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES

The Company: National Properties Corporation is a lessor of commercial real
estate to tenants, under net lease arrangements. The Company seeks to acquire
or develop real estate for lease to commercial tenants anywhere in the United
States. The Company currently owns property located in Arizona, Colorado,
Georgia, Iowa, Kansas, Missouri, Nebraska, North Carolina, Oklahoma, South
Dakota, Tennessee, and Texas.

Marketable Securities: Marketable securities are classified as available-for-
sale and reported at fair market value in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 115. The Company's investments are
held for an indefinite period.

Property and Equipment: Property and equipment are recorded at cost and
depreciated on a straight-line basis over the estimated useful lives of 15 to
39 years for buildings and 5 to 7 years for equipment.

Exchange of Nonmonetary Assets: Real estate investments acquired or developed
by the Company are not held for resale, but are held as productive assets.
When the Company disposes of a property, it will generally exchange that
property for another productive property. The Company accounts for these
nonmonetary transactions in accordance with Accounting Principal Boards
Opinion #29 "Accounting for Nonmonetary Transaction", by recording the
property received in the exchange at the recorded amount of the property
surrendered. Therefore, no gain or loss is recognized on the disposed
property.

Impairment of Long-Lived Assets: The Company evaluates its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. During 2001 and 2000, the Company determined that none of
its long-lived assets had been impaired and therefore the Company did not
adjust the carrying amounts of such assets.

Net Earnings Per Common Share: Net earnings per share are based on the
weighted average number of shares outstanding of 413,560 in 2001; 414,743 in
2000 and 417,437 in 1999.

Profit-Sharing Plan: The Company has a profit sharing plan adopted in 1965,
for eligible employees, under which it contributes a portion of its annual
earnings. The plan and all of its amendments have been approved by the
Internal Revenue Service. The Company's contribution to the plan was $35,547
in 2001, $33,508 in 2000 and $31,625 in 1999.

Lease Rentals - Commercial Real Estate: Lease rentals received on commercial
real estate are accounted for under the operating method; rentals are included
in income as earned over the term of the lease.

Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from the estimates that were
used.

Fair Value of Financial Instruments: The Company's financial instruments are
valued at their carrying amounts which are reasonable estimates of fair value.

Reclassifications: Certain prior amounts have been reclassified to conform to
the current year presentation.

Recent Accounting Pronouncements: In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
144, "Accounting for the Impairment of disposal of Long-Lived Assets", which
supersedes previous guidance on financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to
be disposed of. Adoption of SFAS 144 is required beginning in 2002.
Management does not expect the adoption of SFAS 144 to have a significant
impact on the Company's financial position or results of operations. However,
future impairment reviews may result in charges against earnings to write down
the value of long-lived assets.

In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements". SAB No. 101 summarizes the SEC staff's view in
applying generally accepted accounting principles to the recognition of
revenue. The Company has evaluated the impact of the reporting requirements
of SAB No. 101 and has determined that there will be no material impact on its
results of operations, financial position or cash flows.

NOTE 1 - MORTGAGE RECEIVABLE

The Company holds a mortgage note dated June 15, 2000 in the original amount
of $350,000 from Mike's Garden Centers, Inc., a Texas corporation. The
mortgage is payable to the Company as follows: June 30, 2001 - $150,000, June
30, 2002 - $100,000 and June 30, 2003 - $100,000. Accrued interest on the
note is due and payable monthly at 10%. The mortgage is collateralized by
commercial real estate located in Dallas, Texas. The mortgagor is making
monthly payments of $4,918 which includes interest at 10%, in addition to the
principal payments required under the note. The outstanding balance on the
mortgage note at December 31, 2001 was $155,978.

NOTE 2 - PROPERTIES UNDER LEASE

The Company is the lessor of commercial real estate under noncancelable
operating leases requiring fixed and contingent rentals through the year 2021.
Contingent rentals based on sales overages amounted to $92,618 in 2001;
$143,864 in 2000; and $115,479 in 1999. The following is a schedule of future
minimum rentals at December 31, 2001, not including renewal options and
contingent rentals.

