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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year endedDecember 31, 2004 OR
 o
    
    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 0-11777 FIRST EQUITY PROPERTIES, INC. 
  Nevada
    
    95-6799846State of other jurisdiction of
    
    (I.R.S. Employerincorporation or organization
    
    Identification No.)1800 Valley View Lane, Suite 300
    
    75234(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code 214 750-5800 Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredNone
 Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.01 per share 
 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 o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes o No þ The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed with reference to the price at which the common equity was last sold, or
the average bid and ask price of such common equity, as of the last business day of the
Registrants most recently-completed second fiscal quarter (June 30, 2004) is not
determinable since no trading market existed on that date or presently exists for the shares of
common stock. Of the total shares outstanding at March 18, 2005, 264,807 shares were held at that
date by persons who may be deemed to be not affiliated with the Registrant. DOCUMENTS INCORPORATED BY REFERENCE None




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TABLE OF CONTENTS  Item 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchaser of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures about Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Fees and ServicesItem 15. Exhibits and Financial Statement SchedulesSIGNATURESCertification of Acting Principal Executive Officer and CFOCertification of Acting Principal Executive Officer and CFO    Table of Contents  
 Item 1. Business. First Equity Properties, Inc. (we or FEPIor the
Company) was incorporated by the filing of Articles of Incorporation in the State of
Nevada on December 19, 1996. Its fiscal year ends December 31 of each year. Prior to January 1, 1997, the Companys only business consisted of the management and
operation of three motel properties in the Spokane, Washington area. Until June 30, 1998, the
Company was engaged in the hospitality business (management and operation of three motel
properties, one of which was exchanged for a residential property and two of such properties have
been sold under a contract for deed). During the fiscal years ended December 31, 1998 and 1999, the
Company, through its subsidiaries engaged in property management (management of commercial real
property, including retail centers, office buildings, industrial properties and hotels), and real
estate brokerage (services in locating, leasing and purchasing real estate). Since October 1999,
the Company and its subsidiaries have conducted no substantial business, but until May 1, 2004
remained available to engage in property management and real estate brokerage activities.
Effective May 1, 2004, the Company sold its subsidiaries to Regis Realty I, LLC, a Texas limited
liability company (Regis). See Property Management and Real Estate
Brokerage below. With the sale of the subsidiaries available to engage in property management and real estate
brokerage activities, the Company currently has no active business operations and no subsidiaries.
Management of the Company is exploring alternatives, seeking to establish and/or acquire new
business operations for the Company. Management has reviewed opportunities in the cable systems
industry, switching industry, high-speed data and telephone operations, but no agreement or
understanding presently exists to acquire any such business, and no assurance can be given that any
operating enterprise will be acquired by the Company in the near future. Although discussions are
continuing with the current owners of active business operations in various industries, Management
cannot predict or give any assurance that any new business enterprise will be acquired by the
Company at any time in the near future. Transaction of Succession. FEPI is the successor-in-interest to Wespac Investors Trust III, a California real
estate investment trust (WESPAC) originally established August 22, 1983 which had its
shares of beneficial interest, no par value, registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934. Wespac was the subject of two filings for protection under Chapter 11 of the
United States Bankruptcy Code, one filed April 13, 1988 (the 1988 Reorganization) which resulted
in a plan of reorganization approved and confirmed by the court on March 29, 1989 with certain
amendments, and which was closed by the court on August 21, 1992 and a filing made January 27, 1994
in the case styled In re: Wespac Investors Trust III, Case No. 94-00228-K11, in the United States
Bankruptcy Court for the Eastern District of Washington (the 1994 Reorganization). A plan of
reorganization dated March 22, 1996 (as modified) was confirmed by Order Confirming Plan of
Reorganization dated May 15, 1996, entered May 20, 1996, as amended by order entered October 29,
1996 approving First Modification to Plan of Reorganization (the Modified Plan). Pursuant to the
Modified Plan, and shareholders approval, Wespac was converted from a California business
trust into a Nevada corporation, coupled with a change of the name of the resulting entity.
Pursuant to such transaction, persons deemed to be prior holders of shares of beneficial interest, no par
value, -1-




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of Wespac became holders of FEPI Common Stock on a one-for-one exchange basis. On February
11, 1997, the Court entered its final decree which closed the 1994 Reorganization. Hospitality Business Prior to January 1, 1997, the Companys only business consisted of ownership and operation of
two Comfort Inn hotels and one Rodeway Inn hotel (sold June 1, 1997 and foreclosed on by the
Company in January 1998) located in Spokane, Washington. The two Comfort Inn hotels are The
Comfort Inn-Valley (a 76-room hotel located at N. 905 Sullivan Road, Spokane Valley, Washington)
and The Comfort Inn-North (a 96-room hotel located at N. 7111 Division Street, Spokane,
Washington). Such properties are collectively referred to as the Spokane Properties. During June 1998, FEPI entered into a contract for deed to sell the two Comfort Inn hotels
(Comfort Inn North and Comfort Inn Valley) to an unaffiliated Washington corporation for a total of
$4,000,000 with a small down payment and an all inclusive wrap-around note which
wraps certain existing underlying indebtedness. As a part of the transaction, FEPI
ceded the management of the properties to the unaffiliated Washington corporation and it assumed

the underlying indebtedness due to US Bank. During March 2001, the underlying indebtedness to U.S.
Bank was paid in full through a refinancing of the properties and the contract for deed satisfied;
at that time, FEPI ceased to hold any record title to the real property and received second lien
notes for the balances owed. Also during June, 1998, FEPI exchanged the Rodeway Inn hotel to an unaffiliated party for a
residential property in Couer dAlene, Idaho which has since been sold. Such Rodeway Inn had
previously been sold on June 1, 1997 to a corporation owned by a former director and officer of the
Company. The Rodeway Inn is a 90-room hotel located at W. 4301 Sunset Boulevard, Spokane,
Washington. See Item 13. Certain Relationships and Related Transactions. During January 1998,
the Company foreclosed on the Spokane Rodeway following a failure of performance by the purchaser
on the related note receivable. See the Notes to the Consolidated Financial Statements. Such dispositions ended the Companys direct ownership in the hospitality line of
business. Property Management and Real Estate Brokerage Effective January 1, 1997, the Company acquired all of the issued and outstanding
Common Stock of Carmel Realty, Inc., a Texas Corporation (Carmel), and an 81.6% limited
partnership interest (subsequently increased to 99%) in Carmel Realty Services, Ltd., a Texas
limited partnership (CRSL). The general partner of CRSL is Basic Capital Management, Inc., a
Nevada corporation (BCM) which was the contractual advisor to and/or performs
administrative services for three other publicly held entities which are engaged in the real estate
business. See also Item 12. Certain Relationships and Related Transactions. Carmel was engaged
in the management and direction of various portfolios of commercial real property including retail
centers, office buildings, industrial properties and hotels. Carmel maintained the management
responsibility for five hotels totaling 1,000 rooms and approximately 15,000,000 square feet of
commercial real estate through September 30, 1999. CRSL managed multi-family portfolios which
included over 32,000 multi-family units through seven third-party regional management companies
through September 30, 1999. -2-




