<PAGE>   1


                                  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, 1998
                         -------------------------------------------------------

                                       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)


             Nevada                                         95-6799846
-------------------------------                        ------------------
 State of other jurisdiction of                         (I.R.S. Employer
  Incorporation or organization                        Identification No.)

10670 N. Central Expressway, Suite 410, Dallas, Texas           75231
-----------------------------------------------------           -----
       (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code  214 750-5800
                                                    --------------------
Securities registered pursuant to Section 12(b) of the Act:

     Title of each class               Name of each exchange on which registered
            None

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

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

           Securities registered pursuant to section 12(g) of the Act:
                     Common Stock, par value $0.01 per share

--------------------------------------------------------------------------------
                                (Title of class)

--------------------------------------------------------------------------------
                                (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 ('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 26, 1999, 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


<PAGE>   2



ITEM 1. BUSINESS.

         First Equity Properties, Inc. (herein referred to as "FEPI" or
"Registrant" 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 Registrant's only business consisted of
the management and operation of three motel properties in the Spokane,
Washington area. Until June 30, 1998, the Registrant, 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 year ended December 31, 1998, this Registrant 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 T 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



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<PAGE>   3


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.

         Also during June, 1998, FEPI exchanged the Rodeway Inn hotel to an
unaffiliated party for a residential property near Couer d'Alene, Idaho. 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 Q 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



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to and 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 maintains
the management responsibility for five hotels totaling 1,000 rooms and
approximately 15,000,000 square feet of commercial real estate. CRSL manages
multi-family portfolios which include over 32,000 multi-family units through
seven third-party regional management companies.

         Both Carmel and CRSL provide management services primarily to five
publicly-traded real estate entities throughout the continental United States.
Under such arrangements Carmel or CRSL receives a fee of 5% or less of the
monthly gross rents collected on the properties under Management. CRSL
subcontracts with other entities for the provision of property level services.
All property management contracts pursuant to which Carmel and CRSL provide
management services to the five 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.

         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 26, 1999, Carmel has 127 employees and CRSL has 7 employees.



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REAL ESTATE BROKERAGE

         Carmel also provides real estate brokerage services (on a nonexclusive
basis) to five 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 (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.

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.

         Periodically, Carmel leases additional space as required. In January
1998, Carmel leased 23,813 square feet of space in Denver, Colorado. The lease
term is for 36 months with two automatic renewals of one year each.

         Also in June 1998, Carmel leased an additional 25,827 square feet of
office space in Farmers Branch, Texas. The lease term is 15 years.

         Carmel's management considers both the Denver and Farmers Branch space
to be rentable and adequate for the operations conducted at such locations.

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



                                      -5-
<PAGE>   6

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
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 



                                      -6-
<PAGE>   7

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



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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.

                                     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 26, 1999, 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 two fiscal years ended December 31, 1998 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."



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<TABLE>
<CAPTION>
                                                                Year Ended                 Period June 15,       
                                                                December 31,                   1996               
                                                       ------------------------------      to December 31   
                                                           1998              1997              1996
                                                       ------------      ------------      --------------
<S>                                                    <C>               <C>               <C>         
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

   Revenues ......................................     $ 35,563,209      $ 33,370,720      $  1,475,831

   Operating Costs ...............................       16,300,214         8,381,325         1,484,023

   General and Administrative ....................        1,472,368         1,658,681           101,554

   Interest Expense ..............................          486,730           399,368           209,946

   Earnings (loss) Before Income Taxes ...........       16,151,691        22,931,346          (319,692)

   Income tax expense (current) ..................          (93,623)         (596,215)               --

   Income tax (expense) benefit (deferred)........       (5,300,000)        5,300,000                --
                                                       ------------      ------------      ------------

   Net earnings (loss) ...........................     $ 10,758,068        27,635,131          (319,692)
                                                       ============      ============      ============

   Net earnings (loss) per share..................     $       1.02      $       2.61      $      (0.03)
                                                       ============      ============      ============

   Weighted Average Shares outstanding............       10,570,944        10,570,944        10,570,944

CONSOLIDATED BALANCE SHEET DATA:

   Total Assets ..................................     $ 51,698,791      $ 74,148,980      $  5,822,865

   Short Term Debt ...............................        4,336,145         3,951,906           879,761

   Long Term Debt ................................        2,776,336         2,830,913         3,875,538

   Stockholders' Equity ..........................       35,669,598        61,202,697         1,067,566

   Minority Interest in Subsidiary ...............        8,916,712         6,163,464                --
</TABLE>



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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, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

LIQUIDITY AND CAPITAL RESOURCES

         The Company and its consolidated subsidiaries had total assets of
$51,698,791 at December 31, 1998. Of that amount, $325,699 was held in cash.
Long-term debt was $2,776,336. The decrease in total assets from prior year was
due primarily to the Company redeeming its preferred stock in return for its
receivable from Syntek West, Inc. and reduction of its deferred tax asset.

         Also during 1998, the Company sold three hotel properties (Comfort Inn
North, Comfort Inn South and Rodeway Inn). The Comfort Inns were sold, through a
contract for deed to sell, for a total of $4,000,000 with a down payment and an
all inclusive wrap-around note which "wraps" certain existing underlying
indebtedness. The Rodeway Inn was sold in exchange for a $100,000 note
receivable and a residential property near Couer d'Alene, Idaho.

