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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 Commission file number
    
    0-11777
 FIRST EQUITY PROPERTIES, INC. 
  Nevada
    
    95-6799846(State or other jurisdiction of incorporation
or organization)
    
    (I.R.S. Employer
Identification No.)
 1800 Valley View Lane, Suite 300, Dallas, Texas 75234 
  214-750-5800 
       Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes o 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 x No o APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 31, 2004, registrant had 10,570,944 shares of Common Stock issued and outstanding.    1




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FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES FORM 10-Q
March 31, 2004 INDEX Page No.Part I Financial Information:Item 1. Financial StatementsConsolidated Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003
    
    
    3Consolidated Statement of Earnings (Unaudited)
Three Months Ended March 31, 2004 and 2003
    
    
    4Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    8Item 4. Controls and Procedures
    
    
    8Part II Other Information:Item 6. Exhibits and Reports on Form 8-K
    
    
    9Certification Pursuant to Section 302Certification Pursuant to Section 906
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS March 31, 2004
    
    December 31,(Unaudited)
    
    2003ASSETSCash and cash equivalents
    
    $
    7,271
    
    
    $
    6,127Accounts receivable  affiliate
    
    
    88,386
    
    
    
    83,386Notes and interest receivable
    
    
    653,116
    
    
    
    638,531Net assets held for sale
    
    
    2,072,540
    
    
    
    40,003,656$
    2,821,313
    
    
    $
    40,731,700LIABILITIES AND SHAREHOLDERS EQUITYAccounts payable  affiliate
    
    $
    2,750,276
    
    
    $
    2,784,176Total liabilities
    
    
    2,750,276
    
    
    
    2,784,176Shareholders equityPreferred stock, $0.01 par, 4,960,000 shares
authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par, 40,000,000 shares
authorized, 10,570,944 shares issued and outstanding
    
    
    105,710
    
    
    
    105,710Capital in excess of par value
    
    
    1,281,548
    
    
    
    1,281,548Retained earnings (deficit)
    
    
    (1,316,221
    )
    
    
    36,560,266Total shareholders equity
    
    
    71,037
    
    
    
    37,947,524$
    2,821,313
    
    
    $
    40,731,700
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31, 2004 and 2003
(Unaudited) 2004
    
    2003RevenueInterest income
    
    $
    14,587
    
    
    $
    9,45914,587
    
    
    
    9,459Operating expensesGeneral and administrative
    
    
    736
    
    
    
    833Legal and professional fees
    
    
    4,937
    
    
    
    688Total operating expenses
    
    
    5,673
    
    
    
    1,521Net income from continuing operations
    
    
    8,914
    
    
    
    7,938Income from discontinued operations
    
    
    45,715
    
    
    
    47,555Impairment loss
    
    
    (37,931,116
    )
    
    
    NET EARNINGS (LOSS)
    
    $
    (37,876,487
    )
    
    $
    55,493Earnings (loss) per shareNet earnings from continuing operations
    
    $
    
    
    
    $
    Discontinued operations
    
    
    (3.58
    )
    
    
    Net earnings (loss)
    
    $
    (3.58
    )
    
    $
    Weighted average shares outstanding
    
    
    10,570,944
    
    
    
    10,570,944
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2004 and 2003
(Unaudited) 2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet earnings (loss)
    
    $
    (37,876,487
    )
    
    $
    55,493Adjustments to reconcile net income to net cash
provided by (used for) operating activitiesImpairment loss
    
    
    37,931,116
    
    
    
    (Increase) decrease inInterest receivable
    
    
    (14,585
    )
    
    
    (9,456
    )Accounts receivable  affiliate
    
    
    (5,000
    )
    
    
    Increase (decrease) inAccounts payable  affiliate
    
    
    (33,900
    )
    
    
    (45,000
    )Net cash provided by (used for) operating activities
    
    
    1,144
    
    
    
    1,037Net increase (decrease) in cash and cash equivalents
    
    
    1,144
    
    
    
    1,037Cash and cash equivalents at beginning of period
    
    
    6,127
    
    
    
    5,450Cash and cash equivalents at end of period
    
    $
    7,271
    
    
    $
    6,487Noncash investing and financing activities:Exchange of investment for note receivable
    
    $
    
    
    