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Both Carmel and CRSL provided management services primarily to four publicly-traded real
estate entities throughout the continental United States through September 30, 1999. Under such
arrangements Carmel or CRSL received a fee of 5% or less of the monthly gross rents collected on
the properties under Management. CRSL subcontracted with other entities for the provision of
property level services. Effective October 1, 1999, the four publicly traded real estate entities
transferred management of their properties to another entity and Carmel and CRSL ceased all such
management activities. Carmel and CRSL have not expended any significant sum during each of the
last two fiscal years on research and development activities. The real estate business overall, including management of real estate, is highly competitive
and Carmel and CRSL compete with numerous entities engaged in similar activities, some of which may
have greater financial resources than those of Carmel and/or CRSL. Management of Carmel and CRSL
believe that success against such competition is dependent upon the geographic location of the
properties, the performance of the property managers in areas such as marketing, collections and
the ability to control operating expenses, the amount of new construction in the area and
maintenance and appearance of each individual property. Additional competitive factors with
respect to commercial industrial properties are the ease of access to the property, adequacy of
related facilities such as parking, and sensitivity to market conditions in setting rent levels.
With respect to multi-family residential units, competition is also based upon the design and mix
of the units and the ability to provide a community atmosphere for tenants. Management of Carmel
and CRSL also believe that general economic circumstances and trends and new properties in the
vicinity of each of the properties managed by Carmel and CRSL are also competitive factors. Carmel also provided real estate brokerage services (on a nonexclusive basis) to three
publicly-traded real estate entities and a number of other entities and individuals and receives
brokerage commissions under varying arrangements from a fixed amount to a sliding scale on a
percentage basis. In general, such services included assistance in locating, leasing or purchasing
real estate. Carmel received fees equal to the lesser of (i) a percentage of the cost of
acquisition, inclusive of commissions, if any, paid to nonaffiliated brokers, or (ii) the
compensation customarily charged in arms-length transactions by others rendering similar property
acquisition services as an ongoing public activity in the same geographical location and for
comparable property. During the fourth quarter of 1999, the four publicly-traded real estate
entities transferred their brokerage operations to another entity. During the fiscal year ended December 31, 2003, Carmel had management income of
$111,462, and CRSL had management income of $95,792. Effective May 1, 2004, the Company sold all
of the issued and outstanding common stock of Carmel and a 99% limited partnership interest in CRSL
for an aggregate sale price of $2,072,540 (a basis equivalent to ten times capitalization of the
management fees collected by Carmel and CRSL during 2003) to Regis. Regis paid cash of $250,000 to
the Company and delivered a promissory note dated May 1, 2004 in the stated principal amount of
$1,822,540 payable to the order of the Company on demand or, if no demand is made prior thereto, on
April 30, 2009, with interest payable monthly as it accrues. Such promissory note is secured by a
pledge of the common stock of Carmel and the partnership interest of CRSL sold. After giving effect to the sale of its subsidiaries on May 1, 2004, FEPI has no subsidiaries
and no employees. -3-




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Item 2. Properties. The Companys principal offices are located at 1800 Valley View Lane, Suite 300, Dallas,
Texas 75234. In the opinion of the Companys management, the Companys offices are
suitable and adequate for its present operations. 
 Item 3. Legal Proceedings. At December 31, 2004, and through March 24, 2005, the Company was not a party to or involved
in any outstanding, unresolved litigation or proceedings. 
 Item 4. Submission of Matters to a Vote of Security Holders. During the fourth quarter of the fiscal year covered by this report, no matter was submitted
to a vote of security holders of the Company. 
 PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchaser of Equity
Securities. Pursuant to the requirements of NRS 78.2055, on June 7, 2004, the members of the Board of
Directors of the Company proposed and recommended to the stockholders a reverse-split on a 1-for-10
basis of the shares of Common Stock, par value $0.01 per share without any adjustment to the par
value per share and without any reduction in the authorized number of shares of Common Stock at the
same par value. The recommendation was submitted to the holder of approximately 75% of the
outstanding Common Stock, Nevada Sea Investments, Inc. (Nevada Sea), which executed a
written consent dated June 8, 2004, pursuant to NRS 78.320 adopting and approving the 1-for-10
reverse stock-split of the shares of Common Stock without any change in the par value and without
any reduction in the authorized number of shares of Common Stock of the Company pursuant to the
Articles of Incorporation. The 1-for-10 reverse stock-split was ultimately effective July 12,
2004, following the distribution of an Information Statement on Schedule 14C to the other
stockholders of the Company, and following the filing of an amendment to the Certificate of
Incorporation of the Company with the Secretary of State of Nevada. The CUSIP Number for the
post-split shares is 320097-20-7. Under the approved action, based upon the 10,570,944 old shares outstanding on the
effective date of July 12, 2004, the 1-for-10 reverse stock-split decreased the number of
outstanding shares by approximately 90% which, after giving effect to an upward adjustment or
rounding up for any fractional shares, added 534 shares to result in 1,057,628
post-split shares outstanding. The 1-for-10 reverse stock-split did not adversely effect any
stockholders proportionate equity interest in the Company, subject to the provisions for
elimination of fractional shares by rounding up to the next whole share which slightly increased
the proportionate holdings of all stockholders other than
Nevada Sea. Each post-split share continues to be entitled to one vote at each
stockholders meeting as was the case with each outstanding old share. -4-




