##### Table of Contents

---

FORM 10-Q



---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

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)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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

(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.



|                             |  |                                    
|---------------------------- |  | -----------------------------------
|Common Stock, $.01 par value |  | 1,057,628                          
|(Class)                      |  | (Outstanding at September 30, 2006)



---



---

##### Table of Contents

FIRST EQUITY PROPERTIES, INC.

FORM 10-Q

TABLE OF CONTENTS



|                              |  |                                                                                                    |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                    |  | PAGE
|PART I: FINANCIAL INFORMATION |  |                                                                                                   
|                              |  |                                                                                                   
|Item 1.                       |  | Financial Statements                                                                               |  |     
|                              |  | Balance Sheets at September 30, 2006 (Unaudited) and December 31, 2005                             |  | 3   
|                              |  | Statements of Earnings for the three and nine months ended September 30, 2006 and 2005 (Unaudited) |  | 4   
|                              |  | Statements of Stockholders Equity for the nine months ended September 30, 2006 (Unaudited)         |  | 5   
|                              |  | Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (Unaudited)         |  | 6   
|                              |  | Notes to Financial Statements                                                                      |  | 7   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 8   
|Item 4.                       |  | Controls and Procedures                                                                            |  | 8   
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                   
|                              |  |                                                                                                   
|Item 6.                       |  | Exhibits                                                                                           |  | 9   
|SIGNATURE PAGES               |  | 10                                                                                                



2



---

##### Table of Contents

FIRST EQUITY PROPERTIES, INC.

BALANCE SHEETS



|                                                                                               |  |                    |           |   |                   |   |           |  
|---------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                               |  | September 30, 2006 |           |   | December 31, 2005 |  
|                                                                                               |  | (Unaudited)        |           |   |                   |  
|Assets                                                                                         |  |                    |           |  
|Cash and cash equivalents                                                                      |  | $                  | 6,763     |   |                   | $ | 4,029     |  
|Notes and interest receivable                                                                  |  |                    | 2,407,540 |   |                   |   | 2,468,224 |  
|Deferred tax asset                                                                             |  |                    | 3,400     |   |                   |   |          |  
|                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                               |  | $                  | 2,417,703 |   |                   | $ | 2,472,253 |  
|                                                                                               |  |                    |           |   |                   |   |           |  
|Liabilities and Stockholders Equity                                                           |  |                    |           |   |                   |   |           |  
|                                                                                               |  |                   
|Accounts payable                                                                               |  | $                  |          |   |                   | $ | 7,320     |  
|Federal income taxes payable                                                                   |  |                    | 43,758    |   |                   |   |          |  
|Accounts payable  affiliate                                                                   |  |                    | 1,847,980 |   |                   |   | 2,053,980 |  
|                                                                                               |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                              |  |                    | 1,891,738 |   |                   |   | 2,061,300 |  
|                                                                                               |  |                   
|Shareholders equity                                                                           |  |                    |           |   |                   |   |           |  
|Preferred stock, $0.01 par, 4,960,000 shares authorized, none issued and outstanding           |  |                    |          |   |                   |   |          |  
|Common stock, $0.01 par, 40,000,000 shares authorized, 1,057,628 shares issued and outstanding |  |                    | 10,576    |   |                   |   | 10,576    |  
|Additional paid-in capital                                                                     |  |                    | 1,376,682 |   |                   |   | 1,376,682 |  
|Retained earnings (deficit)                                                                    |  |                    | (861,293  | ) |                   |   | (976,305  | )
|                                                                                               |  |                    |           |   |                   |   |           |  
|Total stockholders equity                                                                     |  |                    | 525,965   |   |                   |   | 410,953   |  
|                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                               |  | $                  | 2,417,703 |   |                   | $ | 2,472,253 |  
|                                                                                               |  |                    |           |   |                   |   |           |  

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



3



---

##### Table of Contents

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF EARNINGS

(Unaudited)



|                                    |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|----------------------------------- |  | ---------------------------------------- | --------- | --------------------------------------- | ---- | - | --------- |  | - | --------- | - |  | - | ---------
|                                    |  | For the Three Months Ended September 30, |           | For the Nine Months Ended September 30,
|                                    |  | 2006                                     |           |                                         | 2005 |   | 2006      |  |   | 2005     
|Revenue                             |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|Interest income                     |  | $                                        | 60,767    |                                         |      | $ | 60,683    |  | $ | 180,154   |   |  | $ | 180,071  
|                                    |  |                                          |           |                                        
|Operating expenses                  |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|General and administrative          |  |                                          | 1,737     |                                         |      |   | 1,428     |  |   | 3,894     |   |  |   | 3,318    
|Legal and professional fees         |  |                                          | 4,187     |                                         |      |   | 5,156     |  |   | 20,891    |   |  |   | 14,575   
|                                    |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|Total operating expenses            |  |                                          | 5,924     |                                         |      |   | 6,584     |  |   | 24,785    |   |  |   | 17,893   
|                                    |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|Operating income                    |  |                                          | 54,843    |                                         |      |   | 54,099    |  |   | 155,369   |   |  |   | 162,178  
|                                    |  |                                          |           |                                        
|Corporate income tax expense        |  |                                          | (19,757   | )                                       |      |   |          |  |   | (53,957   | ) |  |   |         
|Deferred tax benefit                |  |                                          |          |                                         |      |   |          |  |   | 13,600    |   |  |   |         
|                                    |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|NET EARNINGS                        |  | $                                        | 35,086    |                                         |      | $ | 54,099    |  | $ | 115,012   |   |  | $ | 162,178  
|                                    |  |                                          |           |                                        
|Earnings per share                  |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|Net earnings                        |  | $                                        | 0.03      |                                         |      | $ | 0.05      |  | $ | 0.11      |   |  | $ | 0.15     
|                                    |  |                                          |           |                                         |      |   |           |  |   |           |   |  |   |          
|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 Consolidated Financial Statements.