    $
    585,000
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited) NOTE A  BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements
have been prepared by First Equity Properties, Inc. (the Company)
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments that are,
in the opinion of management, necessary to fairly present such
information. All such adjustments are of a normal recurring nature.
Although the Company believes that the disclosures are adequate to make
the information presented not misleading, certain information and
footnote disclosures, including a description of significant accounting
policies normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of
America, have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Companys 2003
Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for interim periods are not
necessarily indicative of the results for any subsequent quarter or the
entire fiscal year ending December 31, 2004. NOTE B  DISCONTINUED OPERATIONS Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), established a single
accounting model for the impairment or disposal of long-lived assets
including discontinued operations. This statement requires that the
operations related to segments that have been sold, or segments that are
intended to be sold, be presented as discontinued operations in the
statement of operations for all periods presented, and the segments
intended to be sold are to be designated as held for sale on the
balance sheet. In the event of a future asset sale, the company is
required to reclassify portions of previously reported operations to
discontinued operations within the Statements of Operations. For the
three months ended March 31, 2004, income from discontinued operations
relates to the planned disposition of subsidiaries providing management
services. In May 2004, the Company entered into an agreement with a related party
to sell the subsidiaries of the Company that provide management services
for total consideration of $2,072,540. In the quarter ended March 31,
2004, the Company recorded an impairment of $37,931,116, representing the
write down of certain assets of the those two subsidiaries that provide
the management services to the value agreed to between the related party
buyer and seller. The primary asset written down was the investment in
preferred stock of an affiliate. 6




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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited) NOTE B  DISCONTINUED OPERATIONS  continued The impairment loss will result in the generation of a deferred tax asset
of approximately $13,000,000 for which a valuation allowance of the
entire amount has been provided since management cannot be assured of the
utilization of the deferred tax asset. December 31, 2003 balances have been reclassed to present the assets of
the two subsidiaries under the caption net assets held for sale. The
following table details the assets and liabilities comprising net assets
held for sale in the financial statements at March 31, 2004 and December
31, 2003 for the entities sold. March 31,
    
    December 31,2004
    
    2003Accounts receivable  affiliate
    
    $
    262,960
    
    
    $
    262,960Investments  affiliate
    
    
    2,597,233
    
    
    
    40,528,349Accounts payable and minority interest
    
    
    (787,653
    )
    
    
    (787,653
    )Net equity in subsidiaries to be sold
    
    $
    2,072,540
    
    
    $
    40,003,656
 The results of discontinued operations of the subsidiaries consisted of
the following for the quarters ended March 31, 2004 and March 31, 2003: March 31,
    
    March 31,2004
    
    2003Operating revenues
    
    $
    45,715
    
    
    $
    47,555Net income from discontinued operations
    
    $
    45,715
    
    
    $
    47,555
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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three months ended March 31, 2004 compared to three months ended March 31, 2003 Revenues from operations increased to $14,587 from prior year of $9,459 due to
increased interest income on the note receivable. Total operating expenses
increased to $5,673 in 2004 from $1,521 in 2002. The increase in operating
expenses was due to higher legal and professional fees in 2004. The discontinued operations represent the income from the management contracts
of the company that are to be sold in May 2004. Total management income of
discontinued operations decreased to $45,715 from $47,555 in 2003 due to a
slight drop in management fee revenue. Financial Condition and Liquidity At March 31, 2004, the Company had total assets of $2,821,313 compared to
$40,731,700 at December 31, 2003. Cash and cash equivalents were $7,271. The
decrease in assets results from the Company, in May 2004, entering into an
agreement with a related party to sell the subsidiaries of the Company that provide
management services for total consideration of $2,072,540. As a result, the Company recorded an impairment of
$37,931,116, representing the write down of certain assets of the those two
subsidiaries that provide the management services to the value agreed to
between the related party buyer and seller. The primary asset written down was
the investment in preferred stock of an affiliate. Total liabilities were $2,750,276 versus $2,784,176 at December 31, 2003. 
 Item 4. Controls and Procedures  (a)
    
    Within the 90 days prior to the date of 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, of the effectiveness of the design
and operation of the Companys disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based upon the evaluation, the Companys
Vice President, Treasurer and Chief Accounting Officer
concluded that the Companys disclosure controls and procedures are
effective in timely alerting him to material information relating to the
Company (including its consolidated subsidiaries) required to be included
in the Companys periodic SEC filings.(b)
    
    There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect the Companys internal
controls subsequent to the date the Company carried out this evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses. 8




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Part II Other Information 
 Item 6. Exhibits and Reports on Form 8  K  (a)
    
    Exhibits Exhibit 31.1  Certification Pursuant to Rules 13a-14 and 15d-14 Under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith. Exhibit 32.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.  (b)
    
    Reports on Form 8-K  None 9




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to he signed on its behalf by the
undersigned thereunto duly authorized. FIRST EQUITY PROPERTIES, INC.May 21, 2004
    /s/ Ronald E. Kimbrough,Vice President, Treasurerand Chief Accounting Officer 10