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In connection with the implementation of a 1-for-10 reverse stock-split, no certificate or
script representing any fractional share interest is to be issued, but a holder of the old shares
received in lieu of any fraction of a post-split share to which the holder would otherwise be
entitled a single, whole post-split shares on a rounding up basis without regard to
any price. The result of this rounding up process increase slightly the holdings of
those stockholders who held a number of old shares which was not evenly divisible by ten, resulting
in an increase of 534 shares. FEPIs old shares of Common Stock, while available for trading in the over-the-counter
market, to the knowledge of Management, have not resulted in any material trading activity since
their initial issuance in 1997. The old shares were issued pursuant to the terms of the Modified
Plan in the bankruptcy proceeding styled In Re: Wespac Investors Trust III, Case No. 94-00228-K-11
in the United Sates Bankruptcy Court for the Eastern District of Washington. The CUSIP Number of
the old shares was 320097-10-8. The shares of beneficial interest of Wespac Investors Trust III
traded through the first quarter of 1988, and at one time, were quoted on the National Association
of Securities Dealers Automatic Quotation System (NASDAQ). Since the cessation of
trading on NASDAQ, there has been no established, independent trading market for the shares of
beneficial interest of Wespac or the old shares of Common Stock of FEPI as the successor, or the
new shares of Common Stock of the Company after giving effect to the 1-for-10 reverse stock-split. No cash dividends have been declared or paid during the period from January 1, 1994 to the
present on either the shares of Beneficial Interest of the Trust or the old shares of Common Stock
of FEPI as the successor or the new shares of Common Stock after giving effect to the 1-for-10
reverse stock-split. As of March 24, 2005, the 1,057,628 post-split shares of Common Stock of FEPI issued and
outstanding were held by approximately 2,400 holders of record. During the three years ended December 31, 2004, FEPI did not issue or sell any securities, nor
did FEPI purchase any of its equity securities. The Board of Directors has not authorized any
repurchase program. 
 Item 6. Selected Financial Data. The selected consolidated historical financial data presented below for the five fiscal years
ended December 31, 2004 are derived from the audited consolidated financial statements and reflect
(i) the adoption of fresh start reporting in accordance with AICPA Statement of Position 90-7, (ii)
confirmation and consummation of the Modified Plan, which resulted in a short period
from June 15, 1996 (fresh start) through December 31, 1996, (iii) the transaction of succession,
(iv) the acquisition by the Company of Carmel and an 81.6% limited partnership interest
(subsequently increased to 99%) in CRSL, and (v) the disposition by the Company effective May 1,
2004 of the Common Stock of Carmel and the 99% limited partnership interest in CRSL. The following
data should be read in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere herein and Managements Discussion and Analysis of Financial Condition
and Results of Operations. -5-




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Year EndedDecember 31,CONSOLIDATED STATEMENT OFOPERATIONS DATA:
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Revenues
    
    
    181,000
    
    
    
    53,541
    
    
    
    34
    
    
    
    49,023
    
    
    
    285,733Operating Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and Administrative
    
    
    60,850
    
    
    
    32,079
    
    
    
    34,408
    
    
    
    121,420
    
    
    
    70,554Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,107
    
    
    
    326,471Earnings (loss) from
continuing operations
    
    
    120,150
    
    
    
    21,462
    
    
    
    (34,374
    )
    
    
    (101,504
    )
    
    
    (111,292
    )Impairment Loss
    
    
    (37,931,116
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings (loss) from
discontinued operations
    
    
    45,715
    
    
    
    207,254
    
    
    
    189,230
    
    
    
    104,591
    
    
    
    Net Earnings (loss)
    
    
    (37,765,251
    )
    
    
    228,716
    
    
    
    154,856
    
    
    
    3,087
    
    
    
    (111,292
    )Net Earnings (loss) per share:From continuing operations
    
    
    0.11
    
    
    
    0.02
    
    
    
    (0.03
    )
    
    
    (0.10
    )
    
    
    (0.11
    )From discontinued
operations
    
    
    (35.82
    )
    
    
    0.20
    
    
    
    0.18
    
    
    
    0.10
    
    
    
    Earnings (loss)
    
    
    (35.71
    )
    
    
    0.22
    
    
    
    0.15
    
    
    
    
    
    
    
    (0.11
    )Weighted Average Shares
Outstanding
    
    
    1,057,628
    
    
    
    1,057,628
    
    
    
    1,057,628
    
    
    
    1,057,628
    
    
    
    1,057,628CONSOLIDATED BALANCE SHEET
DATA:Total Assets
    
    
    2,631,209
    
    
    
    41,519,453
    
    
    
    41,465,237
    
    
    
    47,282,650
    
    
    
    55,259,416Short Term Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,171,201
    
    
    
    2,048,559Stockholders Equity
    
    
    182,273
    
    
    
    37,947,524
    
    
    
    37,718,807
    
    
    
    37,563,951
    
    
    
    37,560,864
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion and analysis provide information which management believes is
relevant to an assessment and understanding of the Companys results of operations and financial
condition. The discussion should be read in conjunction with the financial statements and notes
thereto. -6-




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Year ended December 31, 2004 Compared to Year ended December 31, 2003 Liquidity and Capital Resources At December 31, 2004, the Company had total assets of $2,631,209. Of that amount, $4,621 was
held in cash. The Company had no long-term debt at December 31, 2004. During the second quarter
of 2004, the Company exchanged its investment in two subsidiaries for $250,000 cash and a note
receivable in the amount of $1,822,540. Results of Operations Net loss was $37,765,251 in 2004 compared to the prior years earnings of $228,716. The
decrease was due to an impairment loss recorded prior to the sale of subsidiaries. Earnings from
continuing operations totaled $120,150, which is an increase compared to the prior years
earnings from continuing operations due to an increase in interest income. Environmental Matters Under various federal, state and local environmental laws, ordinances and regulations, the
Company may be potentially liable for removal or remediation costs, as well as certain other
potential costs, relating to hazardous or toxic substances (including governmental fines and
injuries to persons and property) where any property-level manager in the employee of a subsidiary
of the Company may have arranged for the removal, disposal or treatment of hazardous or toxic
substances. Management is not aware of any environmental liability relating to the above matters
that would have a material adverse effect on the Companys business, assets or results of
operations. Inflation The effects of inflation on the Companys operations are not quantifiable. To the
extent that inflation affects interest rates, the Companys earnings from any short-term
investments and the cost of new financings as well as the cost of variable rate financing will be
affected. 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The Company is exposed to market risk from changes in interest rates which may adversely
affect its financial position, results of operations and cash flows. In seeking to minimize the
risks from interest rate fluctuations, the Company manages exposures through its regular operating
activities. The Company does not use financial instruments for trading or other speculative
purposes and is not a party to any leveraged financial instruments. Based upon the Companys market risk sensitive instruments (including variable rate
debt) outstanding at December 31, 2004, the Company has determined that there was no material
market risk exposure to the Companys financial position, results of operations or cash flows
as of such date. -7-




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Item 8. Financial Statements and Supplementary Data. The Financial Statements, together with an index thereto, are attached hereto following the
signature page to this report. 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 
 Item 9A. Controls and Procedures. Based on their most recent evaluation, which was completed as of the end of the period covered
by this Form 10-K, the acting Principal Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures were effective at December
31, 2004, to ensure that information required to be disclosed in reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported
within the time periods specified in Securities and Exchange Commission rules and forms. There
were no changes in the Companys internal controls over financial reporting during the
quarter ended December 31, 2004, that have materially affected, or are reasonably likely to
materially affect, the Companys internal controls over financial reporting. 
 Item 9B. Other Information. Not applicable. 
 PART III 
 Item 10. Directors and Executive Officers of the Registrant. Directors The business affairs of the Company are managed by, or under the direction of, the Board of
Directors. The Board of Directors is responsible for the general investment policies of the
Company and for such general supervision of the business of the Company conducted by its officers,
agents, employees, advisors or independent contractors as may be necessary to insure that such
business conforms to policies adopted by the Board of Directors. Pursuant to Article III, Section
3.1, of the Bylaws of the Company, there shall not be less than three (3) nor more than fifteen
(15) directors of the Company. The number of directors shall be determined from time to time by
resolution of the directors and the last fixing of that number of directors was at three (3) at the
time of creation of the Company. The initial three directors were the three members of the Board
of Trustees of the Trust. The term of office of each director is one year and until the election
and qualification of his or her successor. Directors may succeed themselves in office and are to
be elected at the annual meeting of stockholders or appointed by the Companys incumbent Board of
Directors. -8-