RESULTS OF OPERATIONS

         In 1998, total revenue increased to $35,563,209 from $33,370,720 in
1997. The increase was due to increased consulting fees, higher management fees
and increased construction supervision fees. Partially offsetting the increases
were lower commission income and lower motel revenues.

         Earnings before income tax were $16,151,691 versus prior year of
$22,931,346. The decrease resulted primarily from higher operating costs and
loss on the sale of the three hotel properties (Comfort Inn North, Comfort Inn
South and Rodeway Inn). Income tax expense was $5,393,623 versus an income tax
benefit of $4,703,785 in 1997. The increase in income tax expense was due to
utilization of net operating loss carryforwards.



                                      -10-
<PAGE>   11


LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1997, the Company and its consolidated subsidiaries had
total assets of $74,148,980. Of that amount $144,906 was held in cash. The
Company's long-term debt at December 31, 1997 totaled $2,830,913, which includes
mortgage notes payable related to the motel properties owned by the Company. The
increase in assets and liabilities from the prior year relates solely to the
acquisition of Carmel Realty, Inc. and Carmel Realty Services, Ltd.

         Effective June 1, 1997, the Company sold one of the motel properties
for $1,475,000 to a former officer and director of the Company, in return for a
$1,475,000 note receivable from the buyer. The note bears interest at 5% for the
period from June 1, 1997 to June 1, 1998, and increases by 1% per year until it
reaches 9% for the period from June 1, 2001 to July 10, 2002, and collateralized
by a deed of trust on the property and a security agreement on the related
personal property. Interest only was due in monthly installments beginning in
July 1997, for a period of 60 months. The entire balance was to mature on July
10, 2002. In addition, the Company loaned the buyer $160,000 to fund needed
renovations on the property. In January 1998, the Company foreclosed on the
property and wrote off the $160,000 loan.

         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. 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 "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 or winding up of the Company before any distribution is
made by the Company to its common shareholders; optional redemption at any time
at a price of $1,000 per share, plus cumulative dividends; no right of
conversion into any other securities of the Company; and no voting rights except
as may be required by law.

RESULTS OF OPERATIONS

         As discussed in Note B to the financial statements, the Company was
required to adopt "fresh start" reporting at the effective time of the Modified
Plan. As more fully explained in Note B, fresh start reporting requires an
allocation of the Company's reorganization value, which represents the fair
value of the Company before considering liabilities, and approximates the amount
a willing buyer would pay for the assets of the Company immediately after its
emergence from Chapter 11. As a result of adopting fresh start reporting, only
the results of operations from the effective time of the reorganization plan,
June 15, 1996, are included in the Company's statement of operations.



                                      -11-
<PAGE>   12

         For 1997, revenues totaled $33,370,720 compared to $1,475,831 for 1996.
Operating expenses were $10,040,006 compared to $1,585,577 in 1996. Earnings
from operations were $23,330,714 compared to a loss of $109,746 in 1996. These
increases from 1996 relate to the previously mentioned acquisition of Carmel
Realty, Inc. and Carmel Realty Services, Ltd.

         The income tax benefit in 1997 was due to utilization of operating loss
carry forwards generated in prior years.

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.

YEAR 2000

         Management of the Company believes that its computer hardware operating
system and computer software have been certified as year 2000 compliant.
Further, CRSL performs property management services for properties owned by
others, and effective January 1, 1999, it began using year 2000 compliant
hardware and property management computer software for commercial properties it
manages. CRSL has been informed that its subcontractors either have in place or
will have in place in the first quarter of 1999, year 2000 compliant hardware
and property management computer software.

         The Company has not incurred, nor does it expect to incur, any costs
related to its accounting and property management computer software being
modified, upgraded or replaced in order to make it year 2000 compliant. Such
costs have been or will be borne by either CRSL or the property management
subcontractors or CRSL.

         Management has completed its evaluation of the Company's computer
controlled building systems, such as security, elevators, heating and cooling,
etc., to determine what systems are not year 2000 complaint. Management believes
that necessary modifications to such systems are insignificant and do not
require significant expenditures, as such enhanced operating systems are readily
available.



                                      -12-
<PAGE>   13



         The Company has or will have in place the year 2000 compliant systems
that will allow it to operate. The risks the Company faces are that certain of
its vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them. The Company believes that other vendors are readily
available and that financial institutions and taxing authorities will, if
necessary, apply monies received manually. The likelihood of the above having a
significant impact on the Company's operations is negligible.

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, 1998, 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.

         During the fiscal year ended December 31, 1996, the Registrant had no
principal independent accountant. During the pendency of the 1994 Reorganization
described under Item 3. Legal Proceedings above, the Trust utilized the services
of LeMaster & Daniels, PLLC, an accounting firm in Spokane, Washington, for the
preparation of internal financial statements and compilation of certain
projections and analyses in connection with the Modified Plan. Such firm did not
serve as the principal independent accountant for Registrant and during the
pendency of the 1994 Reorganization through the issuance of the Final Decree on
February 11, 1997, the Registrant had no independent accountant. Following the
issuance of the Final Decree the Registrant was unable to complete the
preparation of financial statements until late fall 1997 due to the continuous
involvement of the predecessor of the Company in bankruptcy proceedings since
1988, including the 1988 Reorganization and the 1994 Reorganization, which
required



                                      -13-
<PAGE>   14

confirmation of various items over a nine-year period. During April 1997, the
Board of Directors selected Farmer, Fuqua, Hunt & Munselle, P.C. to serve as the
independent auditors for the Company for the fiscal year ended December 31,
1996. Such firm was again selected by the Board of Directors to serve as the
independent auditors for the Company for the fiscal years ended December 31,
1997 and 1998.

                                    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 (two 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."



                                      -14-
<PAGE>   15



<TABLE>
<CAPTION>
     NAME                 AGE              POSITION WITH THE COMPANY
<S>                       <C>          <C>         
Karl L. Blaha             51           President

F. Terry Shumate          59           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 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,
Continental Mortgage and Equity Trust ("CMET"), a publicly-held real estate
investment trust (REIT), Income Opportunity Realty Investors, Inc. ("IORI"), a
publicly-held REIT, Transcontinental Realty Investors, Inc. ("TCI"), a
publicly-held REIT, and Syntek Asset Management, Inc. ("SAMI") Director (since
November 1998) of SAMI; 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; Executive
Vice President and Director of Commercial Management (April 1992 to February
1994) of National Income Realty Trust ("NIRT") and Vinland Property Trust
("VPT"), then both publicly-held REITs; partner-director of National Real Estate
Operations of First Winthrop Corporation (August 1988 to March 1992); Corporate
Vice President of Southmark Corporation ("Southmark") (April 1984 to August
1988); and President of Southmark Commercial Management (March 1986 to August
1988. 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 Davister Corp.
(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



                                      -15-
<PAGE>   16

(now known as Watermark Investors Trust), a publicly-held REIT, from 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, 1998, 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 26, 1999, 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:



                                      -16-
<PAGE>   17


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

Shares of Common Stock, par    Greenbriar Corporation                             2,642,736 shares             25%
value $0.01 per share          4265 Kellway Circle
                               Dallas, Texas 75248
</TABLE>


(1)      Based on 10,570,944 shares of common stock outstanding on March 26,
         1999.

         As of March 26, 1999, 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  
       TITLE OF CLASS          NAME AND ADDRESS OF BENEFICIAL OWNER           OWNERSHIP       PERCENT OF CLASS(a)
<S>                            <C>                                         <C>                <C>
Shares of Common Stock, par    Karl L. Blaha                                    None                 None
value $0.01 per share          10670 North Central Expressway
                               Suite 300
                               Dallas, Texas 75231

Shares of Common Stock, par    F. Terry Shumate                                 None                 None
value $0.01 per share          10670 North Central Expressway
                               Suite 410
                               Dallas, Texas 75231

Shares of Common Stock, par    All officers and directors as a group            None                 None
value $0.01 per share
</TABLE>

(a)      Based on 10,570,944 shares of common stock outstanding on March 26,
         1999.



                                      -17-
<PAGE>   18


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 were originally 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. As of December 31, 1998, the
sum of $2,641,552 is due and payable to Nevada Sea and/or its affiliates in
principal, together with interest thereon at the rate of 8% per annum.

         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 $32,500,000, 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
K to the Financial Statements. During 1998, the Company redeemed all of its
$32,500,000 of 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 Rodeway 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



                                      -18-
<PAGE>   19



Rodeway Inn was $1,475,000 paid by the delivery of a promissory note from
Spokane House, Inc. (a Washington corporation wholly owned by Georgie Liebelt)
secured by a Deed of Trust covering the property and a security interest on all
related personal property. Such note bore interest at 5% per annum for the
period from June 1, 1997 to June 1, 1998 and was to increase by 1% per annum
until it reached 9% for the period from June 1, 2001 to July 10, 2002. At the
time of maturity of the Note, Spokane House, Inc. was obligated to pay the
lesser of (i) the total of the unpaid principal and interest due on the note, or
(ii) the appraised value of the property as of June 1, 2002. In addition, the
Company loaned to Spokane House, Inc. $160,000 to fund needed renovations on the
property. Commencing March 1, 1997, Spokane House, Inc. became the operator of
the property, retaining all income and paying all expenses relating to the
operation of the property. In January 1998 the Company foreclosed on the
property following a failure of performance on the promissory note and wrote off
the $160,000 loan. The Company exchanged the property in June 1998 for a
residential property near Couer d'Alene, Idaho. See also Note Q 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>
         1.       Consolidated Financial Statements.                                      Page
                                                                                          ----
         <S>                                                                              <C>
         Independent auditor's report                                                     F-1

         Balance Sheets as of December 31, 1998 and 1997                                  F-2

         Statements of Operations for the years ended December 31, 1998 and 1997
         and the period from June 15, 1996 (fresh start) through December 31,
         1996                                                                             F-3

         Statements of Changes in Shareholders' Equity for the years ended
         December 31, 1998 and 1997 and the period from June 15, 1996 (fresh
         start) through December 31, 1996                                                 F-4

         Statements of Cash Flows for the years ended December 31, 1998 and 1997
         and the period from June 15, 1996 (fresh start) through December 31,
         1996                                                                             F-5

         Notes to Financial Statements                                                    F-6
</TABLE>



                                      -19-
<PAGE>   20

         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
             -----------            ----------------------
             <S>           <C>
                  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).
</TABLE>



                                      -20-
<PAGE>   21


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



                                      -21-
<PAGE>   22


<TABLE>
<CAPTION>
               EXHIBIT
             DESIGNATION             DESCRIPTION OF EXHIBIT
             -----------             ----------------------
             <S>           <C>

                  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>



                                      -22-
<PAGE>   23

                                   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: April 14, 1999

                                         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.


/s/ KARL L. BLAHA
------------------------     Director and President (Principal    April 14, 1999
Karl L. Blaha                Executive Officer)


 /s/ F. TERRY SHUMATE
------------------------     Director, Vice President, Secretary  April 14, 1999
F. Terry Shumate             and Treasurer (principal financial 
                             and accounting officer)



                                      -23-
<PAGE>   24


                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>                                                                                         <C>
INDEPENDENT AUDITORS' REPORT                                                                F-1

CONSOLIDATED FINANCIAL STATEMENTS

     Balance sheets as of December 31, 1998 and 1997                                        F-2

     Statements of operations for the years ended December 31, 1998 and 1997 and
     the period from June 15, 1996 (fresh start) through December 31, 1996                  F-3

     Statements of changes in shareholders' equity for the years ended December
     31, 1998 and 1997 and the period from June 15, 1996 (fresh start) through
     December 31, 1996                                                                      F-4

     Statements of cash flows for the years ended December 31, 1998 and 1997 and
     the period from June 15, 1996 (fresh start) through December 31, 1996                  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.



<PAGE>   25


                          INDEPENDENT AUDITORS' 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, 1998 and 1997 and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the years ended December 31, 1998 and 1997 and the period
from June 15, 1996 (fresh start) through December 31, 1996. 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, 1998 and 1997 and
the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997 and the period from June 15, 1996 (fresh start)
through December 31, 1996, in conformity with generally accepted accounting
principles.




FARMER, FUQUA, HUNT & MUNSELLE, P.C.

March 31, 1999
Dallas, Texas


                                      F-1
<PAGE>   26


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>
                                                       ASSETS
                                                                                      1998            1997     
                                                                                  -----------     -----------
<S>                                                                               <C>             <C>
Motel property and equipment, less
  accumulated depreciation of $105,074
  and $414,313, respectively                                                      $   204,013     $ 5,693,509
Cash and cash equivalents                                                             325,699         144,906
Accounts receivable - trade                                                         1,240,736       1,190,357
Accounts receivable - affiliate                                                     3,020,755      17,217,713
Prepaid expenses                                                                           --          10,500
Investments                                                                        40,573,000      41,526,000
Notes receivable                                                                    3,348,468              --
Other assets                                                                        2,986,120       3,065,995
Deferred tax asset                                                                         --       5,300,000
                                                                                  -----------     -----------
                                                                                  $51,698,791     $74,148,980
                                                                                  ===========     ===========


                                        LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable                                                                     $ 2,776,336     $ 2,830,913
Notes payable - affiliate                                                           2,747,347       2,279,578
Accounts payable - trade                                                              302,853         444,274
Accounts payable - affiliate                                                          240,762          74,597
Accrued liabilities                                                                   806,683         557,242
Income taxes payable                                                                  238,500         596,215
                                                                                  -----------     -----------

         Total liabilities                                                          7,112,481       6,782,819

Minority interest in subsidiary                                                     8,916,712       6,163,464

Shareholders' Equity
  Series A preferred stock, $.01 par value; 40,000 shares
     authorized; -0- and 32,500 shares issued and outstanding
     at December 31, 1998 and 1997, respectively; stated
     at liquidation value                                                                  --      32,500,000
  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                                                                34,282,340      27,315,439
                                                                                  -----------     -----------

         Total shareholders' equity                                                35,669,598      61,202,697
                                                                                  -----------     -----------

                                                                                  $51,698,791     $74,148,980
                                                                                  ===========     ===========
</TABLE>

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

                                      F-2
<PAGE>   27


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 1998 and 1997
                 and the Period from June 15, 1996 (fresh start)
                            through December 31, 1996

<TABLE>
<CAPTION>
                                                 1998              1997              1996 
                                             ------------      ------------      ------------
<S>                                          <C>               <C>               <C>         
Revenue
   Commissions                               $ 15,088,330      $ 16,009,816      $         --
   Consulting fees                              9,580,256         7,519,680                --
   Management fees                              7,011,188         5,648,933                --
   Other                                        2,869,344         2,266,064            43,856
   Motel                                        1,014,091         1,926,227         1,431,975
                                             ------------      ------------      ------------

                                               35,563,209        33,370,720         1,475,831
Operating expenses
   Consulting fees                              5,500,000                --                --
   Salaries and wages                           5,062,774         3,900,342           532,109
   Minority interest in earnings
     of subsidiary                              2,753,250         2,100,338                --
   General and administrative                   1,472,368         1,658,681           101,554
   Other operating expenses                     1,353,393           876,105           140,164
   Insurance and taxes                            810,717           457,907            97,255
   Depreciation and amortization                  245,964           305,123           129,136
   Repairs and maintenance                         77,625           193,939            97,223
   Franchise fees                                  73,523           172,176            89,392
   Telephone and utilities                        126,364           157,463           119,469
   Advertising and promotion                       81,653           116,733            69,934
   Legal and accounting                           214,951           101,199           209,341
                                             ------------      ------------      ------------

         Total operating expenses              17,772,582        10,040,006         1,585,577
                                             ------------      ------------      ------------

Earnings (loss) from operations                17,790,627        23,330,714          (109,746)

