UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
   
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
FOR THE QUARTER ENDED March 31, 2006
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROMCommission file number 0-11777TO
Commission File Number000-11777
FIRST EQUITY PROPERTIES, INC.
(Exact nameName of registrantRegistrant as specifiedSpecified in the charter)Its Charter)
   
Nevada 95-6799846
   
(State or other jurisdictionOther Jurisdiction of incorporation (I.R.S. Employer
Incorporation or organization)Organization) Identification No.)
1800 Valley View Lane, Suite 300
Dallas, Texas 75234
(Address of principal executive offices)
214-750-5800(Zip Code)
469-522-4200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by SectionsSection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ.      Noo.
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer (as definedor a non-accelerated filer. See definition of accelerated filer in Rule 12b-2 of the Act). YesExchange Act (Check one):
Large accelerated filero     NoAccelerated filero     Non-accelerated filerþ
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso.      Noþ.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.YEARS:
     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yesþo.      Noo.
APPLICABLE ONLY TO CORPORATE ISSUERS:
As     Indicate the number of September 30, 2005, registrant had 1,057,628 shares outstanding of each of the issuer’s classes of Common Stock, issued and outstanding.as of the latest practicable date.
Common Stock, $.01 par value
1,057,628
(Class)
(Outstanding at March 31, 2006)
 
 

 

FIRST EQUITY PROPERTIES, INC.
FORM 10-Q
September 30, 2005March 31, 2006
INDEX
     
  Page No.
Part I Financial Information:    
     
Item 1. Financial Statements    
     
Balance Sheets September 30, 2005March 31, 2006 (Unaudited) and December 31, 20042005
  3 
     
Statement of Earnings (Unaudited) Three Months Ended March 31, 2006 and Nine Months Ended September 30, 2005 and 2004
  4 
     
Statement of Cash Flows (Unaudited) NineThree Months Ended September 30,March 31, 2006 and 2005 and 2004
  5 
     
Notes to Financial Statements
  6 
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  87 
     
Item 4. Controls and Procedures
  87 
     
Part II Other Information:
    
     
Item 6. Exhibits
  98 
 Certification Pursuant to Section 302of Acting Principal Executive Officer and Chief Financial and Accounting Officer
 Certification Pursuant to Section 906of Acting Principal Executive Officer and Chief Financial and Accounting Officer

2

FIRST EQUITY PROPERTIES, INC.
BALANCE SHEETS
                
 Sep 30, 2005 December 31,  March 31, 2006 December 31, 
 (Unaudited) 2004  (Unaudited) 2005 
ASSETS
  
Cash and cash equivalents $6,624 $4,621  $10,136 $4,029 
Notes and interest receivable — related party 2,407,540 2,626,588 
Deferred tax asset 10,200 — 
Notes and interest receivable 2,407,540 2,468,224 
          
  
Total assets $2,427,876 $2,472,253 
 $2,414,164 $2,631,209      
     
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
Accounts payable — related party $2,069,713 $2,448,936 
Federal income taxes payable (estimated) $12,350 $— 
Accounts payable 7,116 7,320 
Accounts payable — affiliate 1,952,980 2,053,980 
          
  
Total liabilities 2,069,713 2,448,936  1,972,446 2,061,300 
  
Stockholders’ equity 
Shareholders’ equity 
Preferred stock, $0.01 par, 4,960,000 shares authorized, none issued and outstanding — —  — — 
Common stock, $0.01 par, 40,000,000 shares authorized, 1,057,628 shares issued and outstanding 10,576 10,576  10,576 10,576 
Capital in excess of par value 1,376,682 1,376,682  1,376,682 1,376,682 
Retained earnings (deficit)  (1,042,807)  (1,204,985)  (931,828)  (976,305)
          
  
Total stockholders’ equity 344,451 182,273 
Total shareholders’ equity 455,430 410,953 
          
  
Total liabilities and shareholders’ equity $2,427,876 $2,472,253 
 $2,414,164 $2,631,209      
     

3

FIRST EQUITY PROPERTIES, INC.
STATEMENTS OF EARNINGS
For the three months ended March 31, 2006 and nine months ended September 30, 2005 and 2004
(Unaudited)
                
 Three months ended Sep 30, Nine months ended Sep 30,         
 2005 2004 2005 2004  2006 2005 
Revenue  
Interest income — related party $60,683 $60,683 $180,071 $120,315 
         
Interest income $59,364 $59,365 
      
 60,683 60,683 180,071 120,315  
  59,364 59,365 
Operating expenses  
General and administrative 1,428 3,766 3,318 5,659  1,057 1,136 
Legal and professional fees 5,156 22,954 14,575 40,621  11,680 4,375 
              
  
Total operating expenses 6,584 26,720 17,893 46,280  12,737 5,511 
              
  
Net income from continuing operations 54,099 33,963 162,178 74,035 
Income before taxes 46,627 53,854 
      
Income from discontinued operations — — — 45,715 
Impairment loss — — —  (37,931,116)
 
Current federal estimated income taxes  (15,750) — 
Deferred tax benefit 13,600 — 
              
  
NET EARNINGS (LOSS) $54,099 $33,963 $162,178 $(37,811,116) $44,477 $53,854 
      
 
Earnings (loss) per share  
Net earnings from continuing operations $.05 $.03 $.15 $.07 
Discontinued operations — — —  (35.82)
Net earnings (loss) $.05 $.03 $.15 $(35.75) $.04 $.05 
              
  
Weighted average shares outstanding 1,057,628 1,057,628 1,057,628 1,057,628  1,057,628 1,057,628 
              

4

FIRST EQUITY PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
For the ninethree months ended September 30,March 31, 2006 and 2005 and 2004
(Unaudited)
                
 2005 2004  2006 2005 
CASH FLOWS FROM OPERATING ACTIVITIES  
Net earnings (loss) $162,178 $(37,811,366) $44,477 $53,854 
Adjustments to reconcile net income to net cash provided by (used for) operating activities 
Impairment loss — 37,931,116 
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities 
(Increase) decrease in  
Interest receivable 219,048  (120,312) 60,684  (55,864)
Deferred tax asset  (10,200) — 
Increase (decrease) in  
Current federal income taxes payable (estimated) 12,350 — 
Accounts payable — 1,191   (204) — 
Accounts payable — affiliate  (379,223)  (256,118)  (101,000) — 
          
  
Net cash provided by (used for) operating activities 2,003  (259,489) 6,107  (2,010)
 
CASH FLOWS FROM INVESTING ACTIVITIES 
Proceeds from sale of subsidiaries — 250,000 
     
Net cash provided by (used for) investing activities — 250,000 
  
Net increase (decrease) in cash and cash equivalents 2,003  (5,489) 6,107  (2,010)
  
Cash and cash equivalents at beginning of period 4,621 6,127  4,029 4,621 
          
  
Cash and cash equivalents at end of period $6,624 $638  $10,136 $2,611 
          
  
Noncash investing and financing activities: 
 
Note received in sale of subsidiaries — 1,822,540 
Interest paid for the period — — 
Taxes paid for the period — — 

5

FIRST EQUITY PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2005March 31, 2006
(Unaudited)
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared by First Equity Properties, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2005.
The accompanying unaudited financial statements have been prepared by First Equity Properties, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2006.
NOTE B – DISCONTINUED OPERATIONS— FEDERAL INCOME TAXES
Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. This statement requires that the operations related to segments that have been sold, or segments that are intended to be sold, be presented as discontinued operations in the statement of operations for all periods presented, and the segments intended to be sold are to be designated as “held for sale” on the balance sheet. In the event of a future asset sale, the company is required to reclassify portions of previously reported operations to discontinued operations within the Statements of Operations. For the nine months ended September 30, 2004, income from discontinued operations relates to the disposition of subsidiaries providing management services.
In May 2004, the Company sold the subsidiaries of the Company that provide management services for $250,000 cash and a note receivable in the amount of $1,822,540. In the quarter ended March 31, 2004, the Company recorded an impairment of $37,931,116, representing the write down of certain assets of the those two subsidiaries that provided the management services to the value agreed to between the related party buyer and seller. The primary asset written down was the investment in preferred stock of an affiliate.
The accompanying unaudited 2006 financial statements contain an accrual for current federal income taxes calculated using annualized net income of approximately of $186,000. Using a estimated tax rate of 34%, the estimated tax liability for the year would be approximately $63,000. The $15,750 included as current income tax expense in the accompanying unaudited 2006 financial statements represents one quarter of the estimated tax liability for the year. There are no significant differences between the Company’s net income for financial and income tax reporting.
The Company reduced the valuation allowance on the deferred tax asset related to the net operating loss carryforward of approximately $40,000 resulting in a deferred tax benefit of approximately $13,500 as reflected in the accompanying unaudited 2006 financial statements. The Company reduced the allowance because management has determined that they will more likely than not be able to utilize the net operating loss carryforward

6

FIRST EQUITY PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE B – DISCONTINUED OPERATIONS — continued
The impairment loss resulted in the generation of a deferred tax asset of approximately $13,000,000 for which a valuation allowance of the entire amount has been provided since management cannot be assured of the utilization of the deferred tax asset.
The results of discontinued operations of the subsidiaries consisted of the following for the three months and nine months ended September 30, 2005 and September 30, 2004:
                 
  Three months ended Sep 30,  Nine months ended Sep 30, 
  2005  2004  2005  2004 
Operating revenues $—  $—  $—  $45,715 
Net income from discontinued operations $—  $—  $—  $45,715 
NOTE C – REVERSE STOCK SPLIT
On June 7, 2004, the members of the Board of Directors of FEPI proposed and recommended to the stockholders a reverse-split on a 1-for-10 basis of the shares of Common Stock, par value $0.01 per share, without any adjustment to the par value per share, and without any reduction in the authorized number of shares of Common Stock at the same par value. The proposal was approved by the shareholders and became effective July 12, 2004. The share amounts in the accompanying financial statements and notes give effect to this reverse split as if it occurred at the beginning of earliest period presented.