4



---

##### Table of Contents

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF STOCKHOLDERS EQUITY

For the Nine Months Ended September 30, 2006

(Unaudited)



|                            |  |                 |  |              |   |                 |           |                            |   |        |                      |   |           |  |   |          |   |  |   |        
|--------------------------- |  | --------------- |  | ------------ | - | --------------- | --------- | -------------------------- | - | ------ | -------------------- | - | --------- |  | - | -------- | - |  | - | -------
|                            |  | Preferred Stock |  | Common Stock |   | Paid-in Capital |           | RetainedEarnings (deficit) |   |        | Stockholders Equity
|                            |  | Shares          |  | Amount       |   | Stock           |           | Capital                    |   |        |                     
|Balance, January 1, 2006    |  |                |  | $            |  |                 | 1,057,628 |                            | $ | 10,576 |                      | $ | 1,376,682 |  | $ | (976,305 | ) |  | $ | 410,953
|                            |  |                 |  |              |   |                 |          
|Net income (loss)           |  |                |  |              |  |                 |          |                            |   |       |                      |   |          |  |   | 115,012  |   |  |   | 115,012
|                            |  |                 |  |              |   |                 |           |                            |   |        |                      |   |           |  |   |          |   |  |   |        
|                            |  |                 |  |              |   |                 |          
|Balance, September 30, 2006 |  |                |  | $            |  |                 | 1,057,628 |                            | $ | 10,576 |                      | $ | 1,376,682 |  | $ | (861,293 | ) |  | $ | 525,965
|                            |  |                 |  |              |   |                 |           |                            |   |        |                      |   |           |  |   |          |   |  |   |        

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



5



---

##### Table of Contents

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                 |  |                                         |          |   |      |   |          |  
|-------------------------------------------------------------------------------- |  | --------------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                 |  | For the Nine Months Ended September 30, |         
|                                                                                 |  | 2006                                    |          |   | 2005 |  
|                                                                                 |  | (dollars in thousands)                  |         
|Cash Flows from Operating Activities                                             |  |                                         |          |   |      |   |          |  
|Net earnings                                                                     |  | $                                       | 115,012  |   |      | $ | 162,178  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                                         |          |   |      |   |          |  
|(Increase) decrease in                                                           |  |                                         |          |   |      |   |          |  
|Interest receivable                                                              |  |                                         | 60,684   |   |      |   | 219,048  |  
|Deferred tax asset                                                               |  |                                         | (3,400   | ) |      |   |         |  
|Increase (decrease) in                                                           |  |                                         |          |   |      |   |          |  
|Accounts payable                                                                 |  |                                         | (7,320   | ) |      |   |         |  
|Federal income taxes payable                                                     |  |                                         | 43,758   |   |      |   |         |  
|Accounts payable  affiliate                                                     |  |                                         | (206,000 | ) |      |   | (379,223 | )
|                                                                                 |  |                                         |          |   |      |   |          |  
|Net cash provided by operating activities                                        |  |                                         | 2,734    |   |      |   | 2,003    |  
|                                                                                 |  |                                         |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                        |  |                                         | 2,734    |   |      |   | 2,003    |  
|                                                                                 |  |                                        
|Cash and cash equivalents at the beginning of period                             |  |                                         | 4,029    |   |      |   | 4,621    |  
|                                                                                 |  |                                         |          |   |      |   |          |  
|Cash and cash equivalents at the end of period                                   |  | $                                       | 6,763    |   |      | $ | 6,624    |  
|                                                                                 |  |                                         |          |   |      |   |          |  

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



|(a) | 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, Chief Financial and 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, Chief Financial and 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 (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | There have been no changes in the Companys internal controls over financial reporting during the quarter ended September 30, 2006, that have materially affected or are
reasonably likely to materially affect the Companys internal controls over financial reporting.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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;



|               |  |                                                                                                                                                                                                                                                                                                                                                                
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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*          |  | Rule 1350 Certification of Acting Principal Executive Officer and Chief Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                    

---

|* | Filed herewith.
|- | ---------------



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.



|                       |  |                               |  |                                                                                                          
|---------------------- |  | ----------------------------- |  | ---------------------------------------------------------------------------------------------------------
|                       |  | FIRST EQUITY PROPERTIES, INC.
|                       |  |                              
|Date: November 7, 2006 |  | By:                           |  | /s/ Steven A. Abney                                                                                      
|                       |  |                               |  | Steven A. Abney                                                                                          
|                       |  |                               |  | Vice President, Treasurer, Chief Financial and Accounting Officer, and Acting Principal Executive Officer



10