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The current directors of the Company (both of whom are also executive officers) are listed
below, together with their ages, all positions and offices with the Company, their principal
occupation, business experience and directorship with other companies during the last five years or
more. Each of the following individuals was named as a director and was elected by the Board of
Directors to fill a vacancy created by a prior resignation. None of the Directors originally named
in the Articles of Incorporation of the Company filed December 19, 1996 are currently Directors. A
vacancy existed on the Board of Directors following the resignation effective March 1, 1997 of
Georgie Liebelt. See Item 13. Certain Relationships and Related Transactions. On April 5,
2001, F. Terry Shumate, a Director since inception, resigned creating a second vacancy. On
February 1, 2002, acting in his capacity as the sole remaining Director, Karl Blaha, then President
and a Director, elected Ronald E. Kimbrough to fill the vacancy created by the resignation of
Georgie Liebelt and elected Ken Joines to fill the vacancy created by the resignation of F. Terry
Shumate. Such action filled all three positions on the Board of Directors with Messrs. Kimbrough,
Joines and Blaha. Kimbrough was also elected Vice President and Treasurer, and Joines was elected
Secretary. On February 7, 2002, Karl L. Blaha resigned as a member of the Board of Directors and
President of the Company. On May 31, 2004, Ronald E. Kimbrough resigned as a director of the
Company, and Ken L. Joines, acting in his capacity as the sole remaining director, elected Louis J.
Corna as a director of the Company effective June 1, 2004 to serve with Ken L. Joines, resulting in
one vacancy remaining on the Board of Directors. Also on January 14, 2005, the following
individuals were elected to the positions described below: Name
    
    Age
    
    Position with the CompanyLouis J. Corna
    
    
    56
    
    
    Vice President and SecretaryKen L. Joines
    
    
    37
    
    
    Vice President and Treasurer
 Louis J. Corna has been a Director and Vice President of the Company since June 1, 2004 and
Secretary since January 14, 2005. He is Executive Vice President, General Counsel/Tax Counsel and
Secretary (since February 2004), Executive Vice President (October 2001 to February 2004),
Executive Vice President and Chief Financial Officer (June 2001 to October 2001) and Senior Vice
President -  Tax (December 2000 to June 2001) of Income Opportunity Realty Investors, Inc.
(IOT), Transcontinental Realty Investors, Inc. (TCI), American Realty
Investors, Inc. (ARL) and Basic Capital Management, Inc. (BCM), Prime
Income Asset Management, Inc. (PIAMI) and Prime Income Asset Management, LLC
(Prime); Private Attorney (January 2000 to
December 2000); Vice President -  Taxes and
Assistant Treasurer (March 1998 to January 2000) of IMC
Global, Inc.; Vice President  -  Taxes (July
1991 to February 1998) of Whitman Corporation. IOT has a class of securities listed and traded on
the American Stock Exchange, Inc. and TCI and ARL each has a class of equity securities listed and
traded on the New York Stock Exchange, Inc. Ken L. Joines has been a Director (since February 1, 2002) and Vice President (since
January 1, 2004) of the Company and Treasurer (since January 14, 2005). He is Vice President,
Secretary and Treasurer (since March 2001) and Director (since April 2001) of Syntek West, Inc., an
administrative services company and the advisor to IOT based in Dallas, Texas; for more than five
years prior thereto through March 2001, Mr. Joines was employed by Whitson Management Group, a
fee-only financial planning and business consulting firm based in Phoenix, Arizona, in various -9-




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financial advisory capacities, the last of which was as Vice President and Chief Financial
Officer. Mr. Joines has been a director of IOT since July 2003. There are no family relationships among the directors or executive officers of the Company. Meetings and Committees of Directors; Code of Ethics for Senior Financial Officers The Companys Board of Directors acted upon 11 matters by unanimous written consent since
December 19, 1996 and has held no formal meetings. The Board of Directors has no standing audit,
nominating or compensation committee. The Board of Directors adopted on February 23, 2004 Code of Ethics for Senior Financial
Officers that applies to the principal executive officer, president, principal financial officer,
chief financial officer, principal accounting officer and controller. FEPI does not have a
website, but a copy of such document may be obtained by written request to the Secretary of FEPI.
Those requests should be sent to Secretary, First Equity Properties, Inc., 1800 Valley View Lane,
Suite 300, Dallas, Texas 75234. Shareholders may also send communications to Board members by either sending a communication
to the Board or a particular Board member in care of the Secretary of First Equity Properties, Inc.
at 1800 Valley View Lane, Suite 300, Dallas, Texas 75234. Compliance With Section 16(a) of the 1934 Act. Under the securities laws of the United States, the Companys directors, executive officers,
and any person holding more than 10% of the Companys shares of common stock are required to report
their ownership of the Companys shares and any changes in ownership to the Commission. Specific
due dates for these reports have been established and the Company is required to report any failure
to file by the date. All the filing requirements were satisfied by the Companys directors,
executive officers and 10% holders during 1996. In making these statements, the Company has relied
on the written representations of its directors and executive officers and its 10% holders and
copies of the reports that they filed with the Commission, both with respect to the Trust, as a
predecessor to the Company, and the Company. 
 Item 11. Executive Compensation. Neither the executive officers nor directors received salaries or cash compensation from the
Company or its predecessor, Wespac, for acting in such capacity during the two years ended December
31, 2004, in an amount required to be disclosed under this item. The only director or executive
officer who received salaried compensation from the Company or its predecessor, Wespac, was Georgie
Liebelt whose compensation until her resignation effective March 1, 1997 was $59,000 per year plus
a $6,000 per year car allowance. The Company has no retirement, annuity or pension plan covering
its directors or executive officers. -10-




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters. The Companys voting securities consist of the shares of common stock, par value $0.01 per
share. As of March 18, 2005, according to the stock transfer records of the Company and other
information available to the Company, the following persons were known to be the beneficial owners
of more than five percent (5%) of the outstanding shares of common stock of the Company: Amount andNature ofName and Address of
    
    Beneficial
    
    PercentTitle of Class
    
    Beneficial Owner
    
    Ownership
    
    of ClassShares of Common Stock,
    
    Nevada Sea Investments, Inc.
    