Other expenses
     Interest expense                            (486,730)         (399,368)         (209,946)
                                             ------------      ------------      ------------

Earnings (loss) before income taxes
     and loss on sale of assets                17,303,897        22,931,346          (319,692)

Loss on sale of assets                         (1,152,206)               --                --
                                             ------------      ------------      ------------

Earnings (loss) before income taxes            16,151,691        22,931,346          (319,692)

Income tax benefit (expense)
     Current                                      (93,623)         (596,215)               --
     Deferred                                  (5,300,000)        5,300,000                --
                                             ------------      ------------      ------------
                                               (5,393,623)        4,703,785                --
                                             ------------      ------------      ------------

         NET EARNINGS (LOSS)                   10,758,068      $ 27,635,131      $   (319,692)
                                             ============      ============      ============

Earnings (loss) per share                    $       1.02      $       2.61      $       (.03)
                                             ============      ============      ============

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>   28


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 For the Years Ended December 31, 1998 and 1997
                 and the Period from June 15, 1996 (fresh start)
                           through December 31, 1996


<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 June 15, 1996          10,570,944     $  105,710         --  $         --   $  1,281,548  $         --  $  1,387,258

Net loss                                   --             --         --            --             --      (319,692)     (319,692)
                                   ----------     ----------   --------  ------------   ------------  ------------  ------------

Balances at December 31, 1996      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
                                   ==========     ==========   ========  ============   ============  ============  ============
</TABLE>


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

                                      F-4
<PAGE>   29


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the Year Ended December 31, 1998 and 1997
                 and the Period from June 15, 1996 (fresh start)
                           through December 31, 1996

<TABLE>
<CAPTION>
                                                                     1998              1997              1996 
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>          
CASH FLOWS FROM OPERATING ACTIVITIES
 Net (earnings) loss                                             $ 10,758,068      $ 27,635,131      $   (319,692)
   Adjustments to reconcile net earnings (loss)
     to net cash used by operating activities
   Depreciation and amortization                                      245,964           305,123           129,136
   Minority interest                                                2,753,250         2,100,338                --
   Loss on sale of assets                                           1,152,206                --                --
   (Increase) decrease in
       Accounts receivable - trade                                    (50,379)         (124,024)           36,840
       Deferred tax asset                                           5,300,000        (5,300,000)               --
       Accounts receivable - affiliate                            (20,521,209)      (26,945,736)               --
       Prepaid expenses and other assets                               14,500             8,507            (2,013)
   Increase (decrease) in
       Accounts payable                                              (141,421)          261,069            99,028
       Accounts payable - affiliate                                   166,164            74,598                --
       Accrued expenses                                               249,441           169,108            18,166
       Other current liabilities                                           --          (439,992)         (313,970)
       Income taxes payable                                          (357,715)          596,215                --
                                                                 ------------      ------------      ------------

  Net cash used by operating activities                              (431,131)       (1,659,663)         (352,505)

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                                (242,001)         (181,072)         (107,496)
   Sale of motels and equipment                                       488,425                --                --
   Payments received on notes receivable                               20,815                --                --
   Net cash acquired from acquisition                                      --           298,105                --
                                                                 ------------      ------------      ------------

         Net cash provided (used) by
           investing activities                                       267,239           117,033          (107,496)

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from notes payable - affiliate                            467,769         1,767,951           511,627
   Payments on long term debt                                        (123,084)         (156,770)         (120,966)
                                                                 ------------      ------------      ------------

         Net cash provided by financing activities                    344,685         1,611,181           390,661
                                                                 ------------      ------------      ------------

Net increase (decrease)  in cash and cash equivalents                 180,793            68,551           (69,340)

Cash and cash equivalents at beginning of period                      144,906            76,355           145,695
                                                                 ------------      ------------      ------------

Cash and cash equivalents at end of period                       $    325,699      $    144,906      $     76,355
                                                                 ============      ============      ============
</TABLE>


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

                                      F-5
<PAGE>   30


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


NOTE A - HISTORY

         WesPac Investors Trust III ("WesPac), a California business trust, was
         originally organized on August 22, 1983. Since April 1988, WesPac has
         been the subject of two filings for protection under Chapter 11 of the
         United States Bankruptcy Code. On April, 13, 1988, WesPac filed a
         Voluntary Petition in Bankruptcy (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. Pursuant to the 1988 Reorganization,
         WesPac liquidated all real estate assets except three hotel properties
         located in Spokane, Washington.

         On January 24, 1994, WesPac again instituted a Chapter 11 bankruptcy
         proceeding 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 and entered
         May 20, 1996. Although WesPac did not obtain a Final Decree in the 1994
         Reorganization until later, effective with the opening of business on
         June 15, 1996, the Plan became effective for purposes of resolution of
         all claims against WesPac, as well as for a resolution of certain legal
         disputes, in exchange for cash, new indebtedness and/or new equity
         securities.

         The Plan was amended by Order entered October 29, 1996 approving the
         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 in the name of the
         resulting entity. Such proposal was distributed to the shareholders of
         WesPac, who on November 29, 1996 approved the proposal by a vote in
         excess of 84% in favor. The Incorporation Procedure was implemented and
         resulted in transaction of succession which created First Equity
         Properties, Inc. (the "Company") as the ultimate successor-in-interest
         to WesPac, with each of the shareholders of WesPac prior to
         commencement of the Incorporation Procedure becoming shareholders of
         the Company on a one-for-one exchange basis. 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.



