10-K 1 np10k.txt 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.

Item 2 Properties (Dec. 31, ~~2000~~2001) Land Bldgs. & Accumulated Rental Lease Renewal Mortgage Int. Cost Improve. Depreciation Income 2000 Expires Options Balance Rate --------- ---------- ----------- - ----------- ------- -------- ---------- ------ A. RESTAURANT PROPERTIES Zio's Restaurant Aurora, CoCO. 197,000 1,744,624 1155,~~184~~918 64235,~~625~~000 2015 2-5 Yr - Perkins ' Cake & Steak Des Moines, IaIA. 137,000 343,365 ~~330~~343,~~775~~365 9091,~~979~~714 ~~2001~~2006 1-5 ~~Yr -~~ Perkins ' Cake & Steak Des Moines, IaIA. 140,000 341,602 ~~327~~341,~~938~~602 ~~100~~95,~~077~~414 2002 1-5 Yr - Perkins ' Cake & Steak Des Moines, IaIA. 200,000 373,192 373,192 9492,~~618~~948 2002 1-5 Yr. - Perkins ' Cake & Steak Newton, IaIA. 112,500 485,181 485,181 72,000 2004 1-5 Yr. - Perkins ' Cake & Steak Des Moines, IaIA. 243,166 498,675 498,675 105,192 2005 1-5 Yr. - Carl's Jr. Restaurant a Chandler, AZ. 168,000 772,000 ~~694~~733,~~800~~400 114,778 2005 3-5 Yr. - Carl's Jr. Restaurant a Tucson, AZ. 90,000 738,000 ~~589~~628,~~663~~039 ~~137~~141,~~397~~617 2005 6-5 Yr. - --------- ---------- ----------- - ----------- ---------- Total 1,287,666 5,296,639 3,~~311~~459,~~408~~372 ~~779~~948,~~666~~663 --------- ---------- ----------- - ----------- ---------- B. SERVICE CENTERS ~~U.S.~~Quest ~~West~~ Decorah, IaIA. 20,000 191,102 ~~149~~154,~~059~~793 22,966 2004 - ~~U.S.~~Quest ~~West~~ Cedar Rapids, IaIA. 37,000 397,394 ~~295~~309,~~096~~075 8488,~~000~~200 ~~2001~~2006 1-5 Yr. - ~~GTE Bldg. sold 3/31/00 Char/Fay, Ia. - - - 42,277 -~~ Goodyear Service Ctr. Wichita, KS. 100,000 978,725 ~~358~~389,~~624~~695 132,000 2004 4-5 Yr. - --------- ---------- ----------- - ----------- ---------- Total 57157,000 1,567,221 ~~802~~853,~~779~~563 ~~281,~~243,166 --------- ---------- ----------- - ----------- ---------- C. CONVENIENCE STORES QuikTrip a Des Moines, IaIA. 144,664 691,878 ~~313~~331,~~252~~105 ~~112~~114,~~306~~762 2010 2-5 Yr. - QuikTrip & Off. Bldg. Des Moines, IaIA. 215,000 672,000 ~~566~~593,~~720~~600 ~~106~~90,~~889~~474 2004 1-5 Yr. - QuikTrip Olathe, KS. 23,120 248,798 817,~~984~~278 217,164 2019 4-5 Yr. - QuikTrip Lee Summit, MoMO. 36,460 408,221 1428,~~741~~349 133,500 2019 4-5 Yr. - QuikTrip Wichita, KS. 53,500 436,637 ~~148~~161,~~251~~950 58,081 2009 4-5 Yr. - QuikTrip Norcross, GaGA. 99,558 765,000 ~~248~~272,~~607~~282 102,858 2014 4-5 Yr. - QuikTrip Wichita, KS. 60,000 514,000 ~~172~~188,~~026~~343 67,445 2010 4-5 Yr. - QuikTrip Tulsa, OK. 155,000 1,340,000 ~~441~~483,~~383~~922 175,662 2010 4-5 Yr. - QuikTrip a Des Moines, IaIA. 84,500 557,500 ~~176~~194,~~616~~314 75,435 2010 4-5 Yr. - QuikTrip a Johnston, IaIA. 48,502 476,160 ~~127~~142,~~868~~984 73,574 2012 4-5 Yr. - QuikTrip a St. Louis, MoMO. 152,000 1,575,433 ~~425~~474,~~386~~664 231,780 2017 4-5 Yr. - QuikTrip a Des Moines, IaIA. 183,095 900,000 ~~208~~236,~~359~~930 113,683 2013 4-5 Yr. - QuikTrip Norcross, GaGA. 92,500 834,000 ~~143~~164,~~476~~860 97,283 2009 4-5 Yr. - QuikTrip Norcross, GaGA. 95,500 858,000 ~~147~~169,~~601~~602 100,117 2009 4-5 Yr. - QuikTrip a Clive, IaIA. 325,605 393,814 5566,~~965~~063 ~~127~~130,~~722~~874 2015 4-5 Yr - QuikTrip Alpharetta, GaGA 148,585 1,324,000 ~~182~~226,~~054~~187 149,472 2016 4-5 Yr - QuikTrip Gainesville, GaGA. 122,927 1,227,923 ~~131~~172,~~320~~250 157,500 2012 4-5 Yr. - QuikTrip Woodstock, GaGA. 151,800 1,328,200 ~~127~~171,~~286~~559 155,400 2013 4-5 Yr. - ~~QuikTrip (3 sold 12-1-99) 29,790 -~~ Kum & Go Omaha, NE. 44,110 128,574 128,574 30,838 2003 - Gate Petroleum Concord, NC 151,550 1,975,706 5,488 12,239 2021 4-5 Yr. - Gate Petroleum Rocky Mount, NC 132,202 1,480,210 20,558 67,175 2021 4-5 Yr. - --------- ---------- ----------- - ----------- ---------- Total 2,~~236~~520,~~426~~178 1418,~~680~~136,~~138~~054 34,~~768~~250,~~469~~862 2,~~316~~355,~~449~~316 --------- ---------- ----------- - ----------- ---------- D. ~~SUPERMARKETS~~SUPERMARKET Nash Finch Sioux Falls, SD. 211,888 2,632,970 ~~137~~205,~~836~~348 473,610 2018 10-5 Yr. - E. Retail Academy Sports Franklin, TN 458,500 3,749,612 76,594 307,785 2019 4-5 Yr. - --------- ---------- ----------- - ----------- ---------- E. OFFICE BUILDINGS American Payday Loans Des Moines, IaIA. 96,455 137,954 137,954 5150,~~017~~600 2004 1-7 Yr. - Associates Financial Serv. Des Moines, IaIA. 61,692 55,812 4647,~~184~~858 1617,~~650~~400 2002 - Corporate Headquarters b Des Moines, IaIA. 25,000 418,222 ~~374~~387,~~612~~340 4143,~~150~~551 ~~2001~~2004 1-23 Yr. - GTech (Sold 11/29.2001) Des Moines, IaIA. ~~16,000~~- ~~174,953~~- ~~146,523~~- 4530,~~022~~838 ~~2001 1~~-2 ~~Yr.~~ - --------- ---------- ----------- - ----------- ---------- Total ~~199~~183,147 ~~786~~611,~~941~~988 ~~705~~573,~~273~~152 ~~153~~142,~~839~~389 --------- ---------- ----------- - ----------- ---------- F. GARDEN CENTERS ~~Mike's Garden Center a Dallas, TX. Exchanged 3/22/2000 - 24,325 -~~ Tip-Top Nursery a Glendale, AZ. 66,144 433,057 ~~189~~203,~~619~~366 90,000 2003 1-5 Yr. - Mike's Garden Center a Arlington, TX. 200,000 1,700,000 ~~416~~470,~~041~~009 ~~168~~169,~~911~~000 2009 - --------- ---------- ----------- - ----------- ---------- Total 266,144 2,133,057 ~~605~~673,~~660~~375 ~~283~~259,~~236~~000 --------- ---------- ----------- - ----------- ---------- G. OTHER PROPERTIES 66,408 103,752 103,752 6465,~~920~~820 --------- ---------- ----------- - ----------- ---------- Totals 45,~~424~~150,~~679~~932 2734,~~200~~231,~~718~~293 910,~~435~~196,~~177~~018 4,~~352~~795,~~963~~749 ========= ========== ============ =========== ==========

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.

Bid Asked ~~2000~~2001 High Low High Low 1st Quarter 36~~-1/4~~.87 36~~-1/4~~.75 N/A N/A 2nd Quarter ~~36-1/4~~37.75 ~~36-1/4~~37.00 N/A N/A 3rd Quarter ~~36-1/4~~40.00 ~~36-1/4~~37.75 N/A N/A 4th Quarter ~~37-1/4~~44.10 ~~36-1/4~~40.00 N/A N/A Bid Asked ~~1999~~2000 High Low High Low 1st Quarter ~~33-3/4~~36.25 ~~31-1/4~~36.25 N/A N/A 2nd Quarter 3536.25 ~~33-3/4~~36.25 N/A N/A 3rd Quarter 36.25 36.25 N/A N/A 4th Quarter ~~36-1/4~~37.25 36.25 N/A N/A

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.

Item 6. Selected Financial Data. (In thousands except for per share amounts) Year ended December 31, 2001 2000 1999 1998 1997 ~~1996~~ Year ended December 31, Lease rental income 4,796 4,353 4,189 3,715 3,492 ~~3,262~~ Interest and dividend income 69 79 83 89 73 80 Gain on sale of securities 121 10 280 80 24 59 Gain on sale of property 490 300 - - - - Net income 2,100 1,679 1,678 1,271 1,143 ~~1,039~~ At December 31, Total assets 31,220 24,680 23,701 24,291 20,778 ~~20,115~~ Long-term debt 10,250 2,600 4,025 5,221 5,~~264~~265 ~~6,031~~ Book value-properties & equipment 29,220 22,206 21,387 21,833 18,495 ~~18,102~~ Net Unrealized Gain on Marketable Securities 522 839 829 1,003 917 ~~569~~ Stockholders' equity 19,504 17,835 16,276 14,903 13,922 ~~12,899~~ Per Common Share Net income* 5.08 4.05 4.02 3.00 2.62 ~~2.30~~ Cash dividends 0.15 0.14 0.12 0.00 0.10 ~~0.10~~ Book value 47.22 43.04 39.09 35.60 32~~,27 28~~.7127

*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

NATIONAL PROPERTIES CORPORATION BALANCE SHEETS December 31, 2001 2000 ~~1999~~ ASSETS CURRENT ASSETS Cash 340,793 95,212 ~~287,310~~ Mortgage receivable - current portion 55,978 137,747 Receivable 14,126 - Other 49,835 23,834 ~~16,127~~ ---------- ---------- Total current assets 460,732 256,793 ~~313,437~~ ---------- ---------- PROPERTY AND EQUIPMENT, AT COST - Notes 2 and 56 Land 45,~~424~~150,~~679~~932 4,~~367~~424,~~365~~679 Buildings and improvements 2734,~~200~~231,~~718~~292 27,~~013~~200,~~359~~718 Furniture and equipment 115,747 102,184 ~~98,712~~ ---------- ---------- 3139,~~727~~497,~~581~~971 31,~~479~~727,~~436~~581 Less-accumulated depreciation 10,277,759 9,521,149 ~~10,092,823~~ ---------- ---------- Property and equipment-net 29,220,212 22,206,432 ~~21,386,613~~ ---------- ---------- OTHER ASSETS Marketable securities, at market value-Note 4 1,438,706 2,016,664 ~~1,997,094~~ Mortgage receivable - long term portion Note 1 ~~200~~100,000 ~~- Deferred charges and other assets - 13~~200,~~786~~000 ---------- ---------- Total other assets 21,~~216~~538,~~664~~706 2,~~010~~216,~~880~~664 ---------- ---------- 31,219,650 24,679,889 ~~23,700,930~~ ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 2,~~946~~598 42,~~792~~946 Notes payable - Note 5 - 3,000,000 ~~1,900,000~~ Accrued liabilities ~~151~~116,~~464~~434 ~~401~~101,~~496~~172 ~~Current~~Advance ~~maturities~~rents of283,754 ~~long-term debt - 10~~50,~~482~~292 Federal and state income taxes - 33,976 ~~101,571~~ ---------- ---------- Total current liabilities 402,786 3,188,386 ~~2,418,341~~ ---------- ---------- LONG-TERM DEBT - ~~Notes~~Note ~~5 &~~ 6 210,~~600~~250,000 42,~~025~~600,000 ---------- ---------- DEFERRED INCOME TAXES 1,062,478 1,056,274 ~~981,687~~ ---------- ---------- STOCKHOLDERS' EQUITY Common stock - $1 par value Authorized - 5,000,000 shares Issued - (~~2000~~2001-~~414~~413,~~373~~073 shares; ~~1999~~2000-~~416~~414,~~353~~373 shares) 413,073 414,373 ~~416,353~~ Retained earnings 18,569,367 16,581,528 ~~15,030,319~~ Accumulated other comprehensive income 521,946 839,328 ~~829,230~~ ---------- ---------- Total stockholders' equity 19,504,386 17,835,229 ~~16,275,902~~ ---------- ---------- 31,219,650 24,679,889 ~~23,700,930~~ ========== ==========

See Notes to Financial Statements

NATIONAL PROPERTIES CORPORATION STATEMENTS OF INCOME AND C0MPREHENSIVE INCOME For the years ended December 31, ~~2000~~2001, ~~1999~~2000 and ~~1998~~1999 STATEMENTS OF INCOME 2001 2000 1999 ~~1998~~ REVENUES Lease rental income 4,795,749 4,352,963 4,189,262 ~~3,715,029~~ Dividend and interest income 68,717 79,061 82,883 ~~89,191~~ Gain on sale of securities 121,701 9,931 280,051 ~~79,798~~ Gain on sale of property 489,832 299,758 - - ---------- ---------- ---------- Total revenues 5,475,999 4,741,713 4,552,196 ~~3,884,018~~ ---------- ---------- ---------- EXPENSES Depreciation 919,723 795,114 879,267 ~~863,115~~ Interest 512,362 466,737 531,958 ~~548,513~~ Salaries and wages 241,101 234,227 213,157 ~~195,967~~ Property, payroll and misc. taxes 96,263 68,995 56,532 ~~60,706~~ Other 496,214 506,462 205,147 ~~196,002~~ ---------- ---------- ---------- Total expenses 2,265,663 2,071,535 1,886,061 ~~1,864,303~~ ---------- ---------- ---------- Income before income taxes 3,210,336 2,670,178 2,666,135 ~~2,019,715~~ INCOME TAXES-Note 3 1,110,180 991,051 987,710 ~~748,602~~ ---------- ---------- ---------- Net income 2,100,156 1,679,127 1,678,425 ~~1,271,113~~ ---------- ---------- ---------- Other comprehensive income: Unrealized holding gains on marketable securities arising during period (377,327) 25,808 6,724 ~~214,421~~ Less reclassification adjustment for gains included in net income (121,701 9,931) (280,051) ~~(79,798)~~ Less (income ~~taxes~~tax) benefit applicable to unrealized holding gains and losses 181,646 (5,779) 99,491 ~~(49,003)~~ ---------- ---------- ---------- Other comprehensive income, net of tax (317,382) 10,098 (173,836) ~~85,620~~ ---------- ---------- ---------- Comprehensive income 1,782,774 1,689,225 1,504,589 ~~1,356,733~~ ========== ========== ========== Net income per share 5.08 4.05 4.02 ~~3.00~~ Weighted average common shares outstanding 413,560 414,743 417,437 ~~423,854~~

See Notes to Financial Statements

NATIONAL PROPERTIES CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY For the three years ended December 31, ~~2000~~2001, ~~1999~~2000 and ~~1998~~1999 STATEMENTS OF STOCKHOLDER'S EQUITY Accumulated Other Common Retained Comprehensive Stock Earnings Income ---------- ---------- ---------- Balances December 31, ~~1997~~1998 ~~431~~418,~~456~~616 1213,~~573~~481,~~294~~312 ~~917~~1,~~446~~003,066 Net income - ~~1998~~1999 - 1,~~271~~678,~~113~~425 - Purchase and retirement of common stock (122,~~840~~263) (~~363~~79,~~095~~105) - Cash dividend - 12 cents per share - (50,313) - Change in comprehensive income - - 85(173,~~620~~836) ---------- ---------- ---------- Balances December 31, ~~1998~~1999 ~~418~~416,~~616~~353 1315,~~481~~030,~~312~~319 1829,~~003,066~~230 Net income - ~~1999~~2000 - 1,~~678~~679,~~425~~127 - Purchase and retirement of common stock (21,~~263~~980) (7969,~~105~~836) - Cash dividend - 1214 cents per share - (5058,~~313~~082) - Change in comprehensive income - - ~~(173~~10,~~836)~~098 ---------- ---------- ---------- Balances December 31, ~~1999~~2000 ~~416~~414,~~353~~373 1516,~~030~~581,~~319~~528 ~~829~~839,~~230~~328 Net income - ~~2000~~2001 - 12,~~679~~100,~~127~~156 - Purchase and retirement of common stock (1,~~980~~300) (6950,~~836~~262) - Cash dividend - 1415 cents per share - (5862,~~082~~055) - Change in comprehensive income - - 10(317,~~098~~382) ---------- ---------- ---------- Balances December 31, ~~2000~~2001 ~~414~~413,~~373~~073 1618,~~581~~569,~~528~~367 ~~839~~521,~~328~~946 ========== ========== ==========

See Notes to Financial Statements

NATIONAL PROPERTIES CORPORATION STATEMENTS OF CASH FLOWS For the years ended December 31, ~~2000~~2001, ~~1999~~2000 and ~~1998~~1999 Increase(Decrease) in Cash 2001 2000 1999 ~~1998~~ ---------- ---------- ---------- CASH FLOW FROM OPERATING ACTIVITIES Net income 2,100,156 1,679,127 1,678,425 ~~1,271,113~~ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 934,650 801,101 886,395 ~~870,243~~ Deferred income taxes 187,850 68,808 85,296 ~~81,146~~ Gain on sale of securities (121,701) (9,931) (280,051) ~~(79,798)~~ Gain on sale of property (489,832) (299,758) - - Changes in assets and liabilities: Accounts receivable (14,126) - - ~~12,451~~ Prepaid expenses ~~92 737~~ (25,~~600~~192) 92 737 Accounts payable and accrued expenses 248,376 (251,878) 113,097 ~~2,095~~ Federal and state income taxes (69,712) (67,595) 42,228 ~~32,045~~ ---------- ---------- ---------- Net cash provided by operations 2,770,469 1,919,966 2,526,127 ~~2,186,695~~ ---------- ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES Additions to property and equipment (7,703,341) (1,820,095) (433,091)~~(4,200,973)~~ Increase on mortgage note receivable - (350,000) - - Payments received on mortgage notes 181,769 12,253 - - Purchase of securities - (8,794) - ~~(29,035)~~ Proceeds sale of securities 200,631 15,031 289,611 ~~111,758~~ Proceeds sale of property 259,670 504,921 - - ---------- ---------- ---------- Net cash used in investing activities (7,061,271) (1,646,684) (143,480)~~(4,118,250)~~ ---------- ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES Borrowings on credit lines 7,500,000 2,175,000 550,000 ~~4,280,000~~ Repayments of credit line borrowings (2,~~500~~850,000) (2,~~525~~500,000)(12,~~805~~525,000) Principal payments on mortgage Notes - (10,482) (128,649) ~~(107,062)~~ Dividends paid (62,055) (58,082) (50,313) - Purchase of treasury stock (51,562) (71,816) (81,368) ~~(375,935)~~ ---------- ---------- ---------- Net cash provided by (used) in financing activities 4,536,383 (465,380) (2,235,330) ~~1,992,003~~ ---------- ---------- ---------- Net increase (decrease) in cash 245,581 (192,098) 147,317 ~~60,448~~ Cash at beginning of year 95,212 287,310 139,993 ~~79,545~~ ---------- ---------- ---------- Cash at the end of year 340,793 95,212 287,310 ~~139,993~~ ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Interest expense 512,362 466,737 533,117 ~~547,354~~ Income tax payments 992,042 989,838 860,186 ~~635,411~~ NON-CASH INVESTING TRANSACTIONS Exchange of like kind real ~~restate~~estate: Basis of property received - 1,941,624 716,599 ~~2,844,858~~ Less cash paid - 1,816,624 431,467 ~~2,687,105~~ ---------- ---------- --------- Basis of property given up - 125,000 285,132 ~~157,753~~ ========== ========== =========

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.

Year ended December 31, Amount ~~2001~~2002 45,~~242~~033,~~874~~000 ~~2002~~2003 4,~~004~~887,~~814~~815 ~~2003~~2004 34,~~848~~712,~~103~~299 ~~2004~~2005 34,~~685~~203,~~728~~920 ~~2005~~2006 34,~~222~~023,~~159~~729 Subsequent years 2735,~~468~~888,~~365~~912 ---------- Aggregate future minimum rentals 4658,~~472~~749,~~043~~675 ==========

NOTE 3 - INCOME TAXES Income tax expense for the years ended December 31, 2001, 2000 and 1999 is comprised of the following:

2001 2000 1999 ~~1998~~ ---------- ---------- ---------- Current Federal 787,787 779,~~296~~269 764,749 ~~553,572~~ States 134,543 142,974 137,665 ~~113,884~~ ---------- ---------- ---------- Total current 922,330 922,243 902,414 ~~667,456~~ Deferred 187,850 68,808 85,296 ~~81,146~~ ---------- ---------- ---------- 1,110,180 991,051 987,710 ~~748,602~~ ========== ========== ========== ADeferred ~~reconciliation~~income oftaxes reflect the ~~statutory~~net ~~federal~~tax ~~income~~effect ~~tax~~of ~~rate~~temporary differences between the carrying amounts of 34assets ~~percent~~and inliabilities ~~2000,~~for ~~1999~~financial reporting purposes and ~~1998~~the toamounts used for income tax purposes. Significant components of the ~~effective~~Company's net deferred tax ~~rate~~liability isin the balance sheet as ~~follows:~~of December 31, 2001 and 2000 ~~1999~~are ~~1998~~related ~~----------~~to the following: 2001 2000 ---------- ---------- ~~Statutory~~Deferred ~~federal income~~ tax ~~rate~~liabilities: ~~34.0%~~Buildings ~~34.0%~~$ ~~34.0%~~784,190 ~~State~~$ ~~taxes~~592,904 ~~net~~Marketable ofsecurities ~~federal~~298,724 ~~tax~~480,370 ~~benefit~~---------- ~~3.5~~--------- ~~3.6~~Total ~~4.0~~deferred ~~Tax~~tax ~~savings~~liabilities on1,082,914 ~~dividends~~1,073,274 ~~(0.5) (0.6) (0.9)~~ ---------- ---------- Deferred tax assets: Contribution carryovers 20,436 17,000 ---------- ~~Total~~--------- ~~tax~~Net ~~provision~~deferred ~~37.0~~tax ~~37.0~~liabilities ~~37.~~$1,062,478 ~~==========~~$1,056,274 ========== ========== ~~Temporary~~A ~~differences~~reconciliation ~~which~~of ~~give~~the ~~rise~~Company's toU.S. ~~deferred~~federal tax ~~liabilities~~rate inis ~~2000~~as ~~and~~follows: ~~1999~~For ~~are~~the asyear ~~follows~~ended December, 31: 2001 2000 1999 ---------- ---------- ~~Deferred~~---------- ~~tax~~Statutory ~~liabilities~~rate ~~Excess~~34.0% 34.0% 34.0% State taxes, net of federal tax ~~over~~benefit ~~book~~2.8 ~~depreciation~~3.5 $3.6 ~~592,904~~Decreases $resulting ~~507,096~~from: ~~Unrealized~~Dividend ~~gain~~exclusion on(0.3) ~~marketable~~(0.5) ~~securities~~(0.6) ~~480,370~~Contribution ~~474,591~~deduction ~~----------~~in ~~---------~~excess ~~Total~~of ~~deferred~~cost ~~liabilities~~ (1~~,073,274~~.9) ~~981,687~~- - Other - 0.1 -~~-------~~ --------- ~~Deferred tax asset Contribution carryforward 17,000~~ - ---------- ---------- ~~Net~~Effective ~~deferred~~rate ~~tax~~34.6% ~~liabilities $~~37.1~~,056,274~~% $37.0% ~~981,687~~========== ========== ==========

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:

December 31, Rate 2001 2000 ~~1999~~ ---------- ---------- ---------- ~~Real~~Wells ~~estate~~Fargo ~~mortgage~~Bank, ~~notes~~N.A. Due ~~2000~~2003 94.~~984~~0%% - 10,~~482~~250,000 - Wells Fargo Bank, N.A. Due 2006 ~~- See Note 5~~ 9.00% - 2,100,000 ~~3,125,000~~ Wells Fargo Bank, N.A. Due 2004 ~~- See Note 5~~ 9.00% - 500,000 ~~900,000~~ ---------- ---------- 210,~~600~~250,000 42,~~035~~600,~~482~~000 ========== ==========

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:

2001 2000 1999 ~~1998~~ ---- ---- ---- Industry Revenue % Revenue % Revenue % Convenience stores 2,245,064 46.8 2,285,611 52.5 2,059,567 49.2 ~~2,005,143~~Restaurants ~~54.0 Garden centers - - - - 388~~457,~~391~~268 109.5 ~~Restaurants~~ 462,866 10.6 452,658 10.8 ~~420~~Supermarket 473,~~088~~610 119.39 ~~Supermarket~~ 473,610 10.9 473,610 11.3 - - --------- ---- --------- ---- --------- ---- 3,175,942 66.2 3,222,087 74.0 2,985,835 71.3 ~~2,813,622 75.8~~ ========= ==== ========= ==== ========= ====

