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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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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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 (I.R.S. Employer
incorporation or organization) Identification No.)
1800 Valley View Lane, Suite 160, Dallas, Texas 75234
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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 September 30, 2002, registrant had 10,570,944 shares of Common
Stock issued and outstanding.
FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES
FORM 10-Q
September 30, 2002
INDEX
Part I Financial Information: Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 (Unaudited) and December 31, 2001.............................................3
Consolidated Statement of Earnings (Unaudited)
Three Months and Nine Months Ended September 30, 2002 and 2001...................................4
Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 2002 and 2001....................................................5
Notes to Consolidated Financial Statements.........................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................7
Item 4. Controls and Procedures...................................................................7
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K..........................................................8
2
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31,
(Unaudited) 2001
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ASSETS
Cash and cash equivalents $ 13,699 $ 8,985
Investments 46,421,719 46,421,719
Accounts receivable - affiliate 900,213 851,946
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$ 47,335,631 $ 47,282,650
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable - trade $ 5,548,224 $ 5,548,224
Accounts payable - affiliate 3,562,977 3,622,977
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Total liabilities 9,111,201 9,171,201
Minority interest in limited partnership 547,498 547,498
Shareholders' equity
Common stock, $0.01 par, 40,000,000 shares
authorized, 10,570,944 shares issued and outstanding 105,710 105,710
Capital in excess of par value 1,281,548 1,281,548
Retained earnings 36,289,674 36,176,693
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Total shareholders' equity 37,676,932 37,563,951
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$ 47,335,631 $ 47,282,650
=============== ===============
3
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
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Revenue
Management fees $ 46,964 $ -- $ 141,907 $ --
Interest income 2 111 30 49,006
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46,966 111 141,937 49,006
Operating expenses
General and administrative 910 1,363 2,529 2,950
Legal and professional fees 11,308 1,671 26,427 33,034
Bad debt expense -- -- -- 76,800
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Total operating expenses 12,218 3,034 28,956 112,784
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Income (loss) from operations 34,748 (2,923) 112,981 (63,778)
Other expenses
Interest expense -- -- -- (29,108)
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Net earnings (loss) $ 34,748 $ (2,923) $ 112,981 $ (92,886)
============ ============ ============ ============
Earnings (loss) per share $ -- $ -- $ .01 $ (.01)
============ ============ ============ ============
Weighted average shares outstanding 10,570,944 10,570,944 10,570,944 10,570,944
============ ============ ============ ============
4
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2002 and 2001
(Unaudited)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 112,981 $ (92,886)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities
Bad debt expense -- 76,800
Decrease in accounts payable - affiliate (60,000) --
Increase in accounts receivable - affiliate (48,267) (500,052)
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Net cash provided by (used for) operating activities 4,714 (516,138)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections from note receivable -- 2,525,588
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Net cash provided by investing activities -- 2,525,588
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long term debt -- (2,048,559)
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Net cash used for financing activities -- (2,048,559)
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Net increase (decrease) in cash and cash equivalents 4,714 (39,109)
Cash and cash equivalents at beginning of period 8,985 44,679
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Cash and cash equivalents at end of period $ 13,699 $ 5,570
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Noncash investing and financing activities:
Exchange of account payable from affiliate for minority
interest in subsidiary and effective writedown of investment
due to application of purchase method of accounting for the
acquisition of minority interest $ -- $ 4,225,879
Exchange of a note receivable for investment in
Preferred stock of an affiliate $ -- $ 585,000
5
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in accordance with U.S. 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 U.S. 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, 2002. For further information,
refer to the Company's annual report on Form 10-K for the year ended
December 31, 2001.
6
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, 2002 compared to three months ended September
30, 2001
Revenues increased to $46,966 versus prior year of $111. The increase was due to
management fee income in the current quarter that was not present in the same
quarter last year. Total operating expenses increased to $12,218 in 2001 from
$3,034 in 2001 due to an increase in legal and professional fees.
Results of Operations
Nine months ended September 30, 2002 compared to nine months ended September 30,
2001
Revenues increased to $141,937 versus prior year of $49,006. The increase was
due to management fee income in the current year that was not present last year.
Total operating expenses decreased to $28,956 in 2002 from $112,784 in 2001
primarily due to lower bad debt expense.
Financial Condition and Liquidity
At September 30, 2002, the Company had total assets of $47,335,631 compared to
$47,282,650 at December 31, 2001. Cash and cash equivalents were $13,699.
At September 30, 2002 the Company had total illiquid investments of $45,836,720,
which consists of preferred stock of Realty Advisors, Inc., an affiliated
company.
Total liabilities were $9,111,201 versus $9,171,201 at December 31, 2001.
Item 4. Controls and Procedures
Based on their most recent evaluation, which was completed within 90 days of the
filing of this Form 10-Q, our Acting Principal Executive Officer and Chief
Financial Officer, believe our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) are effective. There were not any
significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
and there has not been any corrective action with regard to significant
deficiencies and material weaknesses.
7
FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - None
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST EQUITY PROPERTIES, INC.
November 14, 2002 /s/ Ronald E. Kimbrough,
Vice President, Secretary, Treasurer,
Acting Principal Executive Officer and
Chief Financial Officer
9
CERTIFICATION
I, Ronald E. Kimbrough, Acting Principal Executive Officer and Chief Financial
Officer of First Equity Properties, Inc. ("the Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining internal controls and
procedures and have:
a. designed such internal controls to insure that material
information relating to the company and its consolidated
subsidiaries is made known to me by others within those
entities, particularly for the periods presented in this
quarterly report;
b. evaluated the effectiveness of the Company's internal controls
as of a date within 90 days prior to the filing date of this
quarterly report; and
c. presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based
on a date within 90 days prior to the filing date of this
quarterly report;
5. I have disclosed to the Company's auditors and Audit Committee of the
Board of Directors (or persons fulfilling the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize, and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
10
CERTIFICATION (CONTINUED)
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my
most recent evaluation, including corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Ronald E. Kimbrough
Ronald E. Kimbrough
Acting Principal Executive Officer and Chief Financial Officer
November 14, 2002
11
EXHIBIT INDEX
Exhibit
Number Description
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99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
12