UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

Or

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                    to

Commission File Number 000-11777

FIRST EQUITY PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

1603 LBJ Freeway, Suite 300

Dallas, Texas 75234

(Address of principal executive offices)

(Zip Code)

(469) 522-4200

(Registrant's telephone number, including area code)

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   ☐  No.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) *.  ☐.  Yes  ☐   No.

* The registrant has not yet been phased into the interactive data requirements

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐  Yes  ☑   No

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.

 

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FIRST EQUITY PROPERTIES, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

   

 

 

 

ITEM  1.

FINANCIAL STATEMENTS

FIRST EQUITY PROPERTIES, INC.

BALANCE SHEETS

 

		March 31, 2016				December 31, 2015
Assets		(unaudited)
Notes receivable and accrued interest - related parties			2,105,666				2,106,229
Cash and cash equivalents			1,716				867
Total assets		$	2,107,382			$	2,107,096
Liabilities and Shareholders' Equity
Notes payable and accrued interest - related parties		$	836,730			$	836,953
Accounts payable - other			31,859				669
Accounts payable - related parties			368,957				381,958
Total liabilities			1,237,546				1,219,580
Shareholders' equity
Common stock, $0.01 par value; 40,000,000 shares authorized; 1,057,628 issued and outstanding			10,576				10,576
Preferred stock, $0.01 par value; 4,960,000 shares authorized; none issued or outstanding			-				-
Paid in capital			1,376,682				1,376,682
Retained earnings (deficit)			(517,422	)			(499,742	)
Total shareholders' equity			869,836				887,516
Total liabilities and shareholders' equity		$	2,107,382			$	2,107,096

 

 

The accompanying notes are an integral part of these financial statements.

 

FIRST EQUITY PROPERTIES, INC.

STATEMENT OF OPERATIONS

(unaudited)

 

		For the three months ended
		March 31,
		2016				2015
Revenue
Interest income - from related parties		$	51,220			$	52,090
Total income			51,220				52,090
Operating Expenses
General and administrative - related parties			15,000				15,000
General and administrative			2,718				4,896
Legal and professional fees			30,829				15,602
Total operating expenses			48,547				35,498
Income (loss) before interest expense and taxes			2,673				16,592
Other income (expense)
Interest expense - related parties			(20,353	)			(21,792	)
Income (loss) before income taxes			(17,680	)			(5,200	)
Income tax expense			-				-
Net income (loss) applicable to common shareholders		$	(17,680	)		$	(5,200	)
Earnings (loss) per share		$	(0.02	)		$	(0.01	)
Weighted average shares outstanding			1,057,628				1,057,628

 

 

The accompanying notes are an integral part of these financial statements.

 

FIRST EQUITY PROPERTIES, INC.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the three months ended March 31, 2016

 

		Common Stock												Retained
										Paid in				Earnings
		Shares				Amount				Capital				(Deficit)				Total Equity
Balances at January 1, 2016			1,057,628			$	10,576			$	1,376,682			$	(499,742	)		$	887,516
Net income (loss)			-				-				-				(17,680	)			(17,680	)
Balances  at March 31, 2016			1,057,628			$	10,576			$	1,376,682			$	(517,422	)		$	869,836

 

 

 

The accompanying notes are an integral part of these financial statements.

 

FIRST EQUITY PROPERTIES, INC.

STATEMENT OF CASH FLOWS

(unaudited)

 

		For the three months ended
		March 31,
		2016				2015
Cash Flows from Operating Activities
Net Income (Loss)		$	(17,680	)		$	(5,200	)
Adjustments to reconcile net income applicable to common shareholders to net cash provided by (used in) operating activities:
(Increase) decrease in
Interest receivable - related parties			563				1,562
Increase (decrease) in
Accounts payable - other			31,190				15,671
Accounts payable - related parties			(13,001	)			8,999
Interest payable - related parties			(223	)			(936	)
Federal income tax payable			-				-
Net cash provided by (used for) operating activities			849				20,096
Cash Flows from Investing Activities
Notes receivable - related parties			-				19,100
Net cash provided by (used for) investing activities			-				19,100
Cash Flows from Financing Activities
Notes payable - related parties			-				(39,765	)
Net cash provided by (used for) financing activities			-				(39,765	)
Net increase (decrease) in cash and cash equivalents			849				(569	)
Cash and cash equivalents at the beginning of period			867				1,776
Cash and cash equivalents at the end of period		$	1,716			$	1,207
Supplemental disclosures of cash flow information:
Cash paid for interest expense to related parties		$	20,577			$	22,730
Cash received for interest on notes receivable		$	51,783			$	53,653

 

 

The accompanying notes are an integral part of these financial statements.

 

FIRST EQUITY PROPERTIES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1.      ORGANIZATION AND BASIS OF PRESENTATION

Organization and business

First Equity Properties, Inc. is a Nevada based corporation organized in December 19, 1996 and the Company is headquartered in Dallas, TX. The Company's principal line of business and source of revenue is currently investments and interest on notes receivable.  The Company is currently in the business of real estate investing.  FEPI is a publicly traded company however, no trading market presently exists for the shares of common stock and its value is therefore not determinable.