    792,821
    
    74.96%par value $0.01 per share
    
    1800 Valley View Lane, Suite 300
    
    sharesDallas, Texas 75234
   (1)
    
    Based on 1,057,628 shares of common stock outstanding on March 24, 2005. As of March 18, 2005, according to the stock transfer records of the Company and other
information available to the Company, each of the directors and executive officers of the Company,
and all present executive officers and directors as a group, beneficially own the following shares: Amount andNature ofName and Address of Beneficial
    
    Beneficial
    
    Percent ofTitle of Class
    
    Owner
    
    Ownership
    
    Class(a)Shares of Common Stock,
    
    Louis J. Corna
    
    792,821(b)
    
    74.96%par value $0.01 per share
    
    1800 Valley View Lane, Suite 300Dallas, Texas 75234Shares of Common Stock,
    
    Ken L. Joines
    
    none
    
    nonepar value $0.01 per share
    
    1755 Wittington Place, Suite 340Dallas, Texas 75234Shares of Common Stock,
    
    Scott T. Lewis
    
    792,821(b)
    
    74.96%par value $0.01 per share
    
    1800 Valley View Lane, Suite 300Dallas, Texas 75234Shares of Common Stock,
    
    All officers and directors as a group (2
    
    792,821(b)
    
    74.96%par value $0.01 per share
    
    persons)
   (a)
    
    Based on 1,057,628 shares of common stock outstanding on March 24, 2005.(b)
    
    Includes 792,821 shares owned by Nevada Sea Investments, Inc., of which the directors and
executive officers (Messrs. Corna and Lewis) may be deemed to be the beneficial owners by
virtue of their positions as directors and executive officers. Each of Messrs. Corna and
Lewis have disclaimed any beneficial ownership of such shares. -11-




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions. On June 25, 1996, in connection with the Modified Plan, the Company received an advance of
funds from Nevada Sea in the amount of $250,000 unsecured and bearing interest at the rate of 8%
per annum. Subsequent to the initial advance, Nevada Sea and/or its affiliates have advanced an
additional $2,391,552 to the Company under the same terms and conditions. During 1999, the Company
repaid all amounts advanced together with interest at the rate of 8% per annum. Effective January 1, 1997, the Company acquired from SWI all of the issued and outstanding
common stock of Carmel and an 81.6% limited partnership interest (later increased to 99%) in CRSL
for an aggregate purchase price of 32,500 shares of Series A 8% Cumulative Preferred Stock with a
liquidation value of $1,000 per share (the Series A Preferred Stock). The Series A Preferred
Stock has a right to cumulative cash dividends of $80 per share per annum, payment of $1,000 per
share in the event of dissolution, liquidation of winding up of the Company before any distribution
is made to the holders of Common Stock, optional redemption at any time at a price of $1,000 per
share, plus cumulative dividends, no right to conversion into any other securities of the Company,
and no voting rights except as may be required by law. See Item 1. Business, for a brief
description of businesses of Carmel and CRSL and see the Notes to the Financial Statements. During
1998, the Company redeemed all of its $32,500,000 preferred stock in exchange for reduction of
receivables from SWI. Effective May 1, 2004, the Company sold all of the issued and outstanding
common stock of Carmel and a 99% limited partnership interest in CRSL for an aggregate sale price
of $2,072,540 (a basis equivalent to ten times the management fees collected by Carmel and CRSL
during 2003) to Regis. Effective January 1, 1997 the Company contracted with Regis Management Corporation, a
subsidiary of Carmel, to manage the day-to-day operations of the Spokane Properties for 5% of the
gross revenues from the Spokane Properties. Such management arrangement ceased at the time of
disposition of the Spokane Properties during June 1998. Effective June 1, 1997, the Company sold a 90-room Roadway Inn located at W. 4301
Sunset Boulevard, Spokane, Washington to Georgie Liebelt. At the time of the sale the Company paid
off the underlying debt secured by the property sold. Ms. Liebelt was appointed a Trustee of
Wespac in January 1994 and served in that capacity until implementation of the Incorporation
Procedure. She was an initial director of the Company and Regional Director for the Company
responsible for all operations involving the hotel properties located in Spokane, Washington. Ms.
Liebelt resigned as a Director effective March 1, 1997. The purchase price for the Roadway Inn was
$1,475,000 paid by the delivery of a promissory note from Spokane House, Inc. (a Washington
corporation wholly owned by Georgie Liebelt) secured by a Deed of Trust covering the property and a
security interest on all related personal property. Such note bore interest at 5% per annum for
the period from June 1, 1997 to June 1, 1998 and was to increase by 1% per annum until it reached
9% for the period from June 1, 2001 to July 10, 2002. At the time of maturity of the Note, Spokane
House, Inc. was obligated to pay the lesser of (i) the total of the unpaid principal and interest
due on the note, or (ii) the appraised value of the property as of June 1, 2002. In addition, the
Company loaned to Spokane House, Inc. $160,000 to fund needed renovations on the property.
Commencing March 1, 1997, Spokane House, Inc. became the operator of the property, retaining all
income and paying all expenses relating to the operation of the property. In January 1998 the
Company foreclosed on the
property following a failure of performance on the promissory note and wrote off the $160,000
loan. -12-




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##### Table of Contents



The Company exchanged the property in June 1998 for a residential property in Couer dAlene,
Idaho (since sold). See also the Notes to the Consolidated Financial Statements. Effective May 1, 2004, the Company sold all of the issued and outstanding common stock of
Carmel and a 99% limited partnership interest in CRSL for an aggregate sale price of $2,072,540 (a
basis equivalent to ten times capitalization of the management fees collected by Carmel and CRSL
during 2003) to Regis. During the fiscal year ended December 31, 2003, Carmel had management
income of $111,462 and CRSL had management income of $95,792. The general partner of CRSL is BCM.
The purchaser, Regis, performs certain property management and real estate and brokerage activities
for other entities. Regis paid cash of $250,000 to FEPI and delivered a promissory note dated May
1, 2004 in the stated principal amount of $1,822,540 payable to the order of FEPI on demand or, if
no demand is made prior thereto, on April 30, 2009, with interest payable monthly as it accrues.
Such promissory note is secured by a pledge of the common stock of Carmel and partnership interest
of CRSL sold by the Company. 
 Item 14. Principal Accounting Fees and Services. The following table sets forth the aggregate fees for professional services rendered to FEPI
for the years 2004 and 2003 by FEPIs principal accounting firm, Farmer, Fuqua & Huff, P.C.: Type of Fees
    
    2004
    
    
    2003Audit Fees
    
    $
    13,500
    
    
    $
    10,000Audit Related Fees
    
    
    
    
    
    
    Tax Fees  preparation of corporate
federal income tax returns
    
    $
    2,355
    
    
    $
    1,650All Other Fees
    
    
    
    
    
    
    
 There is currently no standing Audit Committee. The Board of Directors fulfills that
responsibility. As a result, there are no Audit Committee pre-approval policies and procedures in
existence. 
 Item 15. Exhibits and Financial Statement Schedules.  (a)
    Financial Statements. The following documents are filed as part of this report: Page1.
    
    Financial Statements.Report of Independent Registered Public Accounting Firm
    
    F-1Balance Sheets as of December 31, 2004 and 2003
    
    F-2Statements of Operations for the three years ended December 31, 2004
    
    F-3Statements of Changes in Shareholders Equity for the three years
ended December 31, 2004
    
    F-4Statements of Cash Flows for the three years ended December 31, 2004
    
    F-5Notes to Financial Statements
    
    F-6
 -13-




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##### Table of Contents



2.
    
    Financial Statement Schedules.All other schedules and financial statements are omitted
because they are not applicable or the required information is
shown in the financial statements or notes thereto.
 (b) Exhibits. The following documents are filed herewith as exhibits or incorporated by the
references indicated below: ExhibitDesignation
    
    Description of Exhibit2.1
    
    Plan of Reorganization (as modified) dated March 22, 1996
(incorporation by reference is made by Exhibit 2.1 to Form 8-K
of First Equity Properties, Inc. for event reported June 19,
1996).2.2
    
    First Amended Disclosure Statement (as modified) dated March
22, 1996 (incorporation by reference is made to Exhibit 2.2 to
Form 8-K of First Equity Properties, Inc. for event reported
June 19, 1996).2.3
    
    Order Confirming Plan of Reorganization dated May 15, 1996
entered May 20, 1996 (incorporation by reference is made to
Exhibit 2.3 to Form 8-K of First Equity Properties, Inc. for
event reported June 19, 1996).2.4
    
    First Modification to Plan of Reorganization (as modified)
dated October 29, 1996 (incorporation by reference is made to
Exhibit 2.4 to Form 8-K of First Equity Properties, Inc. for
event reported June 19, 1996).2.5
    
    Ex parte Order approving modification to Plan of
Reorganization (as modified) entered October 29, 1996
(incorporation by reference is made to Exhibit 2.5 to Form 8-K
of First Equity Properties, Inc. for event reported June 19,
1996).2.6
    
    Certificate of Substantial Consummation dated January 21, 1997
(incorporation by reference is made to Exhibit 2.6 to Form 8-K
of First Equity Properties, Inc. for event reported June 19,
1996).2.7
    
    Final Decree issued by the Court on February 11, 1997
(incorporation by reference is made to Exhibit 2.7 to Form 8-K
of First Equity Properties, Inc. for event reported June 19,
1996).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).
 -14-




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##### Table of Contents



ExhibitDesignation
    
    Description of Exhibit3.2
    
    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).3.7
    
    Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of Nevada on July 12, 2004
(incorporation by reference is made to Exhibit 3.3 to Current
Report on Form 8-K of First Equity Properties, Inc. for event
reported May 1, 2004).14
    
    Code of Ethics for Senior Financial Officers (incorporation by
reference is made to Exhibit 14 to Form 10-K of First Equity
Properties, Inc. for the fiscal year ended December 31, 2003).31*
    
    Certification of Acting Principal Executive Officer and Chief
Financial Officer32*
    
    Rule 1350 Certification by Acting Principal Executive Officer
and Chief Financial Officer
   * filed herewith -15-




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##### Table of Contents



SIGNATURES Pursuant to to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed by the undersigned, thereunto duly authorized. Dated: March 29, 2005
    
    FIRST EQUITY PROPERTIES, INC.By:
    
    /s/ Ken L. JoinesKen L. Joines, Director, Vice Presidentand Treasurer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacity and on the
dates indicated: /s/ Louis J. Corna
    
    Director, Vice President and Secretary
    
    March 29, 2005Louis J. Corna/s/ Ken L. Joines
    
    Director, Vice President and
Treasurer (Chief Accounting Officer)
    
    March 29, 2005Ken L. Joines
 -16-




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
Years ended December 31, 2004, 2003 and 2002




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    F-1Financial StatementsBalance sheets as of December 31, 2004 and 2003
    
    F-2Statements of operations for the years ended December 31, 2004, 2003 and 2002
    
    F-3Statements of changes in shareholders equity for the years ended
December 31, 2004, 2003 and 2002
    
    F-4Statements of cash flows for the years ended December 31, 2004, 2003 and 2002
    
    F-5Notes to financial statements
    
    F-6
 All other schedules and financial statements are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors
First Equity Properties, Inc. and Subsidiaries We have audited the accompanying balance sheets of First Equity Properties, Inc. and subsidiaries
as of December 31, 2004 and 2003 and the related statements of operations, changes in shareholders
equity and cash flows for the years ended December 31, 2004, 2003 and 2002. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of First Equity Properties, Inc. and subsidiaries as of December
31, 2004 and 2003 and the results of their operations and their cash flows for the years ended
December 31, 2004, 2003 and 2002, in conformity with U.S. generally accepted accounting principles. March 29, 2005
Plano, Texas




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
BALANCE SHEETS
December 31, 2004
    
    
    2003ASSETSCash and cash equivalents
    
    $
    4,621
    
    
    $
    6,127Notes and
interest receivable - affiliate
    
    
    2,626,588
    
    
    
    638,531Accounts receivable  affiliate
    
    
    
    
    
    
    83,386Net assets held for sale
    
    
    
    
    
    
    40,003,656$
    2,631,209
    
    
    $
    40,731,700LIABILITIES AND SHAREHOLDERS EQUITYAccounts
payable   - affiliate
    
    $
    2,448,936
    
    
    $
    2,784,176Total liabilities
    
    
    2,448,936
    
    
    
    2,784,176Shareholders equityPreferred stock, $.01 par value; 4,960,000 shares
authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par, 40,000,000 shares authorized,
1,057,628 shares issued and outstanding
    
    
    10,576
    
    
    
    10,576Capital in excess of par value
    
    
    1,376,682
    
    
    
    1,376,682Retained earnings
    
    
    (1,204,985
    )
    
    
    36,560,266Total shareholders equity
    
    
    182,273
    
    
    
    37,947,524$
    2,631,209
    
    
    $
    40,731,700
 The accompanying notes are
an integral part of these financial statements. F-2




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2004
    
    
    2003
    
    
    2002RevenueInterest income
    
    $
    181,000
    
    
    $
    53,541
    
    
    $
    34181,000
    
    
    
    53,541
    
    
    
    34Operating expensesLegal and accounting
    
    
    54,115
    
    
    
    28,825
    
    
    
    30,329General and administrative
    
    
    6,735
    
    
    
    3,254
    
    
    
    4,079Total operating expenses
    
    
    60,850
    
    
    
    32,079
    
    
    
    34,408Earnings (loss) from continued operations
    
    
    120,150
    
    
    
    21,462
    
    
    
    (34,374
    )Earnings from discontinued operations
    
    
    45,715
    
    
    
    207,254
    
    
    
    189,230Impairment loss
    
    
    (37,931,116
    )
    
    
    
    
    