                                      F-6
<PAGE>   31


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE A - HISTORY - CONTINUED

         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 (an aggregate of
         2,642,736 shares of Common Stock, par value $0.01 per share of 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 Spokane 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. SOP
         90-7 is applicable because pre-reorganization shareholders received
         less than 50% of the Company's new common stock and the reorganization
         value of the assets of the reorganized company was less than the total
         of all post petition liabilities and allowed claims.

         In adopting fresh-start reporting, the Company, with the assistance of
         its financial advisors, was required to determine its reorganization
         value, which represents the fair value of the entity and approximates
         the amount a willing buyer would pay for the assets immediately after
         its emergence from Chapter 11. The reorganization value of the Company
         was determined, after extensive negotiations between the Company and
         its creditors, to be $1,387,258. The reorganization value was based on,
         among other things, discounted projected cash flows for the reorganized
         company and real estate appraisals. The projected cash flows include
         assumptions as to anticipated revenues, operating expenses, and capital
         expenditures.

         SOP 90-7 requires an allocation of the reorganization value in
         conformity with the procedures specified by Accounting Principles Board
         Opinion 16, "Business Combinations", for transactions reported on the
         basis of the purchase method. In applying SOP 90-7, the Company
         allocated $5,700,000 to motel properties in recognition of their
         current appraised value and settled $800,000 of bankruptcy claims by
         issuing new common stock. The adjustments to reflect the consummation
         of the Plan and the adjustments to record assets and liabilities at
         their fair values have been reflected in the accompanying financial
         statements.



                                      F-7
<PAGE>   32


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Operations

         The Company and its subsidiaries provide management services to a
         variety of commercial and residential real estate entities throughout
         the continental United States. The Company also operates three motel
         properties in the Spokane, Washington area. 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 subsidiaries, Carmel Equity
         Lending, Inc. and 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.

         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 undiscounted operating cash flows
         of the related business unit. If it is determined that impairment has
         occurred, any excess will be charged to operations.



                                      F-8
<PAGE>   33


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

         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 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.




                                      F-9
<PAGE>   34


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE D - ACCOUNTS RECEIVABLE - AFFILIATES

<TABLE>
<CAPTION>
                                                                                              1998              1997 
                                                                                         ------------      ------------
              <S>                                                                        <C>               <C>
              Syntek West, Inc.                                                          $  2,955,806      $  4,444,575
              Basic Capital Management, Inc.                                                       --        12,615,675
              Others                                                                           64,949           157,463
                                                                                         ------------      ------------
                                                                                         $  3,020,755      $ 17,217,713
                                                                                         ============      ============
</TABLE>

NOTE E - INVESTMENTS

<TABLE>
<CAPTION>
                                                                                              1998             1997 
                                                                                         ------------      ------------
              <S>                                                                        <C>               <C>         
              Realty Advisors, Inc. preferred stock - at cost                            $ 39,952,000      $ 41,525,000
              Real estate                                                                     620,000                --
              Other - at cost                                                                   1,000             1,000
                                                                                         ------------      ------------
                                                                                         $ 40,573,000      $ 41,526,000
                                                                                         ============      ============
</TABLE>

         The investment in Realty Advisors, Inc. preferred stock at December 31,
         1998 and 1997 represents 363,200 and 377,500 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 - MOTEL PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                             1998              1997 
                                                                                         ------------      ------------
              <S>                                                                        <C>               <C>         
              Land and improvements                                                      $         --      $    984,578
              Buildings and improvements                                                           --         4,331,114
              Furniture and fixtures                                                          309,087           792,130
                                                                                         ------------      ------------
                                                                                              309,087         6,107,822
              Less accumulated depreciation and
              amortization                                                                   (105,074)         (414,313)
                                                                                         ------------      ------------
                                                                                         $    204,013      $  5,693,509
                                                                                         ============      ============
</TABLE>

NOTE G - OTHER ASSETS

<TABLE>
<CAPTION>
                                                                                             1998              1997 
                                                                                         ------------      ------------
               <S>                                                                       <C>              <C>
               Goodwill, less accumulated amortization
                 of $151,749 and $75,874 at December 31,
                 1998 and 1997                                                           $  2,883,224     $   2,959,099
               Deposits                                                                       102,896           106,450
               Other                                                                               --               446
                                                                                         ------------     -------------
                                                                                         $  2,986,120     $   3,065,995
                                                                                         ============     =============
</TABLE>



                                      F-10
<PAGE>   35


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE H - ACCRUED LIABILITIES
<TABLE>
<CAPTION>
                                               1998         1997 
                                             --------     --------
<S>                                          <C>          <C>     
Accrued payroll and payroll taxes            $806,683     $524,952
Accrued interest                                   --           --
Accrued property taxes                             --       32,290
                                             --------     --------
                                             $806,683     $557,242
                                             ========     ========
</TABLE>

NOTE I - NOTES PAYABLE
<TABLE>
<CAPTION>
                                                                              1998           1997       
                                                                          -----------     ----------
<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, 1999;
subsequently extended, collateralized by certain motel property and
equipment 
                                                                          $ 2,637,298     $2,433,058

Bankruptcy claim payable, unsecured, at 10% per annum, payable in
annual installments of $15,812 through June 2000 
                                                                               54,952         62,990

Bankruptcy claims payable, unsecured, at 8% per annum, payable in
annual installments of $75,849 through June 2001 
                                                                               84,086        334,865
                                                                          -----------     ----------
                                                                          $ 2,776,336     $2,830,913
                                                                          ===========     ==========
</TABLE>

         At December 31, 1998 maturities of notes payable are as follows:

<TABLE>
    <S>                <C>
     1999             $  2,750,799
     2000                   25,537
                      ------------
                      $  2,776,336
                      ============
</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.



