10-Q 1 d30629e10vq.htm FORM 10-Q e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
Commission file number 0-11777
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.)
1800 Valley View Lane, Suite 300, Dallas, Texas 75234
 
(Address of principal executive offices)
214-750-5800
 
(Registrant’s telephone number, including area code)
 
(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 þ. No o
     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
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 þ. No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 2005, registrant had 1,057,628 shares of Common Stock issued and outstanding.
 
 

 

FIRST EQUITY PROPERTIES, INC.
FORM 10-Q
September 30, 2005
INDEX
         
    Page No.
Part I Financial Information:
        
 
        
Item 1. Financial Statements
        
 
        
    3  
 
        
    4  
 
        
    5  
 
        
    6  
 
        
    8  
 
        
    8  
 
        
       
 
        
    9  
 Certification Pursuant to Section 302
 Certification Pursuant to Section 906

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FIRST EQUITY PROPERTIES, INC.
BALANCE SHEETS
                 
    Sep 30, 2005     December 31,  
    (Unaudited)     2004  
ASSETS
                
Cash and cash equivalents
   $ 6,624     $ 4,621  
Notes and interest receivable — related party
     2,407,540       2,626,588  
 
            
 
                
 
   $ 2,414,164     $ 2,631,209  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Accounts payable — related party
   $ 2,069,713     $ 2,448,936  
 
            
 
                
Total liabilities
     2,069,713       2,448,936  
 
                
Stockholders’ equity
                
Preferred stock, $0.01 par, 4,960,000 shares authorized, none issued and outstanding
     —       —  
Common stock, $0.01 par, 40,000,000 shares authorized, 1,057,628 shares issued and outstanding
     10,576       10,576  
Capital in excess of par value
     1,376,682       1,376,682  
Retained earnings (deficit)
     (1,042,807 )     (1,204,985 )
 
            
 
                
Total stockholders’ equity
     344,451       182,273  
 
            
 
                
 
   $ 2,414,164     $ 2,631,209  
 
            

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FIRST EQUITY PROPERTIES, INC.
STATEMENTS OF EARNINGS
For the three months and nine months ended September 30, 2005 and 2004
(Unaudited)
                                 
    Three months ended Sep 30,     Nine months ended Sep 30,  
    2005     2004     2005     2004  
Revenue
                                
Interest income — related party
   $ 60,683     $ 60,683     $ 180,071     $ 120,315  
 
                        
 
                                
 
     60,683       60,683       180,071       120,315  
 
                                
Operating expenses
                                
General and administrative
     1,428       3,766       3,318       5,659  
Legal and professional fees
     5,156       22,954       14,575       40,621  
 
                        
 
                                
Total operating expenses
     6,584       26,720       17,893       46,280  
 
                        
 
                                
Net income from continuing operations
     54,099       33,963       162,178       74,035  
 
                                
Income from discontinued operations
     —       —       —       45,715  
Impairment loss
     —       —       —       (37,931,116 )
 
                        
 
                                
NET EARNINGS (LOSS)
   $ 54,099     $ 33,963     $ 162,178     $ (37,811,116 )
 
                                
Earnings (loss) per share
                                
Net earnings from continuing operations
   $ .05     $ .03     $ .15     $ .07  
Discontinued operations
     —       —       —       (35.82 )
Net earnings (loss)
   $ .05     $ .03     $ .15     $ (35.75 )
 
                        
 
                                
Weighted average shares outstanding
     1,057,628       1,057,628       1,057,628       1,057,628  
 
                        

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FIRST EQUITY PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2005 and 2004
(Unaudited)
                 
    2005     2004  
CASH FLOWS FROM OPERATING ACTIVITIES
                
Net earnings (loss)
   $ 162,178     $ (37,811,366 )
Adjustments to reconcile net income to net cash provided by (used for) operating activities
                
Impairment loss
     —       37,931,116  
(Increase) decrease in
                
Interest receivable
     219,048       (120,312 )
Increase (decrease) in
                
Accounts payable
     —       1,191  
Accounts payable — affiliate
     (379,223 )     (256,118 )
 
            
 
                
Net cash provided by (used for) operating activities
     2,003       (259,489 )
 
                
CASH FLOWS FROM INVESTING ACTIVITIES
                
Proceeds from sale of subsidiaries
     —       250,000  
 
            
Net cash provided by (used for) investing activities
     —       250,000  
 
                
Net increase (decrease) in cash and cash equivalents
     2,003       (5,489 )
 