    
    NET EARNINGS (LOSS)
    
    $
    (37,765,251
    )
    
    $
    228,716
    
    
    $
    154,856Earnings (loss) per shareNet earnings (loss ) from continuing operations
    
    $
    0.11
    
    
    $
    0.02
    
    
    $
    (0.03
    )Discontinued operations
    
    $
    (35.82
    )
    
    $
    0.20
    
    
    $
    0.18Net earnings (loss)
    
    $
    (35.71
    )
    
    $
    0.22
    
    
    $
    0.15Weighted average shares outstanding
    
    
    1,057,628
    
    
    
    1,057,628
    
    
    
    1,057,628
 The accompanying notes are
an integral part of these financial statements. F-3




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For the Years Ended December 31, 2004, 2003 and 2002 Capital
    
    
    RetainedCommon Stock
    
    
    Preferred Stock
    
    
    in excess
    
    
    earnings
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    of par
    
    
    (deficit)
    
    
    equityBalances at January 1, 2002
    
    
    1,057,628
    
    
    $
    10,576
    
    
    
    
    
    
    
    
    
    
    $
    1,376,682
    
    
    $
    36,176,693
    
    
    $
    37,563,951Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,856
    
    
    
    154,856Balances at December 31, 2002
    
    
    1,057,628
    
    
    $
    10,576
    
    
    
    
    
    
    
    
    
    
    $
    1,376,682
    
    
    $
    36,331,549
    
    
    $
    37,718,807Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    228,716
    
    
    
    228,716Balances at December 31, 2003
    
    
    1,057,628
    
    
    $
    10,576
    
    
    
    
    
    
    
    
    
    
    $
    1,376,682
    
    
    $
    36,560,266
    
    
    $
    37,947,524Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,765,251
    )
    
    
    (37,765,251
    )Balances at December 31, 2004
    
    
    1,057,628
    
    
    $
    10,576
    
    
    
    
    
    
    
    
    
    
    $
    1,376,682
    
    
    $
    (1,204,985
    )
    
    $
    182,273
 The accompanying notes are
an integral part of these financial statements. F-4




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet earnings (loss)
    
    $
    (37,765,251
    )
    
    $
    228,716
    
    
    $
    154,856Adjustments to reconcile net earnings
(loss) to net cash used for operating activitiesImpairment loss
    
    
    37,931,116
    
    
    
    
    
    
    
    (Increase) decrease inInterest receivable
    
    
    (165,517
    )
    
    
    
    
    
    
    Accounts
receivable - affiliate
    
    
    
    
    
    
    (8
    )
    
    
    5,609Increase (decrease) inAccounts
payable - affiliate
    
    
    (251,854
    )
    
    
    (174,501
    )
    
    
    (164,000
    )Net cash used for operating activities
    
    
    (251,506
    )
    
    
    (54,207
    )
    
    
    (3,535
    )CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of subsidiaries
    
    
    250,000
    
    
    
    
    
    
    
    Payments received on notes receivable
    
    
    
    
    
    
    53,530
    
    
    
    Net cash provided by investing activities
    
    
    250,000
    
    
    
    53,530
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (1,506
    )
    
    
    677
    
    
    
    (3,535
    )Cash and cash equivalents at beginning of period
    
    
    6,127
    
    
    
    5,450
    
    
    
    8,985Cash and cash equivalents at end of period
    
    $
    4,621
    
    
    
    6,127
    
    
    
    5,450
 The accompanying notes are
an integral part of these financial statements. F-5




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 NOTE A - HISTORY WesPac Investors Trust III (WesPac), a California business trust, was originally organized
on August 22, 1983. On January 24, 1994, WesPac instituted a Chapter 11 bankruptcy
proceeding in the United States Bankruptcy Court for the Eastern District of Washington. A
Plan of Reorganization dated March 22, 1996 (as modified) was confirmed by order dated May
15, 1996 and was amended by Order entered October 29, 1996 approving the First Modification
to Plan of Reorganization (the Modified Plan). Pursuant to the Modified Plan, WesPac was
converted from a California business trust into a Nevada corporation. First Equity
Properties, Inc. (the Company), which was incorporated in Nevada on December 19, 1996, was
the surviving entity following the incorporation of WesPac into a California corporation and
subsequent merger of that California corporation with and into the Company accomplished by
Articles of Merger and a Plan of Merger filed in the States of California and Nevada on
December 24, 1996. The Company automatically, by operation of law, succeeded to all of the
assets, rights, duties, liabilities and obligations of the California corporation (as the
immediate successor to WesPac) upon the effectiveness of the Merger on December 24, 1996. In general, the Modified Plan provided for the cancellation of the former publicly-held
 shares on the effective date of the Modified Plan with one share of the Company deemed to be
exchanged for each former publicly-held share with the former public shareholders to hold,
in the aggregate, 25% of the equity interest in the Company. Confirmation of the Modified
Plan served to re-vest all assets of the estate of WesPac free and clear of all liabilities,
except those payable pursuant to the Modified Plan. Under the Modified Plan, WesPac
retained the Certain Motel Properties and all allowed claims were provided for or paid. NOTE B - FRESH START REPORTING In accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, (SOP 90-7) the Company was required to adopt
fresh start reporting and reflect the effects of such adoption in the financial statements
as of June 15, 1996. The ongoing impact of the adoption of fresh-start reporting is
reflected in the accompanying financial statements. F-6




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 2004, 2003 and 2002 NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Company and its subsidiaries provided management services to a variety of commercial and
residential real estate entities throughout the continental United States. Effective
October 1, 1999, substantially all of the contracts for management services were transferred
from the Company. Effective May 1, 2004, the Company sold its subsidiaries to a related
party. With the sale of the subsidiaries available to engage in property management and
real estate brokerage activities, the Company currently has no active business operations
and no subsidiaries. Management of the Company is exploring alternatives, seeking to
establish and/or acquire new business operations for the Company. Cash Equivalents For purposes of the statement of cash flows, the Company considers all short-term
investments with original maturities of three months or less to be cash equivalents. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 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, SFAS 109 requires an evaluation of the
probability of being able to realize the future benefits indicated by such assets. A
valuation allowance is provided for a portion or all of the deferred tax assets when there
is an uncertainty regarding the Companys ability to recognize the benefits of the assets in
future years. F-7




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS   - Continued
December 31, 2004, 2003 and 2002 NOTE C - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES -  Continued Earnings (Loss) per Share Earnings (loss) per share (EPS) are calculated in accordance with Statement of Financial
Accounting Standards No. 128, Earnings per Share (SFAS 128), which was adopted in 1997 for
both years presented. Basic EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during the period.
Diluted EPS does not apply to the Company due to the absence of dilutive potential common
 shares. The adoption of SFAS 128 had no effect on previously reported EPS. NOTE D  SALE OF SUBSIDIARIES AND 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 years ended December 31, 2004, 2003 and 2002, income from
discontinued operations relates to the disposition of subsidiaries providing management
services. In May 2004, the Company sold the subsidiaries of the Company that provide management
services for $250,000 cash and a note receivable in the amount of $1,822,540. Prior to
that, because of the pending sale, the Company recorded an impairment of $37,931,116,
representing the write down of certain assets of the those two subsidiaries that provided
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. The impairment loss resulted in the generation of a deferred tax asset of approximately
$13,300,000 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. F-8