                                      F-11
<PAGE>   36


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE K - CAPITAL TRANSACTIONS

         The Series A preferred stock was cumulative, non-voting shares that
         were issued in 1997 in connection with the acquisition described in
         Note P. The preferred stock has an annual dividend rate of $80 per
         share, and may be redeemed 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 has 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 totalling
         $3,791,167 were also exchanged for notes receivable. Accordingly, total
         cumulative dividends in arrears totaled $-0- at December 31, 1998.

         In connection with the Modified Plan, the former public shareholders of
         WesPac, other than Greenbriar Corporation ("Greenbriar"), formerly
         Medical Resource Companies of America, were to hold, in the aggregate,
         25% of the new equity interest in the reorganized entity. The former
         public shareholders received the equivalent of 2,642,736 new shares of
         Common Stock in the Company, with all old shares of beneficial interest
         being canceled.

         Pursuant to the Modified Plan, Greenbriar received 25% (2,642,736
         shares) of new common stock in exchange for 5,724,692 shares of old
         common stock acquired from U.S. Real Estate Advisors ("USREA"). USREA
         received its shares through exercise of warrants issued in connection
         with the 1988 Reorganization. Nevada Sea was deemed to exercise an
         option to receive all such shares. In addition, in the compromise of
         its claim as a judgment creditor, Greenbriar was to receive, pursuant
         to the Modified Plan, 50% of the issued and outstanding shares, but
         prior to the effective time of the Modified Plan, Greenbriar entered
         into an arrangement pursuant to which Greenbriar conveyed to Nevada Sea
         one-half of that claim, resulting in an undivided 25% out of an
         aggregate of 50% of the new equity of the resulting entity to be issued
         to each of Nevada Sea and Greenbriar in consideration of the
         cancellation of certain indebtedness. As a result, prior to the
         implementation of the Modified Plan, the former public shareholders
         held an undivided 25% ownership in the reorganized entity, Greenbriar
         held an undivided 25% ownership in the reorganized entity, and Nevada
         Sea held an undivided 50% ownership interest in the reorganized entity.



                                      F-12
<PAGE>   37


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


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 1998, 1997 and 1996 as a result of the following:

<TABLE>
<CAPTION>
                                                  1998              1997               1996 
                                             ------------      ------------      -------------
<S>                                          <C>               <C>               <C>          
Computed expected tax expense                $  5,655,000      $  8,110,000      $          --
Alternative minimum tax                                --           596,215                 --
Federal income tax                                238,500                --                 --
Miscellaneous timing differences                 (499,877)               --                 --
Reduction of valuation allowance                       --       (13,410,000)                --
                                             ------------      ------------      -------------
                                             $  5,393,623      $ (4,703,785)     $          --
                                             ============      ============      =============
</TABLE>

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

<TABLE>
<CAPTION>
                                                 1998           1997 
                                             ----------     ----------
<S>                                          <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, 1998 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.



                                      F-13
<PAGE>   38


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE N - FINANCIAL INSTRUMENTS

         The estimated fair values of the Company's financial instruments at
December 31, 1998 and 1997 follow:

<TABLE>
<CAPTION>
                                                1998                            1997
                                     ---------------------------     ---------------------------
                                       Carrying          Fair          Carrying          Fair
                                        Amount           Value          Amount           Value
                                     -----------     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>             <C>        
Accounts receivable - affiliates     $ 3,020,755     $ 3,020,755     $17,217,713     $17,217,713
Investments                           40,573,000      40,573,000      41,526,000      41,526,000
Note receivable                        3,348,468       3,348,468              --              -- 
Notes payable                          2,776,336       2,776,336       2,830,913       2,830,913
Notes payable - affiliate              2,747,347       2,747,347       2,279,578       2,279,578
</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 leases office and storage space, under operating leases,
         which expire at various dates through May 2013. During the periods
         ended December 31, 1998, 1997 and 1996, total rent expense was
         approximately $255,000, $338,000 and $50,000, respectively. The
         estimated annual minimum lease payments remaining on the initial lease
         terms as of December 31, 1998 are:

<TABLE>
              <S>                         <C>
                  1999                    $ 1,032,935
                  2000                        981,922
                  2001                        639,101
                  2002                        624,385
                  2003                        606,000
               Thereafter                   7,454,606
                                          -----------
                                          $11,338,949
                                          ===========
</TABLE>



                                      F-14
<PAGE>   39

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE O - COMMITMENTS AND CONTINGENCIES - CONTINUED

         The Company provides management services primarily to five affiliated
         publicly traded real estate entities throughout the United States.
         Under such arrangements, the Company receives 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 with the
         five publicly traded real estate entities are subject to cancellation
         with 30 days notice.

         The Company also provides 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 Company has various motel franchise agreements calling for between
         5% and 6% of gross room receipts, plus certain other costs, to be paid
         for marketing and reservation services and royalty fees.

