DIRECT INVESTMENT HOLDINGS GROUP, INC. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - DIRECT INVESTMENT HOLDINGS GROUP, INC.	Financial_Report.xls
EX-31.1 - DIRECT INVESTMENT HOLDINGS GROUP, INC.	fepi10qex311093012.htm
EX-32.1 - DIRECT INVESTMENT HOLDINGS GROUP, INC.	fepi10qex312093012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨	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)


Nevada	95-6799846
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

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. þ. 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) . þ. Yes ¨ No.

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.


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company þ

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

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


Common Stock, $.01 par value	1,057,628
(Class)	(Outstanding at November 15, 2012)

FIRST EQUITY PROPERTIES, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		PAGE

Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (unaudited)	4
	Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2012 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)	6
	Notes to Financial Statements	7-8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8-9
Item 3.	Controls and Procedures	9-10

PART II. OTHER INFORMATION

Item 6.	Exhibits	11
SIGNATURES		12-14

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

FIRST EQUITY PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30, 2012			December 31, 2011
Assets	(unaudited)
Real estate land holdings, at cost	$	-		$	5,256,279
Receivables and accrued interest - affiliates		3,046,288			2,965,710
Cash and cash equivalents		353			508
Other assets		-			79,078
Total assets	$	3,046,641		$	8,301,575



Liabilities and Shareholders' Equity
Notes payable and accrued interest - affiliates	$	2,136,720		$	5,779,852
Notes payable - third party lender		-			944,000
Accounts payable - other		16,245			56,927
Accounts payable - affiliates		50,000			874,496
Total liabilities		2,202,965			7,655,275

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)		(543,582	)		(740,958	)

Total shareholders' equity		843,676			646,300

Total liabilities and shareholders' equity	$	3,046,641		$	8,301,575

FIRST EQUITY PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the three months ended						For the nine months ended
	September 30,						September 30,
	2012			2011			2012			2011

Revenue
Interest income	$	60,683		$	60,683		$	180,730		$	180,071
Other income		-		$	-			100		$	-

Total income		60,683			60,683			180,830			180,071

Operating Expenses
General and administrative		3,632			37,314			69,413			101,032
Lease Termination		-			(68,730	)		-			(68,730	)
Legal and professional fees		7,801			3,506			27,710			47,994

Total operating expenses		11,433			(27,910	)		97,123			80,296

Income (loss) before interest expense and taxes		49,250			88,593			83,707			99,775

Other income (expense)
Gain on sale		-			-			259,071			-
Interest expense		(17,703	)		(94,769	)		(145,402	)		(249,789	)

Income (loss) before income taxes		31,547			(6,176	)		197,376			(150,015	)

Income tax (expense) benefit, net		-			-			-			(636	)

Net income (loss) applicable to common shareholders	$	31,547		$	(6,176	)	$	197,376		$	(150,651	)

Earnings (loss) per share	$	0.03		$	(0.01	)	$	0.19		$	(0.14	)

Weighted average shares outstanding		1,057,628			1,057,628			1,057,628			1,057,628

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

FIRST EQUITY PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the nine months ended September 30, 2012

(unaudited)

	Common Stock						Retained
					Paid in		Earnings
	Shares		Amount		Capital		(Deficit)			Total Equity
Balances at January 1, 2012		1,057,628	$	10,576	$	1,376,682	$	(740,958	)	$	646,300
Net income		-		-		-	$	197,376		$	197,376
Balances at September 30, 2012		1,057,628	$	10,576	$	1,376,682	$	(543,582	)	$	843,676

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

FIRST EQUITY PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the nine months ended
	September 30,
	2012			2011
Cash Flows from Operating Activities
Net Income (Loss)	$	197,376		$	(150,651	)
Adjustments to reconcile net income applicable to common shareholders to net cash provided by (used in) operating activities:
Gain on sale		(259,071	)		-
(Increase) decrease in
Interest receivable - affiliates		(180,730	)		1,319
Other Assets		-			(106,636	)
Federal income tax receivable		-			636
Increase (decrease) in
Accounts payable - other		9,565			(2,978	)
Accounts payable - affiliates		(7,500	)		184,623
Intercompany and interest payable - affiliates		145,403			-

Net cash provided by (used for) operating activities		(94,957	)		(73,687	)

Cash Flows from Investing Activities
Increase/decrease in investment in real estate		4,120,300			(951,274	)
Notes receivable - affiliates		100,151			(307,056	)


Net cash provided by (used for) investing activities		4,220,451			(1,258,330	)

Cash Flows from Financing Activities
Notes payable - affiliates		(4,125,649	)		832,808
Notes payable - bank		-			500,000


Net cash provided by (used for) financing activities		(4,125,649	)		1,332,808


Net increase (decrease) in cash and cash equivalents		(155	)		791
Cash and cash equivalents at the beginning of period		508			151

Cash and cash equivalents at the end of period	$	353		$	942

Supplemental disclosures of cash flow information:
Cash paid for interest to Adams Realty	$	39,550		$	-

Non - cash items:
Real estate development projects financed by affiliate	$	-		$	-
Debt assumed by purchaser	$	1,456,194		$	-

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

First Equity Properties Inc. ( “FEPI”) is a Nevada based corporation organized in December 19, 1996 and the company is headquartered in Dallas, TX. 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.

The Company’s principal line of business and source of revenue has been earnings on investment and interest on notes receivable. However, during 2010 and 2011 the Company purchased certain parcels of land and has since engaged in the business of investing in real estate for potential future sale or development. On April 1, 2012 the Company sold all of its land parcels to a related party and is no longer in the business of investing in land.

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 the unaudited 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. Certain 2011 balances have been reclassified to conform to the 2012 presentation.

The year-end Balance Sheet at December 31, 2011, 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, 2011.

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 are 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. REAL ESTATE ACTIVITY

As of December 31, 2011, the Company owned, through its subsidiary, Kelly Lot Development, Inc.(“KLD”) various parcels of undeveloped land which consisted of approximately 7.53 acres of Kelly Lots Land located in Farmers Branch, TX, approximately 6.916 acres of Vineyard Land located in Grapevine, TX approximately 5.618 acres and 6.25 acres of Nashville Land located in Nashville, TN, approximately 3.028 acres of Seminary West Land located in Fort Worth, Texas, 6.796 acres of Travis Ranch Land located in Kaufman County, Texas and approximately 23.237 acres known as Cooks Lane located in Fort Worth, TX.

In June 2012, the Company determined that it would not have adequate funding to properly develop these raw land parcels and entered into a contract to sell Kelly Lot Development effective April 1, 2012 to Tacco Financial, Inc (“TFI”) a related party for $5,576,494 comprised of $4,120,300 of debt reduction and the assumption of third party debt. The transaction resulted in $259,071 of gain on sale. With the disposition of Kelly Lot Development the Company no longer has any land holdings.

NOTE 3. 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 4. LEASES

On September 18, 2008, the Company entered into a long-term lease commitment with Income Opportunity Realty Investors, Inc., a related party. The lease was for 4,288 square feet of commercial space at the Hickory One Office building, located in Farmers Branch, Texas. The base rent consisted of monthly installments of $5,717 per month for a period of three years. The lease commenced on November 1, 2008 and extended through October 31, 2011. This lease has been terminated retroactive to June 30, 2010 by mutual agreement of the Company and the building’s owner. Based on this agreement, the owner has agreed to reimburse the Company for rents paid after the effective termination date. The Company has recorded a note receivable from the owner in the amount of $45,739.

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 nine months ended September 30, 2012 was $22,500 which is included in General and Administrative expenses of the Consolidated Statements of Operations.

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.

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 nine months ended September 30, 2012 and 2011. 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 nine months ended September 30, 2012, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

Our primary 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 September 30, 2012 to the same period ended 2011.

We reported net income applicable to common shareholders of $31,547 for the three months ended September 30, 2012 as compared to a net income to common shareholders of ($6,176) for the same period ended 2011.

This change from net loss to net income was primarily due to no rent being recorded in 2012 since the lease was cancelled and the reduction in interest expense due to the sale of Kelly Lot Development as compared to the period ended 2011.

Comparison of the nine months ended September 30, 2012 to the same period ended 2011.

We reported net income applicable to common shareholders of $197,376 for the nine months ended September 30, 2012 as compared to a net loss to common shareholders of ($150,651) for the same period ended 2011.

This change from net loss to net income was primarily due to no rent being recorded in 2012 since the lease was cancelled and the reduction in interest expense due to the land sales and recognition of a gain from the sale of the land parcels as compared to the period ended 2011.

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 significantly impacted our balance sheet as of September 30, 2012:

•

Our real estate land holdings decreased due to the sale of Kelly Lot Development.

•

Our accounts payable, notes payable and accrued interest – affiliates decreased due to the sale of Kelly Lot Development.

•

Our notes payable – third party lender decreased due to the sale of Kelly Lot Development.

•

We recognized a gain on the sale due to the sale of Kelly Lot Development to a related party.

ITEM 3.

CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Financial Officer and Acting Principal Executive Officer of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Company’s Chief Financial Officer and Acting Principal Executive Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting him to material information relating to the Company required to be included in the Company’s periodic SEC filings.

(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 September 30, 2012, 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.


Exhibit Number		Description

3.1		Articles of Incorporation of Wespac Property Corporation as filed with and endorsed by the Secretary of State of California on December 16, 1996 (incorporation by reference is made to Exhibit 3.1 to Form 8-K of First Equity Properties, Inc. for event reported June 19, 1996).

3.2		Articles of Incorporation of First Equity Properties, Inc. filed with and approved by the Secretary of State of Nevada on December 19, 1996 (incorporation by reference is made to Exhibit 3.2 to Form 8-K of First Equity Properties, Inc. for event reported June 19, 1996).

3.3		Bylaws of First Equity Properties, Inc. as adopted December 20, 1996 (incorporation by reference is made to Exhibit 3.3 to Form 8-K of First Equity Properties, Inc. for event reported June 19, 1996).

3.4		Agreement and Plan of Merger of Wespac Property Corporation and First Equity Properties, Inc. dated December 23, 1996 (incorporation by reference is made to Exhibit 3.4 to Form 8-K of First Equity Properties, Inc. for event reported June 19, 1996).

3.5		Articles of Merger of Wespac Property Corporation into First Equity Properties, Inc. as filed with and approved with the Secretary of State in Nevada December 24, 1996 (incorporation by reference is made to Exhibit 3.5 to Form 8-K of First Equity Properties, Inc. for event reported June 19, 1996).

3.6		Certificate of Designation of Preferences and Relative Participating or Optional of Other Special Rights and Qualifications, Limitations or Restrictions thereof of the Series A 8% Cumulative Preferred Stock (incorporation by reference is made to Exhibit 3.6 to Form 10-KSB of First Equity Properties, Inc. for the fiscal year ended December 31, 1996.)

31.1*		Certification of Acting Principal Executive Officer and Chief Financial and Accounting Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

32.1*		Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data fileds pursuant to Rule 405 of Regulation S-T.

______________

*	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.


	FIRST EQUITY PROPERTIES, INC.

Date: November 14, 2012	By:	/s/ Daniel J. Moos
		Daniel J. Moos President and Treasurer


	FIRST EQUITY PROPERTIES, INC.

Date: November 14, 2012	By:	/s/ Steven Shelley
		Steven Shelley Director, Vice President and Secretary

DIRECT INVESTMENT HOLDINGS GROUP, INC. - FORM 10-Q - November 14, 2012

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DIRECT INVESTMENT HOLDINGS GROUP, INC. Reports