                
Cash and cash equivalents at beginning of period
     4,621       6,127  
 
            
 
                
Cash and cash equivalents at end of period
   $ 6,624     $ 638  
 
            
 
                
Noncash investing and financing activities:
                
 
                
Note received in sale of subsidiaries
     —       1,822,540  

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FIRST EQUITY PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared by First Equity Properties, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2005.
NOTE B – DISCONTINUED OPERATIONS
Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. This statement requires that the operations related to segments that have been sold, or segments that are intended to be sold, be presented as discontinued operations in the statement of operations for all periods presented, and the segments intended to be sold are to be designated as “held for sale” on the balance sheet. In the event of a future asset sale, the company is required to reclassify portions of previously reported operations to discontinued operations within the Statements of Operations. For the nine months ended September 30, 2004, income from discontinued operations relates to the disposition of subsidiaries providing management services.
In May 2004, the Company sold the subsidiaries of the Company that provide management services for $250,000 cash and a note receivable in the amount of $1,822,540. In the quarter ended March 31, 2004, the Company recorded an impairment of $37,931,116, representing the write down of certain assets of the those two subsidiaries that provided the management services to the value agreed to between the related party buyer and seller. The primary asset written down was the investment in preferred stock of an affiliate.

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FIRST EQUITY PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE B – DISCONTINUED OPERATIONS — continued
The impairment loss resulted in the generation of a deferred tax asset of approximately $13,000,000 for which a valuation allowance of the entire amount has been provided since management cannot be assured of the utilization of the deferred tax asset.
The results of discontinued operations of the subsidiaries consisted of the following for the three months and nine months ended September 30, 2005 and September 30, 2004:
                                 
    Three months ended Sep 30,     Nine months ended Sep 30,  
    2005     2004     2005     2004  
Operating revenues
   $ —     $ —     $ —     $ 45,715  
Net income from discontinued operations
   $ —     $ —     $ —     $ 45,715  
NOTE C – REVERSE STOCK SPLIT
On June 7, 2004, the members of the Board of Directors of FEPI proposed and recommended to the stockholders a reverse-split on a 1-for-10 basis of the shares of Common Stock, par value $0.01 per share, without any adjustment to the par value per share, and without any reduction in the authorized number of shares of Common Stock at the same par value. The proposal was approved by the shareholders and became effective July 12, 2004. The share amounts in the accompanying financial statements and notes give effect to this reverse split as if it occurred at the beginning of earliest period presented.

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FIRST EQUITY PROPERTIES, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Three months ended September 30, 2005 compared to three months ended September 30, 2004
Currently the Company’s primary assets are interest-bearing securities. Revenues from operations in 2005 were the same as the prior year. Total operating expenses decreased to $6,584 in 2005 from $26,720 in 2004. The decrease in operating expenses was due to lower legal and professional fees in 2005.
Nine months ended September 30, 2005 compared to nine months ended September 30, 2004
Revenues from operations increased to $180,071 from prior year of $120,315 due to higher interest income as a result of nine full months in 2005 of interest income from the note receivable received in the second quarter of 2004. Total operating expenses decreased to $17,893 in 2005 from $46,280 in 2004. The decrease in operating expenses was due to lower legal and professional fees in 2005. The discontinued operations represent the income from the management contracts of the company that were sold in May 2004. Also, the impairment loss in 2004 is not present in 2005.
Financial Condition and Liquidity
At September 30, 2005, the Company had total assets of $2,414,164 compared to $2,631,209 at December 31, 2004. Cash and cash equivalents increased to $6,624 at September 30, 2005 from $4,621 at December 31, 2004. Total liabilities were $2,069,713 versus $2,448,936 at December 31, 2004. The decrease in assets results from the collection of interest receivable which was in turn used to pay liabilities.
Item 4. Controls and Procedures
Based upon their most recent evaluation, which was completed as of the end of the period covered by this report, the Acting Principal Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at September 30, 2005 to ensure that information required to be disclosed in reports within the time period specified in Securities and Exchange Commission rules and forms. There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2005, that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

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Part II Other Information
     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      During the quarter covered by this report, the registrant did not sell or repurchase any of its equity securities nor does registrant have any plan approved by the Board of Directors to do so.
     Item 6. Exhibits
  (a)   Exhibits
Exhibit 31.1 — Certification Pursuant to Rules 13a-14 and 15d-14 Under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Exhibit 32.1 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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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.
 		  
November 21, 2005  /s/ Ken L. Joines,    
      Vice President, Secretary and Chief   
      Accounting Officer   
 

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