         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 - ACQUISITION

         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"). The
         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 or winding up of the Company before any
         distribution is made by the Company to its common shareholders;
         optional redemption at any time at a price of $1,000 per share, plus
         cumulative dividends; no right of conversion into any other securities
         of the Company; and no voting rights, except as may be required by law.
         The acquisition has been 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 is being amortized over 40 years. During
         1998, the Company redeemed all of its $32,500,000 of preferred stock in
         exchange for reduction of receivables from Syntek West, Inc.
         



                                      F-15
<PAGE>   40

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE Q - SALE AND FORECLOSURE OF HOTEL PROPERTY

         Effective June 1, 1997, the Company sold one of its motel properties to
         a former officer and director of the Company, and paid off the
         underlying mortgage, in return for a note receivable from the buyer
         with a face amount of $1,475,000. The note initially bore interest at
         5%, increasing by 1% per year until it reached 9% for the period from
         June 1, 2001 to July 10, 2002, and was collateralized by a deed of
         trust on the property and a security agreement on the related personal
         property. Interest only was due in monthly installments beginning in
         July, 1997, for a period of 60 months. The entire balance was to be due
         on July 10, 2002. At the maturity of the note, the buyer was obligated
         to pay the lower of the total of unpaid principal and interest due on
         the note, or the appraised value of the property as of June 1, 2002.
         Accordingly, the note receivable was initially recorded at an amount
         equal to the book value of the related motel property, resulting in no
         gain or loss on the transaction. In addition, the Company loaned the
         buyer $160,000 to fund needed renovations on the property. Commencing
         March 1, 1997, the buyer became the operator of the property, retaining
         all income and paying all expenses related to operation of the
         property.

         In January 1998, the Company foreclosed on the property following a
         lack of performance by the buyer on the related note receivable. It was
         management's intent to hold the property for the production of income.
         The property was recorded at the amount of the net receivable, which is
         lower than the fair value of the property, in the accompanying
         financial statements. The $160,000 loan was written off and included in
         the 1997 consolidated statement of operations. 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 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.

         Also during June, 1998, FEPI exchanged the Rodeway Inn hotel to an
         unaffiliated party for a residential property near Couer d'Alene,
         Idaho. The Rodeway Inn is a 90-room hotel located at W. 4301 Sunset
         Boulevard, Spokane, Washington.



                                      F-16
<PAGE>   41


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE R - SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                      1998              1997              1996 
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>         
Cash paid during the year for:
           Interest                                              $    518,476      $    288,742      $    174,211
           Income taxes                                                    --                --                --

         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                          --         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      $         --      $         --
                                                                 ============      ============      ============
</TABLE>

NOTE S - 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 1998, 1997 and 1996, respectively.



                                      F-17
<PAGE>   42

                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE T - 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 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 1998, 1997 and 1996 is as follows:


<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.

<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.



                                      F-18
<PAGE>   43


                 FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
                           December 31, 1998 and 1997


NOTE T - BUSINESS SEGMENTS - CONTINUED

<TABLE>
<CAPTION>
                                                                               1996                               
                                       -----------------------------------------------------------------------------------------
                                        Hospitality    Property       Real Estate                   Adjustments
                                         Business     Management       Brokerage       Other       & Eliminations   Consolidated
                                       -----------   -----------     -----------     -----------   --------------   ------------
<S>                                    <C>           <C>            <C>             <C>             <C>             <C>         
Revenues                               $ 1,475,831   $        --     $        --     $        --     $        --     $ 1,475,831
                                       ===========   ===========     ===========     ===========     ===========

Operating profit (loss)                $ (319,692)   $        --     $        --     $        --     $        --     $  (319,692)
                                       ===========   ===========     ===========     ===========     ===========
General corporate expenses                                                                                                    --
Minority interest in earnings of
subsidiary                                                                                                                    --
                                                                                                                     -----------
Earnings before income taxes                                                                                         $  (319,692)
                                                                                                                     ===========
Identifiable assets                    $ 5,822,865   $        --     $        --                                     $ 5,822,865
                                       ===========   ===========     ===========                                     -----------
Corporate assets                                                                                                              --
                                                                                                                     -----------
                                                                                                                     $ 5,822,865
                                                                                                                     ===========
</TABLE>

NOTE U - SUBSEQUENT EVENT

         In April 1999, the mortgage note secured by certain motel property
         scheduled to mature on April 1, 1999 was amended to reflect a maturity
         date of April 1, 2000.

NOTE V - 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, 1998 and December 31, 1997, and the period from June 15,
         1996 (fresh start) through December 31, 1996, the Company's
         comprehensive income (loss) was equal to its net income (loss) and the
         Company does not have income meeting the definition of other
         comprehensive income.



                                      F-19
<PAGE>   44

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
               EXHIBIT
                 NO.            DESCRIPTION OF EXHIBIT
             -----------        ----------------------
             <S>           <C>
                  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).
</TABLE>


<PAGE>   45


<TABLE>
<CAPTION>
               EXHIBIT
                 NO.                 DESCRIPTION OF EXHIBIT
             -----------             ----------------------
             <S>           <C>
                  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).
</TABLE>


<PAGE>   46


<TABLE>
<CAPTION>
               EXHIBIT
                 NO.                 DESCRIPTION OF EXHIBIT
             -----------             ----------------------
             <S>           <C>

                  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>