NOTE 8 - QUARTERLY OPERATING DATA (UNAUDITED) The following is a summary of unaudited quarterly results of operations: Quarter First Second Third Fourth ---------- ---------- ---------- ---------- ~~2000~~2001 Revenues 1,~~309~~209,~~986~~828 1,263,~~215~~198 1,~~050~~211,~~409~~806 1,~~118~~791,~~103~~167 Net Income ~~453~~437,~~638~~519 ~~422~~488,~~821~~927 ~~387~~445,~~621~~365 ~~415~~728,~~047~~345 Per share $1.0906 $1.0218 $01.9308 $1.0176 ~~1999~~2000 Revenues 1,~~192~~309,~~543~~986 1,~~021~~263,~~922~~215 1,~~280~~050,~~095~~409 1,~~057~~118,~~636~~103 Net Income ~~448~~453,~~062~~638 ~~339~~422,~~732~~821 ~~513~~387,~~023~~621 ~~377~~415,~~608~~047 Per share $1.0709 $01.8102 $10.2393 $01.9101

NATIONAL PROPERTIES CORPORATION SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Description Encum- Initial costs Cost capi- Gross Accumulated Date ac- Life on brances to company talized amount at depreciation quired which de- subsequent which car- preciation to acquis- ried at in latest in- tion close of come state- period ment is computed ~~QuikTrip~~Academy ~~Stores~~Sports ~~St. Louis~~Nashville, MOTN ~~1,381,946~~$ 1- 3,~~454~~749,~~000~~612 ~~121,433~~- 13,~~575~~749,~~433~~612 ~~409~~76,~~688~~594 0203/2815/9201 3139 ~~1/2~~ Econofoods, Sioux Falls, SD - 2,632,970 -0- 2,632,970 ~~137~~205,~~836~~348 12/01/98 39 ~~Garden~~Zio's ~~Center~~Restaurant ~~Metro~~Aurora, ~~Garden~~CO ~~Center~~- ~~Arlington~~1,744,624 TX- 1,~~218~~744,~~054~~624 55,918 09/22/01 39 Gate Petroleum Concord, NC - 1,~~700~~975,~~000~~706 -0- 1,~~700~~975,~~000~~706 ~~416~~5,~~041~~488 0412/0110/9301 3130 ~~1/2~~ Other Properties 2010,~~420~~250,~~679~~000 ~~871~~23,~~636~~135,312 21993,~~292~~069 24,~~315~~128,381 89,~~471~~852,~~617~~888 1976/~~1999~~2001 15/39 ---------- ----------- ---------- ---------- ---------- Totals $210,~~600~~250,000 $2633,~~207~~238,~~649~~224 $ 993,069 $2734,~~200~~231,~~718~~293 $ 910,~~435~~196,~~182~~236 ========== =========== ========== =========== ========== (1) NOTE TO SCHEDULE III Real Estate Buildings and Improvements 2001 2000 1999 ~~1998~~ Balance, Beginning of period $27,200,718 $27,013,359 $27,006,700 ~~$23~~additions 7,~~045~~205,~~531~~527 ~~additions~~ 1,744,624 657,019 ~~3,961,169~~ ----------- ----------- ----------- 34,406,245 28,757,983 27,663,719 ~~27,006,700~~ Reductions 174,953 1,557,265 650,360 -0- ----------- ----------- ----------- Balance, End of period $34,231,292 $27,200,718 $27,013,359 ~~$27,006,700~~ =========== =========== =========== Accumulated Depreciation ~~Real~~Buildings ~~Estate~~and Improvements 2001 2000 1999 ~~1998~~ Balance, Beginning of period $ 9,435,182 $10,014,348 $ 9,787,130 $additions 8912,~~935,995~~170 ~~additions~~ 787,622 871,411 ~~851,135~~ ----------- ----------- ----------- 10,347,352 10,801,970 10,658,541 ~~9,787,130~~ Reductions 151,116 1,366,788 644,193 -0- ----------- ----------- ----------- Balance, End of period $10,196,236 $ 9,435,182 $10,014,348 ~~$ 9,787,130~~ =========== =========== =========== (1) Land costs totaling $5,150,932 not included.

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