NOTE 3 - INCOME TAXES

Income tax expense for the years ended December 31, 2001, 2000 and 1999 is
comprised of the following:

NOTE 4 - MARKETABLE SECURITIES

The Company's marketable securities consist of equity securities and were
carried at fair market value. At December 31, 2001, marketable securities
available-for-sale had an aggregate market value of $1,438,706 and a cost of
$618,036 resulting in a gross unrealized gain of $820,670. At December 31,
2000, marketable securities had an aggregate market value of $2,016,664 and a
cost of $696,966 for a gross unrealized gain of $1,319,698. The increase or
decrease in unrealized holding gains each year is shown as other comprehensive
income in the statement of income and comprehensive income.

The Company had gross realized gains of $121,701, $9,931 and $280,051 on the
sale of marketable securities during 2001, 2000 and 1999 respectively and no
realized losses. Gains on sales were based on the cost of the securities
using the specific identification method.

NOTE 5 - NOTES PAYABLE - BANK

As of December 31, 2000, the Company had a $3,000,000 unsecured working
capital line of credit with Wells Fargo Bank. The credit line which has been
in effect for several years was created to facilitate the Company's real
estate acquisitions. Borrowings bear interest at 0.50% less than the bank's
base (Prime) rate floating. No compensating balance is required but a non-
usage fee of 1/8 of 1% is payable quarterly to the bank on the unused portion
of the line. As of December 31, 2000, there was a $3,000,000 outstanding
balance on this loan.

NOTE 6 - LONG-TERM DEBT

Long-term debt consists of the following:

The Company has a revolving credit agreement dated February 8, 2001, with
Wells Fargo Bank, N.A. The new credit facility which replaced the three
credit lines the Company had with Wells Fargo Bank, permits the Company to
borrow up to $15,000,000. At December 31, 2001, $10,250,000 was outstanding
under the agreement which was used to fund property acquisitions. The
revolving period of the agreement provides for annual extensions each April
30th at the mutual agreement of the bank and the Company. It is the Company's
intention to request an extension of the revolving period, as provided by the
agreement. Advances under the credit facility bear interest at 0.75% below
the bank's base rate. At December 31, 2001, the outstanding balance accrued
interest at 4.00%. In addition, the agreement requires the Company to pay an
annual commitment fee of 1/8 of 1% (payable quarterly) on the unused portion
of the line of credit commitment. The credit agreement contains various
covenants, including limitations on additional borrowings and maintaining a
minimum free cash flow as defined in the agreement of $1,800,000 per year
measured as of the end of each fiscal quarter on an annualized basis. The
line of credit is secured by first mortgages on ten properties that had a net
book value of $6,219,000 at December 31, 2001.

As of December 31, 2000, the Company had a $6,000,000 10-year, revolving
credit line with Wells Fargo Bank N.A. The $6,000,000 loan commitment reduces
$600,000 beginning December 31, 1997, and each year thereafter until final
maturity on December 31, 2006. Borrowings secured by first mortgages on
various properties, bear interest at 0.50% less than the bank's base (Prime)
rate floating, and no compensating balance is required. As of December 31,
2000, the outstanding balance on this loan was $2,100,000.

As of December 31, 2000, the Company had a $3,000,000 10-year revolving loan
with Wells Fargo Bank N.A. The credit line reduces $300,000 beginning
December 31, 1995, and each year thereafter until final maturity on December
31, 2004. Borrowings secured by first mortgages on properties, bear interest
at 0.50% less than the bank's base (Prime) rate floating. At December 31,
2000, the outstanding balance on this loan was $500,000.

NOTE 7 - REVENUE FROM MAJOR TENANTS

Lease revenue from three major tenants was $3,175,942, $3,222,087 and
$2,985,835 for the years ended December 31, 2001, 2000 and 1999 respectively,
representing approximately 66% of total rental income for 2001, 74% for 2000,
and 71% for 1999. Rents from these major tenants by industry were as follows: