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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K
(MARK ONE)
     [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       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 0-11777

                         FIRST EQUITY PROPERTIES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
                     NEVADA                                            95-6799846
         State of other jurisdiction of                             (I.R.S. Employer
          incorporation or organization                            Identification No.)
 10670 N. CENTRAL EXPRESSWAY, SUITE 410, DALLAS,                          75231
                       TEXAS                                           (Zip Code)
    (Address of principal executive offices)
</TABLE>

        Registrant's telephone number, including area code 214 750-5800

          Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
         TITLE OF EACH CLASS            NAME OF EACH EXCHANGE ON WHICH REGISTERED
         -------------------            -----------------------------------------
<S>                                     <C>
                 None
</TABLE>

          Securities registered pursuant to Section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                 -------------
                                (TITLE OF CLASS)

    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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.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.  [ ]

             APPLICABLE ONLY TO REGISTRANTS 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 Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  Yes [X]  No [ ]

     As of March 15, 2000, registrant had 10,570,944 shares of common stock
issued and outstanding. Of the total shares outstanding, 2,642,736 shares were
held by other than those who may be deemed to be affiliated, but the aggregate
market value of such shares held by non-affiliates is not ascertainable since no
trading market presently exists for the shares of common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

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<PAGE>   2

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, through its own operations, 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 was, and at
present is 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). See Note S to the Consolidated Financial Statements for a break
out of revenues, expenses and earnings contributions of each separate line of
business.

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, there was distributed to the shareholders of Wespac a
proposal to convert Wespac from a California business trust into a Nevada
corporation through the "Incorporation Procedure" described therein coupled with
a change of the name of the resulting entity. On November 29, 1996, the then
shareholders of Wespac approved the conversion of Wespac into FEPI, which was
accomplished by incorporating WESPAC as a California corporation and merging it
into FEPI, previously a wholly-owned subsidiary of WESPAC, with FEPI as the
surviving entity. The effective date of the merger of FEPI and the California
corporation was December 24, 1996. Pursuant to such transaction, persons deemed
to be prior holders of shares of beneficial interest, no par value, 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. See "Item 3. Legal Proceedings."

HOSPITALITY BUSINESS

     Prior to December 31, 1996, 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.

                                        1
<PAGE>   3

     Also during June, 1998, FEPI exchanged the Rodeway Inn hotel to an
unaffiliated party for a residential property in Couer dAlene, 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 Note P to the
Consolidated Financial Statements.

     Such dispositions ended the Company's direct ownership in the hospitality
line of business.

PROPERTY MANAGEMENT

     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 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 is the contractual advisor
to and for performs administrative services for five other publicly held
entities which are engaged in the real estate business. See also "Item 12.
Certain Relationships and Related Transactions." Carmel is 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.

     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. All property management contracts pursuant to which Carmel and
CRSL provided management services to the four publicly-traded real estate
entities are subject to cancellation on 30 days' written notice. Carmel and CRSL
have not expended any significant sum during each of the last two fiscal years
on research and development activities. 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.

     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.

     At March 15, 2000, Carmel and CRSL had no employees.

REAL ESTATE BROKERAGE

     Carmel also provides real estate brokerage services (on a nonexclusive
basis) to four 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 include assistance in locating, leasing or purchasing
real estate. Carmel receives fees equal to the lesser of
                                        2
<PAGE>   4

(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.

ITEM 2. PROPERTIES.

     The Company's principal offices are located at 10670 North Central
Expressway, Suite 410, Dallas, Texas 75231. In the opinion of the Company's
management, the Company's offices are suitable and adequate for its present
operations.

     Prior to December 31, 1996, the Company's only business consisted of
ownership and operation of two Comfort Inn hotels and one Rodeway Inn hotel
(sold effective June 1, 1997 and foreclosed upon during January 1998) located in
Spokane, Washington, all of which were disposed of during 1998. Although the
record title to the Comfort Inn hotels may remain in the Company subject to the
Contract for Deed, the Company considers it has disposed of such properties.
Except for any remaining record title to the two Comfort Inn hotels, the Company
owns no real property.

ITEM 3. LEGAL PROCEEDINGS.

     During January 1988, four of the elected Trustees of Wespac resigned
pursuant to an agreement with U.S. Real Estate Advisors, Inc. ("USREA"), a
privately held California corporation, and four new trustees were elected, all
of whom were officers of USREA. Also, during January 1988 Wespac entered into
certain financing arrangements with USREA and on April 13, 1988 the Trustees who
were also officers of USREA caused Wespac to file for protection under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Central District of California under case No. 88-02222-JR which resulted
in a plan of reorganization approved and confirmed by the Court on March 29,
1989 with certain amendments. The 1988 Reorganization was closed by the
Bankruptcy Court on August 21, 1992.

     Wespac acted as a Debtor-in-Possession in the 1988 reorganization which
concluded in the Third Amended Plan of Reorganization dated January 24, 1989
(the "1989 Plan"), confirmation of which served to re-vest all assets of the
Estate in Wespac, free and clear of all liabilities except those payable under
the 1989 Plan. As provided for by that 1989 Plan, USREA exercised its warrants
by purportedly forgiving $715,586.50 which Wespac allegedly owed under an
Amended Financing Agreement. Wespac then liquidated all real estate assets
except a shopping center in Ogden, Utah (later sold) and three hotels located in
Spokane, Washington consisting of The Rodeway Inn-Spokane House, The Comfort Inn
Valley, and The Comfort Inn North. The 1988 Reorganization was closed by the
Court on August 21, 1992.

     On January 27, 1994, Wespac again instituted a Chapter 11 bankruptcy
proceeding styled In re: Wespac Investors Trust III, Case No. 94-00228-K11, in
the United States Bankruptcy Court for the Eastern District of Washington, to
seek a restructuring of the assets and liabilities of Wespac, in response to
certain litigation that resulted in at least one judgment. 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 (the
"Confirmed Plan"). During the process of consummation of the Confirmed Plan, and
on the eve of issuance of the final decree with respect to the Confirmed Plan,
and emergence from the 1994 Reorganization, the Board of Trustees of Wespac by
motion filed October 29, 1996 sought a modification of the Confirmed Plan which
resulted in the entry of an Order from the Court approving the First
Modification to Plan of Reorganization (as modified) (the "Modification").

     Pursuant to the Confirmed Plan, Class 6 consisted of the Allowed Interest
of former public shareholders in "Old Common Stock," all of which was canceled
on the Effective Date of the Confirmed Plan (June 15, 1996) with one share of
beneficial interest of Wespac deemed to be exchanged for each share of Allowed
Interest, other than Greenbriar Corporation who were then to hold in the
aggregate 25% of the New Shares of Beneficial Interest. After objections to
proofs of interest demonstrating an interest in another entity, it was

                                        3
<PAGE>   5

determined that the Allowed Interest of such holders were equivalent to
2,642,236 shares of Beneficial Interest.

     Also, pursuant to the Confirmed Plan, upon the Effective Date, Greenbriar
Corporation reduced its claim to the so-called "USREA Shares" acquired from
Zimco to equal 25% of the Allowed Interest (a total of 2,642,736 shares of
Beneficial Interest) and Nevada Sea Investments, Inc. ("Nevada Sea") was deemed
to exercise an option to receive all such Shares of Beneficial Interest. In
addition, in the compromise of the Wespac Creditors' Claim, Greenbriar
Corporation was to receive, pursuant to the Confirmed Plan, 50% of the issued
and outstanding Shares of Beneficial Interest, but prior to the Effective Date
of the Confirmed Plan, by agreement, Greenbriar Corporation entered into an
arrangement pursuant to which Greenbriar Corporation conveyed to Nevada Sea an
undivided 50% in and to the creditors' claim resulting in an undivided 25% out
of an aggregate of 50% of New Shares of Beneficial Interest of Wespac to be
issued, on a "when issued" basis, to Nevada Sea in consideration of cancellation
of certain indebtedness. As a result, prior to the implementation of the
procedures set forth in the Modification and as of November 29, 1996, there were
deemed to be 10,570,944 shares of Beneficial Interest, no par value of Wespac,
available for issuance to Shareholders, of which 2,642,736 shares were issuable
to public shareholders (an aggregate of 25% of such Shares), 2,642,736 shares
were issuable to Greenbriar Corporation (an aggregate of 25% of such Shares) and
5,285,472 shares of Beneficial Interest were issuable to Nevada Sea (an
aggregate of 50% of such Shares).

     In order to ensure that the correct number of Shares were issued to
Greenbriar Corporation and Nevada Sea, Wespac and Nevada Sea entered into that
certain Share Settlement Agreement dated as of May 31, 1996 (the "Share
Settlement Agreement") pursuant to which, in the event it is ultimately
determined for whatever reason that either too many or too few Shares have been
issued to Nevada Sea and/or Greenbriar Corporation so that either or both hold
in excess of or less than the required number of issued and outstanding Shares
of Wespac pursuant to the Confirmed Plan and such Shares are issued, Wespac
agreed to either issue additional Shares or Nevada Sea (and/or Greenbriar
Corporation) are to return to Wespac for cancellation such number of Shares as
will make the percentages work out to the required percentages pursuant to the
Confirmed Plan.

     Confirmation of the Confirmed Plan (as modified) served to re-vest all
assets of the estate in Wespac free and clear of all liabilities except those
payable pursuant to the Confirmed Plan. Under the Confirmed Plan, Wespac
retained the Spokane Properties and all allowed claims have been provided for or
paid. The effect of the Modification was to distribute to the shareholders of
Wespac a proposal to convert Wespac from a California business trust into a
Nevada corporation through the "Incorporation Procedure" described therein,
coupled with a change of the name of Wespac. Such proposal was distributed to
the shareholders of Wespac who, by November 29, 1996, approved the proposal by a
vote in excess of 84% in favor. The Incorporation Procedure was implemented.
Following completion of the Incorporation Procedure Wespac submitted to the
Court a Certificate of Substantial Consummation and requested the entry of a
Final Decree on January 24, 1997 to close the 1994 Reorganization. The Final
Decree was entered by the Court February 11, 1997.

     The Company's subsidiaries are involved in certain legal actions arising in
the ordinary course of business. Management of the Company believes that such
litigation and claims, individually and in the aggregate, will be resolved
without material effect upon the Company's financial position or results of
operations.

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.

                                        4
<PAGE>   6

                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     FEPI's shares of Common Stock, par value $0.01 per share, are available for
trading in the over-the-counter market, but to the knowledge of management of
FEPI, no shares have traded since their issuance. The CUSIP Number is
320097-10-8. The shares of Beneficial Interest of WESPAC traded through the
first quarter of 1988 and, at one time, were quoted on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"). Since cessation of
trading on NASDAQ, there has been no established, independent trading market for
the shares of Beneficial Interest of WESPAC or the shares of Common Stock of
FEPI as the successor.

     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 shares of Common Stock of FEPI as the successor.

     As of March 15, 2000, the 10,570,944 shares of Common Stock of FEPI issued
and outstanding were held by approximately 2,400 holders of record.

ITEM 6. SELECTED FINANCIAL DATA.

     The selected consolidated historical financial data presented below for the
three fiscal years ended December 31, 1999 and the period from June 15, 1996
(fresh start) through December 31, 1996 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, (iii) the transaction of succession, and
(iv) the acquisition by the Company of Carmel Realty, Inc. and an 81.6% limited
partnership interest in Carmel Realty Services, Ltd. 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."

<TABLE>
<CAPTION>
                                                                                       PERIOD
                                                 YEAR ENDED DECEMBER 31,            JUNE 15, 1996
                                         ---------------------------------------   TO DECEMBER 31,
                                            1999          1998          1999            1996
                                         -----------   -----------   -----------   ---------------
<S>                                      <C>           <C>           <C>           <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA
Revenues...............................  $19,638,650   $35,563,209   $33,370,720     $ 1,475,831
Operating Costs........................   15,234,044    16,300,214     8,381,325       1,484,023
General and Administrative.............    1,655,537     1,472,368     1,658,681         101,554
Interest Expense.......................      448,477       486,730       399,368         209,946
Earnings (loss) Before Income Taxes....    2,203,464    16,151,691    22,931,346        (319,692)
Income tax expense (current)...........      200,906       (93,623)     (596,215)             --
Income tax (expense) benefit
  (deferred)...........................           --     5,300,000     5,300,000              --
                                         -----------   -----------   -----------     -----------
Net earnings (loss)....................    2,002,558   $10,758,068    27,635,131     $  (319,692)
                                         ===========   ===========   ===========     ===========
Net earnings (loss) per share..........  $       .19   $      1.02   $      2.61     $     (0.03)
                                         ===========   ===========   ===========     ===========
Weighted Average Shares outstanding....   10,570,944    10,570,944    10,570,944      10,570,944
CONSOLIDATED BALANCE SHEET DATA
Total Assets...........................  $58,970,877   $51,698,791   $74,148,980     $ 5,822,865
Short Term Debt........................    2,234,040     4,336,145     3,951,906         879,761
Long Term Debt.........................           --     2,776,336     2,830,913       3,875,538
Stockholders' Equity...................   37,672,156    35,669,598    61,202,697       1,067,566
Minority Interest in Subsidiary........   10,074,447     8,916,712     6,163,464              --
</TABLE>

                                        5
<PAGE>   7

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION.

     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.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

  Liquidity and Capital Resources

     At December 31, 1999, the Company had total assets of $58,970,877 versus
prior year of $51,698,791. Of that amount, the Company held investments of
$55,512,710 and a short term note receivable of $3,457,617.

     The Company had total liabilities of $11,224,274 versus prior year of
$7,112,481. The increase resulted from higher accounts payable-trade and
accounts payable-affiliate.

  Results of Operations

     Revenues decreased to $19,638,650 due to loss of certain contracts in the
fourth quarter as well as a general slowdown in real estate activities in 1999.
Total operating expenses were $16,889,581 versus prior year of $17,772,582.
Income tax expense decreased to $200,906 versus prior year of $5,393,623 due to
lower pre-tax income. Net earnings decreased to $2,002,558 versus prior year of
$10,758,068.

  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, 1999, 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.

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.
                                        6
<PAGE>   8

                                    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.

     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 in the Articles of
Incorporation of the Company filed December 19, 1996. A vacancy exists on the
Board of Directors following the resignation effective March 1, 1997 of Georgie
Liebelt. See "Item 13. Certain Relationships and Related Transactions."

<TABLE>
<CAPTION>
NAME                                        AGE          POSITION WITH THE COMPANY
----                                        ---          -------------------------
<S>                                         <C>   <C>
Karl L. Blaha.............................  52    President
F. Terry Shumate..........................  60    Vice President, Secretary and Treasurer
</TABLE>

     Karl L. Blaha is President (since October 1993) and a director (since June
1996) of American Realty Trust, Inc. ("ART"), a New York Stock Exchange listed
entity engaged in real estate, and was Executive Vice President and Director of
Commercial Management (April 1992 to October 1993) of ART. He is also President
(since September 1999); Executive Vice President and Director of Commercial
Management (April 1992 to August 1995 and since July 1997) of Basic Capital
Management, Inc. ("BCM"), a contractual advisor to many entities engaged in the
real estate business, Income Opportunity Realty Investors, Inc. ("IORI"), a
publicly-held REIT, Transcontinental Realty Investors, Inc. ("TCI"), a
publicly-held REIT; Executive Vice President (since November 1998) and Director
(since January 1999) of NRLP Management Corp ("NMC"), the managing general
partner of National Realty, L.P. ("NRLP"), an American Stock Exchange listed
publicly-held limited partnership, and its operating partnership, National
Operating L.P. ("NOLP"); Executive Vice President (October 1992 to July 1997) of
Carmel Realty, Inc. ("Carmel Realty"), a company which provides real estate
brokerage services and commercial property management services. Mr. Blaha was
also a member of the Board of Trustees of Wespac from June 19, 1996 until
implementation of the Incorporation Procedure.

     For more than the past five years, Mr. Shumate has been Vice President and
Secretary of Syntek West, Inc. (real estate investment). He has been Secretary
and Treasurer of Carmel Realty (property management and real estate brokerage)
since June 1992; sole director and President, Secretary and Treasurer of Carmel
Realty Services, Inc. (property management) since July 1990; Vice President of
SAMI (February 1989 to December 1996); and Vice President of BCM (May 1990 to
December 1996); director, Chairman of the Board, Vice President, Secretary and
Treasurer of Nevada Sea Investments, Inc. (from May 1995 to March 1997), the
owner and holder of 50% of the issued and outstanding common stock of the
Company. He was Vice President, Secretary and Treasurer of One Realco
Corporation (real estate) until March 18, 1997. Mr. Shumate was also a member of
the Board of Trustees and Vice President, Secretary and Treasurer of Arlington
Realty Investors (now known as Watermark Investors Trust), a publicly-held REIT,
from

                                        7
<PAGE>   9

November 10, 1993 until December 5, 1995. Mr. Shumate was also a member of the
Board of Trustees of Wespac from June 19, 1996 until implementation of the
Incorporation Procedure.

     There are no family relationships among the directors or executive officers
of the Company.

MEETINGS AND COMMITTEES OF DIRECTORS

     The Company's Board of Directors acted upon four 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.

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, 1999, 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.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The Company's voting securities consist of the shares of common stock, par
value $0.01 per share. As of March 15, 2000, 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:

<TABLE>
<CAPTION>
                                                                   AMOUNT AND
                                                                   NATURE OF
                                                                   BENEFICIAL     PERCENT OF
TITLE OF CLASS           NAME AND ADDRESS OF BENEFICIAL OWNER      OWNERSHIP        CLASS
--------------           ------------------------------------      ----------     ----------
<S>                      <C>                                    <C>               <C>
Shares of Common Stock,  Nevada Sea Investments, Inc.           5,285,472 shares    50%
par value $0.01 per      10670 North Central Expressway
share                    Suite 410
                         Dallas, Texas 75231
Shares of Common Stock,  Greenbriar Corporation                 2,642,736 shares    25%
par value $0.01 per      4265 Kellway Circle
share                    Dallas, Texas 75248
</TABLE>

---------------

(1) Based on 10,570,944 shares of common stock outstanding on March 15, 2000.

                                        8
<PAGE>   10

     As of March 15, 2000, 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:

<TABLE>
<CAPTION>
                                                                   AMOUNT AND
                                                                   NATURE OF
                                                                   BENEFICIAL     PERCENT OF
TITLE OF CLASS           NAME AND ADDRESS OF BENEFICIAL OWNER      OWNERSHIP       CLASS(A)
--------------           ------------------------------------      ----------     ----------
<S>                      <C>                                    <C>               <C>
Shares of Common Stock,  Karl L. Blaha                                none         none
par value $0.01 per      10670 North Central Expressway
share                    Suite 300
                         Dallas, Texas 75231
Shares of Common Stock,  F. Terry Shumate                             none         none
par value $0.01 per      10670 North Central Expressway
share                    Suite 410
                         Dallas, Texas 75231
Shares of Common Stock,  All officers and directors as a group        none         none
par value $0.01 per
share
</TABLE>

---------------

(a)  Based on 10,570,944 shares of common stock outstanding on March 15, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On June 25, 1996, in connection with the Confirmed 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. All principal and interest
under such advances is due June 14, 1998. 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 the
amounts advanced.

     Effective January 1, 1997, the Company acquired from Syntek West, Inc., a
Nevada corporation, all of the issued and outstanding common stock of Carmel
Realty, Inc., a Texas corporation ("Carmel") and an 81.6% limited partnership
interest in Carmel Realty Services, Ltd., a Texas limited partnership ("CRSL")
for an aggregate purchase price of $22,500,000, which was paid by the issuance
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 Note
M to the Financial Statements. During 1998, the Company redeemed all of its
$32,500,000 preferred stock in exchange for reduction of receivables from Syntek
West, Inc.

     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

                                        9
<PAGE>   11

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. The Company exchanged the property in June
1998 for a residential property in Couer dAlene, Idaho (since sold). See also
Note P to the Consolidated Financial Statements.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) Financial Statements. The following documents are filed as part of this
report:

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
        <S>                                                           <C>
        1. CONSOLIDATED FINANCIAL STATEMENTS.
           Independent auditor's report.............................   F-1
           Consolidated Balance Sheets as of December 31, 1999 and
             1998...................................................   F-2
           Consolidated Statements of Operations for the three years
             ended December 31, 1999 and the period from June 15,
             1996 (fresh start) through December 31, 1996...........   F-3
           Consolidated Statements of Changes in Shareholders'
             Equity for the three years ended December 31, 1999 and
             the period from June 15, 1996 (fresh start) through
             December 31, 1996......................................   F-4
           Consolidated Statements of Cash Flows for the three years
             ended December 31, 1999 and the period from June 15,
             1996 (fresh start) through December 31, 1996...........   F-5
           Notes to Consolidated Financial Statements...............   F-6
</TABLE>

        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) Reports on Form 8-K. During the last quarter of the period covered by
this report, no reports on Form 8-K were filed.

     (c) Exhibits. The following documents are filed herewith as exhibits or
incorporated by the references indicated below:

<TABLE>
<CAPTION>
        EXHIBIT
      DESIGNATION                           DESCRIPTION OF EXHIBIT
      -----------                           ----------------------
<C>                      <S>
          2.1            -- 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).
</TABLE>

                                       10
<PAGE>   12

<TABLE>
<CAPTION>
        EXHIBIT
      DESIGNATION                           DESCRIPTION OF EXHIBIT
      -----------                           ----------------------
<C>                      <S>
          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).
          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).
         21*             -- Subsidiaries of the Registrant
         27*             -- Financial Data Schedule
</TABLE>

---------------

* filed herewith

                                       11
<PAGE>   13

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed by the undersigned, thereunto duly
authorized.

                                            FIRST EQUITY PROPERTIES, INC.

Dated: March 29, 2000                       By     /s/ F. TERRY SHUMATE
                                              ----------------------------------
                                                       F. Terry Shumate
                                                  Director, Vice President,
                                                    Secretary and Treasurer

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacity and on the
date indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>

                  /s/ KARL L. BLAHA                    Director and President           March 29, 2000
-----------------------------------------------------    (Principal Executive Officer)
                    Karl L. Blaha

                /s/ F. TERRY SHUMATE                   Director, Vice President,        March 29, 2000
-----------------------------------------------------    Secretary and Treasurer
                  F. Terry Shumate                       (principal financial and
                                                         accounting officer)
</TABLE>

                                       12
<PAGE>   14

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
INDEPENDENT AUDITOR'S REPORT................................   F-1
CONSOLIDATED FINANCIAL STATEMENTS
  Balance sheets as of December 31, 1999 and 1998...........   F-2
  Statements of operations for the years ended December 31,
     1999, 1998 and 1997....................................   F-3
  Statements of changes in shareholders' equity for the
     years ended December 31, 1999, 1998 and 1997...........   F-4
  Statements of cash flows for the years ended December 31,
     1999, 1998 and 1997....................................   F-5
  Notes to financial statements.............................   F-6
</TABLE>

     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.

                                       13
<PAGE>   15

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors
First Equity Properties, Inc. and Subsidiaries

     We have audited the accompanying consolidated balance sheets of First
Equity Properties, Inc. and subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended December 31, 1999, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Equity Properties, Inc. and subsidiaries as of December 31, 1999 and 1998
and the results of their operations and their cash flows for the years ended
December 31, 1999, 1998 and 1997, in conformity with generally accepted
accounting principles.

FARMER, FUQUA, HUNT & MUNSELLE, P.C.
March 6, 2000
Dallas, Texas

                                       F-1
<PAGE>   16

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                  DECEMBER 31,

<TABLE>
<CAPTION>
                                                                 1999          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
                                        ASSETS

Property and equipment, less accumulated depreciation of
  $105,074..................................................  $        --   $   204,013
Cash and cash equivalents...................................          550       325,699
Accounts receivable -- trade................................           --     1,240,736
Accounts receivable -- affiliate............................           --     3,020,755
Investments.................................................   55,512,710    40,573,000
Notes receivable............................................    3,457,617     3,348,468
Other assets................................................           --     2,986,120
                                                              -----------   -----------
                                                              $58,970,877   $51,698,791
                                                              ===========   ===========

                         LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable...............................................  $ 2,234,040   $ 2,776,336
Notes payable -- affiliate..................................           --     2,747,347
Accounts payable -- trade...................................    5,548,224       302,853
Accounts payable -- affiliate...............................    3,370,010       240,762
Accrued liabilities.........................................           --       806,683
Income taxes payable........................................       72,000       238,500
                                                              -----------   -----------
          Total liabilities.................................   11,224,274     7,112,481
Minority interest in subsidiary.............................   10,074,447     8,916,712
Shareholders' Equity
  Other preferred stock, $.01 par value; 4,960,000 shares
     authorized; none issued or outstanding.................           --            --
  Common stock, $0.01 par, 40,000,000 shares authorized,
     10,570,944 shares issued and outstanding...............      105,710       105,710
  Capital in excess of par value............................    1,281,548     1,281,548
  Retained earnings.........................................   36,284,898    34,282,340
                                                              -----------   -----------
          Total shareholders' equity........................   37,672,156    35,669,598
                                                              -----------   -----------
                                                              $58,970,877   $51,698,791
                                                              ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-2
<PAGE>   17

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                           1999          1998          1997
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Revenue
  Commissions.........................................  $10,061,286   $15,088,330   $16,009,816
  Management fees.....................................    5,431,460     7,011,188     5,648,933
  Consulting fees.....................................    2,748,452     9,580,256     7,519,680
  Other...............................................    1,397,452     2,869,344     2,266,064
  Motel...............................................           --     1,014,091     1,926,227
                                                        -----------   -----------   -----------
                                                         19,638,650    35,563,209    33,370,720
Operating expenses
  Consulting fees.....................................    5,308,225     5,500,000            --
  Salaries and wages..................................    4,361,715     5,062,774     3,900,342
  Goodwill amortization...............................    2,819,995        63,229        63,229
  General and administrative..........................    1,655,537     1,472,368     1,658,681
  Minority interest in earnings of subsidiary.........    1,157,732     2,753,250     2,100,338
  Insurance and taxes.................................      894,669       810,717       457,907
  Legal and accounting................................      307,313       214,951       101,199
  Other operating expenses............................      201,020     1,353,393       876,105
  Depreciation and amortization.......................      100,729       182,735       241,894
  Telephone and utilities.............................       56,998       126,364       157,463
  Repairs and maintenance.............................       20,238        77,625       193,939
  Advertising and promotion...........................        5,410        81,653       116,733
  Franchise fees......................................           --        73,523       172,176
                                                        -----------   -----------   -----------
          Total operating expenses....................   16,889,581    17,772,582    10,040,006
                                                        -----------   -----------   -----------
Earnings from operations..............................    2,749,069    17,790,627    23,330,714
Other expenses
  Interest expense....................................     (448,477)     (486,730)     (399,368)
                                                        -----------   -----------   -----------
Earnings before income taxes and loss on sale of
  assets..............................................    2,300,592    17,303,897    22,931,346
Loss on sale of assets................................      (97,128)   (1,152,206)           --
                                                        -----------   -----------   -----------
Earnings before income taxes..........................    2,203,464    16,151,691    22,931,346
Income tax benefit (expense)
  Current.............................................     (200,906)      (93,623)     (596,215)
  Deferred............................................           --    (5,300,000)    5,300,000
                                                        -----------   -----------   -----------
                                                           (200,906)   (5,393,623)    4,703,785
                                                        -----------   -----------   -----------
          NET EARNINGS................................  $ 2,002,558   $10,758,068   $27,635,131
                                                        ===========   ===========   ===========
Earnings per share....................................  $      0.19   $      1.02   $      2.61
                                                        ===========   ===========   ===========
Weighted average shares outstanding...................   10,570,944    10,570,944    10,570,944
                                                        ===========   ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-3
<PAGE>   18

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                             COMMON STOCK           PREFERRED STOCK        CAPITAL      RETAINED
                         ---------------------   ----------------------   IN EXCESS     EARNINGS        TOTAL
                           SHARES      AMOUNT    SHARES       AMOUNT        OF PAR      (DEFICIT)       EQUITY
                         ----------   --------   -------   ------------   ----------   -----------   ------------
<S>                      <C>          <C>        <C>       <C>            <C>          <C>           <C>
BALANCES AT JANUARY 1,
  1997.................  10,570,944   $105,710        --             --   $1,281,548   $  (319,692)  $  1,067,566
  Issuance of preferred
     stock to acquire
     subsidiary........          --         --    32,500   $ 32,500,000           --            --     32,500,000
  Net earnings.........          --         --        --             --           --    27,635,131     27,635,131
                         ----------   --------   -------   ------------   ----------   -----------   ------------
BALANCES AT DECEMBER
  31, 1997.............  10,570,944    105,710    32,500     32,500,000    1,281,548    27,315,439     61,202,697
  Redemption of
     preferred stock...          --         --   (32,500)   (32,500,000)          --            --    (32,500,000)
  Dividends paid.......          --         --        --             --           --    (3,791,167)    (3,791,167)
  Net earnings.........          --         --        --             --           --    10,758,068     10,758,068
                         ----------   --------   -------   ------------   ----------   -----------   ------------
BALANCES AT DECEMBER
  31, 1998.............  10,570,944    105,710        --             --    1,281,548    34,282,340     35,669,598
  Net earnings.........          --         --        --             --           --     2,002,558      2,002,558
                         ----------   --------   -------   ------------   ----------   -----------   ------------
BALANCES AT DECEMBER
  31, 1999.............  10,570,944   $105,710        --   $         --   $1,281,548   $36,284,898   $ 37,672,156
                         ==========   ========   =======   ============   ==========   ===========   ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-4
<PAGE>   19

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                         1999           1998           1997
                                                     ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.......................................  $  2,002,558   $ 10,758,068   $ 27,635,131
Adjustments to reconcile net earnings to net cash
  used by operating activities
  Depreciation and amortization....................     2,920,724        245,964        305,123
  Minority interest................................     1,157,735      2,753,250      2,100,338
  Loss on sale of assets and write-off.............        97,120      1,152,206             --
  Gain on forgiveness of debt......................      (234,697)            --             --
  (Increase) decrease in
     Accounts receivable -- trade..................      (483,280)       (50,379)      (124,024)
     Deferred tax asset............................            --      5,300,000     (5,300,000)
     Accounts receivable -- affiliate..............     3,304,283    (20,521,209)   (26,945,736)
     Prepaid expenses and other assets.............        (1,885)        14,500          8,507
  Increase (decrease) in
     Accounts payable..............................     6,099,751       (141,421)       261,069
     Accounts payable -- affiliate.................   (15,348,123)       166,164         74,598
     Accrued expenses..............................       217,553        249,441        169,108
     Other current liabilities.....................            --             --       (439,992)
     Income taxes payable..........................      (166,500)      (357,715)       596,215
     Other.........................................        75,444             --             --
                                                     ------------   ------------   ------------
          Net cash used for operating activities...      (359,309)      (431,131)    (1,659,663)
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of investment.................       525,000             --             --
  Purchase of property and equipment...............       (54,105)      (242,001)      (181,072)
  Sale of motels and equipment.....................            --        488,425             --
  Payments received on notes receivable............       121,568         20,815             --
  Net cash acquired from acquisition...............            --             --        298,105
                                                     ------------   ------------   ------------
          Net cash provided by investing
            activities.............................       592,463        267,239        117,033
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes payable -- affiliate.........            --        467,769      1,767,951
  Payments on long term debt.......................      (558,303)      (123,084)      (156,770)
                                                     ------------   ------------   ------------
          Net cash provided by (used for) financing
            activities.............................      (558,303)       344,685      1,611,181
                                                     ------------   ------------   ------------
          Net increase (decrease) in cash and cash
            equivalents............................      (325,149)       180,793         68,551
Cash and cash equivalents at beginning of period...       325,699        144,906         76,355
                                                     ------------   ------------   ------------
Cash and cash equivalents at end of period.........  $        550   $    325,699   $    144,906
                                                     ============   ============   ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-5
<PAGE>   20

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1999 AND 1998

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.

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. In addition, the Company
indirectly invests in real estate entities and marketable securities through its
investment in the preferred stock of Realty Advisors, Inc.

  Principles of Consolidation

     The consolidated financial statements include the accounts of First Equity
Properties, Inc., its wholly-owned subsidiary Carmel Realty, Inc. and its
majority-owned subsidiary, Carmel Realty Services, Ltd. All significant
intercompany accounts and transactions have been eliminated in consolidation.

  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.

                                       F-6
<PAGE>   21
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Property, Equipment, Depreciation and Amortization

     Property and equipment in place on June 15, 1996 are stated at fair value
in accordance with fresh-start reporting. Additions are stated at cost.
Depreciation and amortization are provided over the estimated useful lives of
the assets on the straight-line method. Maintenance and repairs of a routine
nature are charged to expense. Renewals and betterments which extend the useful
life of existing assets are capitalized and depreciated over their estimated
useful lives.

  Investments

     Investments consist of non-marketable investments in private companies, and
are carried at the lower of cost or estimated net realizable value.

  Goodwill

     Goodwill represents the excess of cost over the fair value of assets
acquired and is being amortized using the straight-line method over 40 years.
The carrying value of goodwill is periodically reviewed by the Company based on
the expected future operating cash flows of the related business unit. It was
determined in 1999 that, due to the publicly traded real estate entities
transferring their management and brokerage contracts to another entity,
impairment had occurred and the unamortized goodwill has been charged to
operations in 1999.

  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.

  Credit Risk

     The Company's trade accounts receivable arise in the normal course of
business and primarily relate to management of commercial and residential
properties located throughout the United States. Such receivables are unsecured.
The Company performs ongoing credit evaluations of the entities from whom such
amounts are receivable. The Company places its cash investments in high credit
quality institutions and, by policy, limits the amount of credit exposure to any
one institution.

  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

                                       F-7
<PAGE>   22
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the absence of dilutive potential common shares. The adoption of SFAS 128 had no
effect on previously reported EPS.

  Concentration of Credit Risk

     At December 31, 1998, the Company had cash in excess of federally insured
limits on deposit in a bank.

NOTE D -- ACCOUNTS RECEIVABLE -- AFFILIATES

<TABLE>
<CAPTION>
                                                              1999      1998
                                                              ----   ----------
<S>                                                           <C>    <C>
Syntek West, Inc. ..........................................  $--    $2,955,806
Others......................................................   --        64,949
                                                              ---    ----------
                                                              $--    $3,020,755
                                                              ===    ==========
</TABLE>

NOTE E -- INVESTMENTS

<TABLE>
<CAPTION>
                                                                1999          1998
                                                             -----------   -----------
<S>                                                          <C>           <C>
Realty Advisors, Inc. preferred stock -- at cost...........  $55,512,710   $39,952,000
Real estate................................................           --       620,000
Other -- at cost...........................................           --         1,000
                                                             -----------   -----------
                                                             $55,512,710   $40,573,000
                                                             ===========   ===========
</TABLE>

     The investment in Realty Advisors, Inc. preferred stock at December 31,
1999 and 1998 represents 504,661 and 363,200 shares, respectively, 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.

NOTE F -- PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                              1999     1998
                                                              ----   ---------
<S>                                                           <C>    <C>
Furniture and fixtures......................................  $--    $ 309,087
                                                              ---    ---------
                                                               --      309,087
Less accumulated depreciation and amortization..............   --     (105,074)
                                                              ---    ---------
                                                              $--    $ 204,013
                                                              ===    =========
</TABLE>

NOTE G -- OTHER ASSETS

<TABLE>
<CAPTION>
                                                              1999      1998
                                                              ----   ----------
<S>                                                           <C>    <C>
Goodwill, less accumulated amortization of $151,749 at
  December 31, 1998.........................................  $--    $2,883,224
Deposits....................................................   --       102,896
                                                              ---    ----------
                                                              $--    $2,986,120
                                                              ===    ==========
</TABLE>

NOTE H -- ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                              1999     1998
                                                              ----   --------
<S>                                                           <C>    <C>
Accrued payroll and payroll taxes...........................  $--    $806,683
                                                              ---    --------
                                                              $--    $806,683
                                                              ===    ========
</TABLE>

                                       F-8
<PAGE>   23
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I -- NOTES PAYABLE

<TABLE>
<S>                                                           <C>          <C>
Mortgage notes payable to a bank, bearing interest at 3.5%
  in excess of the U.S T-Bill rate (as defined), payable in
  monthly installments of $26,886 including interest through
  maturity on April 1, 2000; subsequently extended,
  collateralized by certain motel property and equipment....  $2,234,040   $2,637,298
Bankruptcy claim payable, unsecured, at 10% per annum,
  payable in annual installments of $15,812 through June
  2000......................................................          --       54,952
Bankruptcy claims payable, unsecured, at 8% per annum,
  payable in annual installments of $75,849 through June
  2001......................................................          --       84,086
                                                              ----------   ----------
                                                              $2,234,040   $2,776,336
                                                              ==========   ==========
</TABLE>

     At December 31, 1999 maturities of notes payable are as follows:

<TABLE>
<S>                                                        <C>
2000....................................................    2,234,040
                                                           ----------
                                                           $2,234,040
                                                           ==========
</TABLE>

NOTE J -- 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 K -- CAPITAL TRANSACTIONS

     Series A cumulative preferred stock, non-voting, was issued in 1997 in
connection with the acquisition described in Note M. The preferred stock had an
annual dividend rate of $80 per share, and was redeemable at any time, at the
option of the Company, at a price equal to the liquidation value ($1,000 per
share) plus all cumulative dividends in arrears. The preferred stock had no
right of conversion into any other securities of the Company. The stock was
redeemed in 1998 for $32,500,000 in exchange for notes receivable and cumulative
dividends in arrears on the preferred stock totaling $3,791,167 were also
exchanged for notes receivable. Accordingly, total cumulative dividends in
arrears totaled $-0- at December 31, 1999.

NOTE L -- 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 1999, 1998 and 1997
as a result of the following:

<TABLE>
<CAPTION>
                                                   1999         1998          1997
                                                 ---------   ----------   ------------
<S>                                              <C>         <C>          <C>
Computed expected tax expense..................  $ 749,178   $5,655,000   $  8,110,000
Alternative minimum tax........................         --           --        596,215
Alternative minimum tax credit.................   (677,334)          --             --
Federal income tax.............................         --      238,500             --
Miscellaneous timing differences...............    129,062     (499,877)            --
Reduction of valuation allowance...............         --           --    (13,410,000)
                                                 ---------   ----------   ------------
                                                 $ 200,906   $5,393,623   $ (4,703,785)
                                                 =========   ==========   ============
</TABLE>

                                       F-9
<PAGE>   24
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The tax effects of temporary differences that give rise to the significant
portion of the deferred tax asset at December 31, 1999, 1998 and 1997 are as
follows:

<TABLE>
<CAPTION>
                                                              1999   1998      1997
                                                              ----   ----   ----------
<S>                                                           <C>    <C>    <C>
Net operating loss carryforwards............................  $--    $--    $5,300,000
Less valuation allowance....................................   --     --            --
                                                              ---    ---    ----------
Net deferred tax asset......................................  $--    $--    $5,300,000
                                                              ===    ===    ==========
</TABLE>

     During 1998, the Company utilized the net operating loss carryforwards
available to offset current year income. Accordingly, no deferred tax asset
exists at December 31, 1999 and the reduction of the asset is included in income
tax expense in the accompanying consolidated statement of operations.

NOTE M -- RELATED PARTY TRANSACTIONS

     Effective January 1, 1997 the Company contracted with Regis Management
Corporation (Regis) to manage the day to day operations of the motel properties
for 5% of gross revenues. Regis is a subsidiary of Carmel Realty, Inc. Such
contract terminated at the time of disposition of the motel properties.

     The Company provided management services primarily to five affiliated
publicly traded real estate entities throughout the United States. Under such
arrangements, the Company received a fee of 5% or less of the monthly gross
rents collected on the properties under management. The Company subcontracts
with other entities for the provision of property level services. All property
management contracts, constituting substantially all management service
revenues, with the five publicly traded real estate entities were cancelled
effective October 1, 1999.

     The Company also provided real estate brokerage services to the five
affiliated publicly traded real estate entities and a number of other entities,
and receives brokerage commissions under varying arrangements from a fixed
amount to a sliding scale on a percentage basis. In general, such services
include providing assistance in locating, leasing or purchasing real estate. The
Company receives 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 similar transactions by others
rendering similar property acquisition services. The contracts for the brokerage
services were also cancelled effective October 1, 1999. These contracts
represented substantially all brokerage and commission service revenue.

     Effective January 1, 1997, the Company acquired from a related party, 100%
of the outstanding common stock of Carmel Realty, Inc. and an 81.6% limited
partnership interest in Carmel Realty Services, Ltd. (the "Acquired Companies"),
for a purchase price of $32,500,000, consisting of 32,500 shares of Series A 8%
Cumulative Preferred Stock having a liquidation value of $1,000 per share (the
"Preferred Stock"). During 1998, the Company redeemed all of its $32,500,000 of
preferred stock in exchange for reduction of receivables from Syntek West, Inc.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the Acquired Companies' results of operations are included in the
consolidated financial statements since the date of acquisition. The excess of
the purchase price over assets acquired approximated $3,035,000 and was being
amortized over 40 years. Due to the fact that the service contracts with the
five affiliated publicly traded real estate entities were cancelled and that
this goodwill purchase was based on the continuing revenue stream from those
contracts, the remainder of goodwill has been charged to operations in 1999.

                                      F-10
<PAGE>   25
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- FINANCIAL INSTRUMENTS

     The estimated fair values of the Company's financial instruments at
December 31, 1999 and 1998 follow:

<TABLE>
<CAPTION>
                                             1999                        1998
                                   -------------------------   -------------------------
                                    CARRYING                    CARRYING
                                     AMOUNT      FAIR VALUE      AMOUNT      FAIR VALUE
                                   -----------   -----------   -----------   -----------
<S>                                <C>           <C>           <C>           <C>
Accounts
  receivable -- affiliates.......  $        --   $        --   $ 3,020,755   $ 3,020,755
Accounts receivable -- trade.....           --            --     1,240,736     1,240,736
Investments......................   55,512,710    55,512,710    40,573,000    40,573,000
Note receivable..................    3,457,617     3,457,617     3,348,468     3,348,468
Notes payable....................    2,234,043     2,234,043     2,776,336     2,776,336
Notes payable -- affiliate.......           --            --     2,747,347     2,747,347
</TABLE>

     The carrying values of cash and cash equivalents, accounts receivable and
payable, and accrued liabilities approximate fair value due to short-term
maturities of these assets and liabilities.

     Investments are accounted for using the cost method and pertain to
investments in companies for which fair values are not readily available, but
are believed to exceed carrying amounts.

     The aggregate fair value of notes payable and notes payable-affiliate
approximate carrying amounts due to their short maturities.

NOTE O -- COMMITMENTS AND CONTINGENCIES

     The Company is involved in various legal actions incidental to its
business. In Management's opinion, none of these actions will have a material
adverse effect on the Company's financial position.

NOTE P -- SALE AND FORECLOSURE OF HOTEL PROPERTY

     Effective June 1, 1997, the Company sold a motel property to a former
officer and director of the Company, and paid off the underlying mortgage, in
return for a note receivable from the buyer for $1,475,000. In January 1998, the
Company foreclosed on the property following a lack of performance by the buyer
on the related note receivable. The property was recorded at the amount of the
net receivable. Results of operations for the property for the period from March
1, 1997 through December 31, 1997 were retained by the buyer and are not
included in the accompanying consolidated statement of operations for the year
ended December 31, 1997.

     During June 1998, FEPI entered into a contract for deed to sell two motels
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.

     Also during June, 1998, FEPI exchanged the remaining motel property with an
unaffiliated party for a residential property near Couer d'Alene, Idaho.

                                      F-11
<PAGE>   26
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE Q -- SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                  1999          1998           1997
                                               -----------   -----------   ------------
<S>                                            <C>           <C>           <C>
Cash paid during the year for:
  Interest...................................  $        --   $   518,476   $    288,742
  Income taxes...............................      367,009            --             --
Noncash investing and financing activities:
  Preferred stock issued for acquisition.....           --            --     32,500,000
  Long term debt paid by related party.......           --            --        887,855
  Stock issued to company to retire debt.....   15,560,710            --      9,482,000
  Dividend paid for notes payable............           --     3,791,167             --
  Preferred stock investment exchanged for
     notes payable...........................           --     1,573,000             --
  Receivables exchanged for preferred
     stock...................................           --    32,500,000             --
Details of acquisition:
  Fair value of assets acquired..............           --            --     34,171,349
  Liabilities assumed........................           --            --     (4,706,322)
  Goodwill...................................           --            --      3,034,973
  Stock issued...............................           --            --    (32,500,000)
                                               -----------   -----------   ------------
  Cash paid..................................           --            --             --
  Plus: cash acquired........................           --            --        298,105
                                               -----------   -----------   ------------
  Net cash acquired from acquisition.........           --            --        298,105
                                               ===========   ===========   ============
Details of sale of motel properties
  Sales price................................           --     4,520,776             --
  Note receivable............................           --    (3,600,000)            --
  Residential property.......................           --      (620,000)            --
  Expenses paid..............................           --      (111,575)            --
  Note payable assumed.......................           --       299,224             --
                                               -----------   -----------   ------------
  Net cash from sale of motel properties.....  $        --   $   488,425   $         --
                                               ===========   ===========   ============
Details of sale of Carmel Property Management
  Sales price................................      283,528            --             --
  Assets sold................................   (2,162,144)           --             --
  Liabilities transferred....................    1,878,616            --             --
                                               -----------   -----------   ------------
  Net cash from sale.........................  $        --   $        --   $         --
                                               ===========   ===========   ============
</TABLE>

NOTE R -- 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 $9,923, $4,320 and $-0- in 1999, 1998 and
1997, respectively.

NOTE S -- BUSINESS SEGMENTS

     Prior to January 1, 1997, the Company's only business consisted of the
management of three motels in the Spokane, Washington area. In 1998 and 1997,
the Company's operations have been classified into three business segments:
hospitality, property management and real estate brokerage. These segments have
separate financial information and, to a large extent, separate management and
operating groups. Hospitality relates to

                                      F-12
<PAGE>   27
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the operations of the Company's three motel properties, which were sold in 1998.
Property management relates to services rendered primarily to five
publicly-traded real estate entities, in connection with the management of
commercial real property, including retail centers, office buildings, industrial
properties and hotels. Real estate brokerage relates to services rendered
primarily to five publicly-traded real estate entities, in connection with
locating, leasing and purchasing real estate. Summarized financial data by
segment for 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                               1999
                        ----------------------------------------------------------------------------------
                        HOSPITALITY    PROPERTY     REAL ESTATE               ADJUSTMENTS
                         BUSINESS     MANAGEMENT     BROKERAGE     OTHER     & ELIMINATIONS   CONSOLIDATED
                        -----------   -----------   -----------   --------   --------------   ------------
<S>                     <C>           <C>           <C>           <C>        <C>              <C>
Revenues..............  $        --   $12,374,533   $10,061,286   $505,756    $(3,322,915)    $19,618,660
                        ===========   ===========   ===========   ========    ===========
Operating profit
  (loss)..............  $        --   $ 8,660,172   $ 7,041,273   $505,756    $(3,322,915)    $12,884,286
                        ===========   ===========   ===========   ========    ===========
General corporate
  expenses............                                                                         (9,523,090)
Minority interest in
  earnings of
  subsidiary..........                                                                         (1,157,732)
                                                                                              -----------
Earnings before income
  taxes...............                                                                        $ 2,203,464
                                                                                              ===========
Identifiable assets...  $        --   $        --   $        --                               $        --
                        ===========   ===========   ===========
Corporate assets......                                                                         58,970,877
                                                                                              -----------
                                                                                              $58,970,877
                                                                                              ===========
</TABLE>

<TABLE>
<CAPTION>
                                                               1998
                        ----------------------------------------------------------------------------------
                        HOSPITALITY    PROPERTY     REAL ESTATE               ADJUSTMENTS
                         BUSINESS     MANAGEMENT     BROKERAGE     OTHER     & ELIMINATIONS   CONSOLIDATED
                        -----------   -----------   -----------   --------   --------------   ------------
<S>                     <C>           <C>           <C>           <C>        <C>              <C>
Revenues..............  $ 1,014,091   $23,183,685   $15,088,330   $628,040    $(4,350,937)    $35,563,209
                        ===========   ===========   ===========   ========    ===========
Operating profit
  (loss)..............  $(1,756,678)  $16,195,171   $10,540,089   $628,040    $        --     $25,606,622
                        ===========   ===========   ===========   ========    ===========
General corporate
  expenses............                                                                         (6,701,681)
Minority interest in
  earnings of
  subsidiary..........                                                                         (2,753,250)
                                                                                              -----------
Earnings before income
  taxes...............                                                                        $16,151,691
                                                                                              ===========
Identifiable assets...  $ 5,829,462   $ 1,668,392   $        --                               $ 7,497,854
                        ===========   ===========   ===========
Corporate assets......                                                                         44,200,937
                                                                                              -----------
                                                                                              $51,698,791
                                                                                              ===========
</TABLE>

     Corporate assets include cash and cash equivalents, notes receivable and
investments.

                                      F-13
<PAGE>   28
                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                               1997
                        ----------------------------------------------------------------------------------
                        HOSPITALITY    PROPERTY     REAL ESTATE               ADJUSTMENTS
                         BUSINESS     MANAGEMENT     BROKERAGE     OTHER     & ELIMINATIONS   CONSOLIDATED
                        -----------   -----------   -----------   --------   --------------   ------------
<S>                     <C>           <C>           <C>           <C>        <C>              <C>
Revenues..............  $ 1,926,227   $18,815,921   $16,054,816   $253,034    $(3,679,278)    $33,370,720
                        ===========   ===========   ===========   ========    ===========
Operating profit
  (loss)..............  $  (288,995)  $14,356,856   $12,256,353   $253,037    $   (45,000)    $26,532,251
                        ===========   ===========   ===========   ========    ===========
General corporate
  expenses............                                                                         (1,500,567)
Minority interest in
  earnings of
  subsidiary..........                                                                         (2,100,338)
                                                                                              -----------
Earnings before income
  taxes...............                                                                        $22,931,346
                                                                                              ===========
Identifiable assets...  $12,998,401   $14,214,196   $        --                               $27,213,597
                        ===========   ===========   ===========
Corporate assets......                                                                         46,935,383
                                                                                              -----------
                                                                                              $74,148,980
                                                                                              ===========
</TABLE>

     Corporate assets include cash and cash equivalents, investments and
deferred tax assets.

NOTE T -- 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, 1999,
1998 and 1997, 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-14
<PAGE>   29

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
      DESIGNATION                           DESCRIPTION OF EXHIBIT
      -----------                           ----------------------
<C>                      <S>
          2.1            -- 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).
          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).
</TABLE>
<PAGE>   30

<TABLE>
<CAPTION>
        EXHIBIT
      DESIGNATION                           DESCRIPTION OF EXHIBIT
      -----------                           ----------------------
<C>                      <S>
         21*             -- Subsidiaries of the Registrant
         27*             -- Financial Data Schedule
</TABLE>

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* filed herewith