Direct Investment Holdings Group, Inc. - Quarter Report: 2008 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2008

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)

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 þ. No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated filer or a smaller reporting company. See definition 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   þ.

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  ¨.    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.

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FIRST EQUITY PROPERTIES, INC.

FORM 10-Q

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PART 1. FINANCIAL INFORMATION

FIRST EQUITY PROPERTIES, INC.

BALANCE SHEETS

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

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FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF EARNINGS

(unaudited)

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

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FIRST EQUITY PROPERTIES, INC.

STATEMENT OF SHAREHOLDERS EQUITY

For the six months ended June 30, 2008

(unaudited)

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

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FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF CASH FLOWS

(unaudited)

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

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FIRST EQUITY PROPERTIES, INC.

NOTES TO FINANCIAL STATEMENTS

First Equity Properties, Inc. (“FEPI”, “The Company”, “We”, “Us”, or “Our”) is the successor-in interest to WESPAC Investors Trust III, a California real estate investment trust (“WESPAC”) originally established August 22, 1983. FEPI is a Nevada Corporation.

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, and accordingly, 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, statement of stockholder’s equity and statement of cash flows, have been included. 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, 2007.

Operating results for the six months ended June 30, 2008, are not necessarily indicative of the results that may be expected for the year ended December 31, 2008.

The accompanying unaudited 2008 financial statements contain an estimated accrual for current federal income taxes calculated using the graduated tax rate as published by the Internal Revenue Service (IRS), which was 15% for the second quarter of 2008.

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.

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Results of Operations

The Company’s sole source of income is from interest on notes receivables from affiliated entities. As the principal on these notes is not being paid down, the income from these notes are consistent and comparable to prior periods. The principal balance on these notes receivable is $2,407,540.

Comparison of the three months ended June 30, 2008 to the three months ended June 30, 2007.

Interest income remained consistent for the three months ended June 30, 2008 and 2007. This is due to using a fixed interest rate on the notes receivables.

General and administrative expense decreased by approximately $700 for the three months ended June 30, 2008 as compared to the same period ended 2007 due to fewer filing fees incurred in the current period.

Legal and professional fees decreased by approximately $4,800 for the three months ended June 30, 2008 as compared to the same period ended 2007. In the prior period, an additional $3,200 was expended on non-recurring legal and other fees, and an additional $1,200 was incurred on filing fees and an additional $400 on audit and tax related fees.

Interest expense was approximately $25,000 for the three month period ended June 30, 2008. In January of 2008, the parties to the affiliated payables balances demanded that interest at the rate of prime plus 1 percent be paid on the outstanding amounts. No interest expense had been paid or recorded prior to this event.

Income tax expense decreased by approximately $12,000 for the three month period ended June 30, 2008 as compared to the same period ended 2007. The decrease is due to the interest expense that is now being incurred on our outstanding affiliate payables. In addition, in an attempt to more closely approximate the actual expense as reported to the internal revenue service, we are using the graduated tax rate as published by the IRS (which is currently 15 percent) to estimate our liability.

Comparison of the six months ended June 30, 2008 to the six months ended June 30, 2007.

Interest income remained consistent for the six months ended June 30, 2008 and 2007. This is due to using a fixed interest rate on the notes receivables.

General and administrative expenses were relative consisted for the six month period ended June 30, 2008 as compared to the same period ended 2007.

Legal and professional fees decreased by approximately $4,200 for the six month period ended June 30, 2008 as compared to the same period ended 2007. In the prior period, an additional $2,600 was expended on non-recurring legal and other fees, and an additional $1,200 was incurred on filing fees and an additional $400 on audit and tax related fees.

Interest expense was approximately $55,300 for the six months ended June 30, 2008. In January of 2008, the parties to the affiliated payables balances demanded that interest at the rate of prime plus 1 percent be paid on the outstanding amounts. No interest expense had been paid or recorded prior to this event.

Income tax expense decreased by approximately $25,600 for the six month period ended June 30, 2008 as compared to the same period ended 2007. The decrease is due to the interest expense that is now being incurred on our outstanding affiliate payables. In addition, in an attempt to more closely approximate the actual expense as reported to the internal revenue service, we are using the graduated tax rate as published by the IRS (which is currently 15 percent) to estimate our liability.

Liquidity and Capital Resources

General

Our principal liquidity needs for the next twelve months are funding of normal recurring expenses; including interest expense, legal and accounting fees, and federal income tax payments. Our principal source of cash is proceeds from interest income on our notes receivables.

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As of June 30, 2008 and December 31, 2007 we had total assets of approximately $2,449,000 and $2,480,000, respectively. Of that amount approximately $42,000 and $73,000 was held in cash as of June 30, 2008 and December 31, 2007, respectively. We anticipate that the cash provided by our operating activities will be sufficient to meet our cash needs.

Our significant assets consist of two notes receivable of approximately $1,823,000 and $585,000 from affiliated parties totaling approximately $2,408,000.

Cash flow Summary

The following summary discussion of our cash flows is based on the statements of cash flows as presented in Item 1 and is not meant to be an all inclusive discussion of the changes in our cash flow.

The net adjustment to our cash for our federal income tax expense is due to paying cash for federal income taxes of approximately $55,000 net of our accrued income tax expense of approximately $11,000.

The net adjustment to our accounts payable affiliated is due to paying approximately $26,000 cash to reduce our accounts payable to affiliates.

During the current period, approximately $55,000 cash was paid for federal income taxes and approximately $55,000 cash was paid in interest expense.

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 Vice President, Treasurer and Chief Accounting 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 Vice President, Treasurer and Chief Accounting 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.

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2008, that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

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

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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.

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