Basis of presentation

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading.  In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.

The year-end Balance Sheet at December 31, 2015, was derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements.  For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Cost capitalization

Costs related to planning and developing a project are capitalized and classified as Real Estate development costs in the Consolidated Balance Sheets. We capitalized certain operating expenses until development is substantially complete, but no later than one year from the cessation of major development activity.

Newly issued accounting pronouncements

We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our statements, including that which we have not yet adopted.  We do not believe that any such guidance will have a material effect on our financial position or results of operation

 

NOTE 2.  FEDERAL INCOME TAXES

The Company accounts for income taxes in accordance with Accounting Standards Codification, ("ASC") No. 740, "Accounting for Income Taxes". ASC 740 requires an asset and liability approach to financial accounting for income taxes. In the event differences between the financial reporting basis and the tax basis of the Company's assets and liabilities result in deferred tax assets, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated.

Recognition of the benefits of deferred tax assets will require the Company to generate future taxable income. There is no assurance that the Company will generate earnings in future years.

NOTE 3.  NOTES RECEIVABLE AND ACCRUED INTEREST – RELATED PARTIES

Receivables from related parties primarily consist of two notes of $1,565,292 and $489,154 which are due to the Company in quarterly installments of interest only. The notes accrue interest at 10% per annum.  The maturity date of these notes has been extended to December 31, 2017.  A payment was received in March 2016 for $51,783 which paid the remaining interest balance due in 2015.

 

 

NOTE 4.  NOTES PAYABLE AND ACCRUED INTEREST – RELATED PARTIES

		Principal and interest payments due by period
		Total				2017				2018				2019				2020				2021				therafter
Long term debt		$	836,730			$	836,730			$	-			$	-			$	-			$	-			$	-
		$	836,730			$	836,730			$	-			$	-			$	-			$	-			$	-

NOTE 5.  RELATED PARTIES TRANSACTIONS

Transactions involving related parties cannot be presumed to be carried out on an arm's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities.  Related party transactions may not always be favorable to our business and may include terns, conditions and agreements that are not necessarily beneficial to or in best interest of our company.

The Company has an administrative agreement with Pillar Income Asset Management, Inc., an affiliated entity, for accounting and administrative services.  The total expense of the three months ended March 31, 2016 was $15,000 which is included in General and Administrative expenses of the Statements of Operations.

NOTE 6.  SUBSEQUENT EVENTS

The Company has evaluated subsequent events through May 31, 2016, the date the financial statements were available to be issued, and has determined that there are none to be reported.

ITEM 2.        MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on beliefs and assumptions made by, and information currently available to, management. When used, the words "anticipate", "believe", "estimate", "expect", "intend", "may", "might", "plan", "project", "result", "should", "will" and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected by the forward-looking statements. We caution you that while forward-looking statements reflect our good-faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Related parties

We apply ASC Topic 805, "Business Combinations", to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may  deal if one party controls or can significantly influence the decision making  of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity.

Results of Operations

The following discussion is based on our Statement of Operations within our Financial Statements as presented in Part 1, Item 1 of this report for the three months ended March 31, 2016 and 2015. The discussion is not meant to be an all inclusive discussion of the changes within our operations. Instead, we have focused on the significant items relevant to obtain an understanding of the changes in our operations.

The results of operations for the three months ended March 31, 2016, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

Our sole source of income is from the interest received on affiliated receivables.  The principal balances on those receivables have been consistent for the past years, thus making our revenues consistent from year to year.  Expenses are primarily related to professional and administrative fees and interest on affiliated notes.

Comparison of the three months ended March 31, 2016 to the same period ended 2015.

We reported net loss applicable to common shareholders of ($17,680) for the three months ended March 31, 2016 as compared to a net loss to common shareholders of ($5,200) for the same period ended 2015.

The increase in net loss is primarily due to the increase in legal and professional fees due to the timing of the audit review billing.

Liquidity and Capital Resources

General

Our principal liquidity needs for the next twelve months are funding of normal recurring expenses including interest expense and legal and administrative fees.

Our principal source of cash is proceeds from interest income on our notes receivables.  The following impacted our balance sheet as of March 31, 2016:

Our accounts payable – other increased due to the accrual of the 2015 audit review fee.

ITEM 3.

CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures.

A review and evaluation was performed by management under the supervision and with the participation of the   Principal Executive Officer and Chief Financial Officer of the effectiveness of the Company's disclosure controls and procedures, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of March 31, 2016. Based upon that most recent evaluation, which was completed as of the end of the period covered by this Form 10-K, the Principal Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at March 31, 2016 to ensure that information required to be disclosed in reports that the Company files submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time period specified by the Securities and Exchange Commission ("SEC") rules and forms. As a result of this evaluation, there were no significant changes in the Company's internal control over financial reporting during the period ended March 31, 2016 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

(b)

Changes in Internal Controls over Financial Reporting. There have been no changes in the Company's internal controls over financial reporting during the quarter ended March 31, 2016, that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM  6.

EXHIBITS

The following exhibits are filed with this report or incorporated by reference as indicated.

 

*

Filed herewith.

 

SIGNATURE PAGE

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.