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 2004, 2003 and 2002 NOTE D  SALE OF
SUBSIDIARIES AND DISCONTINUED OPERATIONS - continued 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 December
31, 2003 for the entities sold. Accounts
receivable - affiliate
    
    $
    262,960Investments
- affiliate
    
    
    40,528,349Accounts payable and minority interest
    
    
    (787,653
    )Net equity in subsidiaries to be sold
    
    $
    40,003,656
 The investment in Realty Advisors, Inc. preferred stock included in Net Assets Held for
Sale at December 31, 2003 in the amount of $40,528,349 represents 416,632 shares of no par
value, non-voting preferred stock with a liquidation value of $110 per share. These shares
do not earn dividends. Realty Advisors, Inc. is an affiliated company who invests in real
estate directly and indirectly through investments in real estate entities. At June 30,
2003, Realty Advisors, Inc. had total assets of $194,823,808, total liabilities of
$90,509,701 and total shareholders equity of $101,314,107. The results of discontinued operations of the subsidiaries consisted of the following for
the years ended December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Operating revenues
    
    $
    45,715
    
    
    $
    207,254
    
    
    $
    189,230Net income from
discontinued
operations
    
    $
    45,715
    
    
    $
    207,254
    
    
    $
    189,230
 NOTE E REVERSE STOCK SPLIT On June 7, 2004, the members of the Board of Directors of FEPI proposed and recommended to
the stockholders a reverse-split on a 1-for-10 basis of the shares of Common Stock, par
value $0.01 per share, without any adjustment to the par value per share, and without any
reduction in the authorized number of shares of Common Stock at the same par value. The
proposal was approved by the shareholders and became effective July 12, 2004. This resulted
in a reclassification between Common Stock and Additional Paid in Capital on the
accompanying balance sheet in the amount of $95,133. The share amounts in the accompanying
financial statements and notes give effect to this reverse split as if it occurred at the
beginning of earliest period presented. F-9




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 2004, 2003 and 2002 NOTE F - NOTES PAYABLE - AFFILIATE The Company has a revolving line of credit with Nevada Sea Investments, Inc., a shareholder.
Amounts borrowed under the line bear interest at 8% per year and are due on demand. NOTE G - INCOME TAXES Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal
income tax rate of 35% to pretax income in 2004, 2003 and 2002 as a result of the following: 2004
    
    
    2003
    
    
    2002Computed expected tax expense
    
    $
    
    
    
    $
    80,000
    
    
    $
    54,000Net operating loss carryforward
    
    
    
    
    
    
    (80,000
    )
    
    
    54,000$
    
    
    
    $
    
    
    
    $
    
 Deferred income taxes reflect the effects of temporary differences between the tax bases of
assets and liabilities and the reported amounts of those assets and liabilities for
financial reporting purposes. Deferred income taxes also reflect the value of net operating
losses and an offsetting valuation allowance. The Companys total deferred tax asset and
corresponding valuation allowance at December 31, 2004, 2003, and 2004 consisted of the
following: 2004
    
    
    2003
    
    
    2002Deferred tax assetNet operating loss carryforward and bases
differences for book to tax
    
    $
    13,300,000
    
    
    $
    6,427
    
    
    $
    86,447Less: Valuation Allowance
    
    
    (13,300,000
    )
    
    
    (6,427
    )
    
    
    (86,447
    )Net deferred tax asset
    
    
    
    
    
    
    
    
    
    
    
 The deferred tax asset that arose related to the net operating loss carryforward has been reduced
to $-0- as management cannot be assured of the utilization of the deferred tax asset. F-10




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##### Table of Contents



FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 2004, 2003 and 2002 NOTE H - FINANCIAL INSTRUMENTS The estimated fair values of the Companys financial instruments at December 31, 2004 and
2003 follow: 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueCash
    
    $
    2,621
    
    
    $
    2,621
    
    
    $
    6,127
    
    
    $
    6,127Note and interest
receivable -
affiliate
    
    
    2,626,588
    
    
    
    2,626,588
    
    
    
    638,531
    
    
    
    638,531Accounts receivable 
affiliate
    
    
    
    
    
    
    
    
    
    
    83,386
    
    
    
    83,386Net assets held for sale
    
    
    
    
    
    
    
    
    
    
    40,003,656
    
    
    
    40,003,656Accounts payable  affiliate
    
    
    2,448,936
    
    
    
    2,448,936
    
    
    
    2,784,176
    
    
    
    2,784,176
 The carrying values of cash and cash equivalents, accounts receivable  affiliate, notes
receivable  affiliate and accounts payable  affiliate approximate fair value due to
short-term maturities of these assets and liabilities. The fair value of Net assets held for sale at December 31, 2003 has been determined by the
sales price of the subsidiaries in 2004, which reduced the carrying amount to what is
reflected on the accompanying balance sheet. NOTE I - COMMITMENTS AND CONTINGENCIES The Company could become involved in various legal actions incidental to its business. In
Managements opinion, if any of these were to arise, none of these actions would have a
material adverse effect on the Companys financial position. F-11




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FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 2004, 2003 and 2002 NOTE J - SUPPLEMENTAL CASH FLOW INFORMATION 2004
    
    
    2003
    
    
    2002Cash paid during the year for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    Noncash investing and financing activities:Sale of subsidiaries in exchange for
note receivable
    
    
    1,822,540
    
    
    
    
    
    
    
    Exchange of investments for note
receivable
    
    
    
    
    
    
    585,000
    
    
    
    Redemption of preferred stock to settle
an account payable to affiliate
    
    
    
    
    
    
    
    
    
    
    5,308,225Exchange of account payable
for accounts receivable affiliate
    
    
    
    
    
    
    
    
    
    
    500,000
 NOTE K - EMPLOYEE BENEFIT PLAN The Company has a 401(k) plan for the benefit of its employees. Employees can contribute to
the plan up to 15% of their salary, subject to certain maximum dollar amounts set forth by
the Internal Revenue Service, pursuant to a salary reduction agreement, upon meeting age and
length of service requirements. The Companies matching contribution is a discretionary
percentage of electing employees contributions, and totaled $-0-, $-0- and $-0- in 2004,
2003 and 2002, respectively. NOTE L  COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS
130), requires that total comprehensive income be reported in the financial statements. For
the years ended December 31, 2004, 2003, and 2002, the Companys comprehensive income was
equal to its net income and the Company does not have income meeting the definition of other
comprehensive income. F-12