Direct Investment Holdings Group, Inc. - Quarter Report: 2006 September (Form 10-Q)

Table of Contents

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

Or

FOR THE TRANSITION PERIOD FROM              TO             

Commission File Number 000-11777

FIRST EQUITY PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

1800 Valley View Lane, Suite 300

Dallas, Texas 75234

(Address of principal executive offices)

(Zip Code)

(469) 522-4200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨.    No  x.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer   x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ¨    No  ¨.

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Table of Contents

FIRST EQUITY PROPERTIES, INC.

FORM 10-Q

TABLE OF CONTENTS

2

Table of Contents

FIRST EQUITY PROPERTIES, INC.

BALANCE SHEETS

The accompanying notes are an integral part of these Consolidated Financial Statements.

3

Table of Contents

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF EARNINGS

(Unaudited)

The accompanying notes are an integral part of these Consolidated Financial Statements.

4

Table of Contents

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF STOCKHOLDERS EQUITY

For the Nine Months Ended September 30, 2006

(Unaudited)

The accompanying notes are an integral part of these Financial Statements.

5

Table of Contents

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these Consolidated Financial Statements.

6

Table of Contents

FIRST EQUITY PROPERTIES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE A. - BASIS OF PRESENTATION

The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management of First Equity Properties, Inc., all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of First Equity Properties, Inc.’s balance sheet, statement of earnings and statement of cash flows, have been included.

The financial statements for the period September 30, 2006 do not include all of the information and footnotes required by generally accepted accounting principals in the United States of America for complete financial statements. You should read these financial statements in conjunction with the financial statements and footnotes thereto in our annual report on Form 10-K for the year ended December 31, 2005. Hereafter in this document, First Equity Properties, Inc. is referred to as FEPI.

Operating results for the nine-month period ended September 30, 2006, are not necessarily indicative of the results that may be expected for the year ended December 31, 2006.

NOTE B. FEDERAL INCOME TAXES

The accompanying unaudited 2006 financial statements contain an accrual for current federal income taxes calculated using annualized net income of approximately of $200,000. Using an estimated tax rate of 34%, the estimated tax liability for the year would be approximately $68,000, of this $53,957 is included as current income tax expense in the accompanying unaudited 2006 financial statements, which represents three quarters of the estimated tax liability for the year. There are no significant differences between the Company’s net income for financial and income tax reporting.

The Company has determined that it would be able to use its prior year net operating loss carryforward in the current year. The valuation allowance account that offsets the deferred tax asset associated with the $40,000 net operating loss was removed. This resulted in an estimated deferred tax benefit of $13,600 as reflected in the accompanying unaudited 2006 financial statements. Of this amount, $10,200 has been used to offset the current estimated tax liability.

7

Table of Contents

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

Results of Operations

The sole source of income is from interest on notes receivables from affiliated entities. The average income received from interest is approximately $60,000 and $180,000 for the three and nine months ended September 30, 2006, respectively.

The major operating expenses are related to the professional fees required to maintain the organization. These expenses are relatively consistent and comparable to prior periods. The increase in income tax expense is due to the company using all of its net operating loss (NOL) tax credit carryforwards except for $40,000. The Company is using a tax rate of 34% to estimate the effect of the NOL to offset the current income tax expense.

Financial Condition and Liquidity

Total assets as of September have decreased from $2,472,253 to $2,417,703 for 2005 and 2006, respectively. The decrease was due to the receipt of interest accrued on the notes. The Company’s significant assets consist of two notes receivables from affiliated parties which total $2,407,540.

The Company is anticipating paying federal income taxes of $68,000 and has accrued a liability of $43,758, net of tax credits to date. The increase in tax liability is due to the company using its remaining tax credits in prior year to offset its prior year tax expense.

The payable as of September 30 consists of affiliated payables of $2,053,980 and $1,847,980 for 2005 and 2006, respectively. The Company has paid down $206,000 of this obligation for the nine month period ended September 30, 2006.

ITEM 4. CONTROLS AND PROCEDURES

8

Table of Contents

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

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

9

Table of Contents

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.

10