7

FIRST EQUITY PROPERTIES, INC.
Item 2.
Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Three months ended September 30, 2005March 31, 2006 compared to three months ended September 30, 2004March 31, 2005
Currently the Company’s primary assets are interest-bearing securities. Revenues from operations remained at $59,364 from prior year of $59,365 due to no change in 2005 wereprincipal of the same as the prior year.notes receivable. Total operating expenses decreasedincreased to $6,584$12,737 in 20052006 from $26,720$5,511 in 2004.2005. The decreaseincrease in operating expenses was due to lowerincrease in legal and professional fees in 2005.
Nine months ended September 30, 20052006. Estimated tax liability increased by $12,350 in 2006 compared to nine months ended September 30, 2004
Revenues from operations increased to $180,071 from prior year of $120,315the same period in 2005 due to higher interest income as a result of nine full months in 2005 of interest income from the note receivable received in the second quarter of 2004. Total operating expenses decreased to $17,893 in 2005 from $46,280 in 2004. The decrease in operating expenses was due to lower legal and professional fees in 2005. The discontinued operations represent the income from the management contractsusing up all but $40,000 of the operating loss carryforward, therefore the company that were sold in May 2004. Also, the impairment loss in 2004 is not present in 2005.anticipating paying taxes on its earnings for 2006.
Financial Condition and Liquidity
At September 30, 2005,March 31, 2006, the Company had total assets of $2,414,164$2,427,876 compared to $2,631,209$2,472,253 at December 31, 2004.2005. Cash and cash equivalents increased to $6,624were $10,136 at September 30, 2005March 31, 2006 up from $4,621$4,029 at December 31, 2004. Total liabilities were $2,069,713 versus $2,448,936 at December 31, 2004.2005. The increase in cash and decrease in total assets resultsresulted from the collection of accrued interest receivable which wason the notes receivable and an increase in turn usedthe deferred tax asset.
Total liabilities decreased due to pay liabilities.the payment of payables with the cash received (as noted above) from $2,061,300 at December 31, 2005 to $1,960,096 (excluding estimated taxes) at March 31, 2006. Estimated tax liability increased due to using up almost all of the operating loss carryforward (as noted above).
Item 4. Controls and Procedures
Based upon theirthe most recent evaluation by management of the Company of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14, which was completed as of the end of the period covered by this report, theReport. The Company’s Vice President, Treasurer and Acting Principal Executive Officer and Chief Financial and Accounting Officer have concluded that the Company’s disclosure controls and procedures wereare effective at September 30, 2005in timely alerting him to ensure thatmaterial information relating to the Company required to be disclosedincluded in reports within the time period specified in Securities and Exchange Commission rules and forms. Company’s periodic SEC filings.
There werehave been no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2005,or in other factors that have materially affected or are reasonably likely to materiallycould significantly affect the Company’s internal controls over financial reporting.subsequent to the date the Company carried out this evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

87

Part II Other Information
     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      During the quarter covered by this report, the registrant did not sell or repurchase any of its equity securities nor does registrant have any plan approved by the Board of Directors to do so.
Item 6. ExhibitsExhibits.
The following documents are filed herewith as exhibits to this Report or are incorporated by reference as indicated:
 (a)
Exhibit Exhibits
DesignationDescription of Exhibit
  3.1Articles 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).
  3.2Articles 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).
  3.3Bylaws 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).
  3.4Agreement and Plan of Merger of Wespac Property Corporation and First Equity Properties, Inc. dated December 23, 1996 (incorporation by reference is made to Exhibit 3.4 to Form 8-K of First Equity Properties, Inc. for event reported June 19, 1996).
  3.5Articles 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).
  3.6Certificate of Designation of Preferences and Relative Participating or Optional of Other Special Rights and Qualifications, Limitations or Restrictions thereof of the Series A 8% Cumulative Preferred Stock (incorporation by reference is made to Exhibit 3.6 to Form 10-KSB of First Equity Properties, Inc. for the fiscal year ended December 31, 1996.)
31.1*Certification of Acting Principal Executive Officer and Chief Financial and Accounting Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
32.1*Rule 1350 Certification of Acting Principal Executive Officer and Chief Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350
Exhibit 31.1 — Certification Pursuant to Rules 13a-14 and 15d-14 Under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Exhibit 32.1 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
*filed herewith.

98

SIGNATURES
SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to hebe signed on its behalf by the undersigned thereunto duly authorized.
     
 FIRST EQUITY PROPERTIES, INC.
  
November 21, 2005
     May 15, 2006 /s/ Ken L. Joines,  
  Vice President, Secretary and Chief  
  Accounting OfficerKen L. Joines, Vice President and Treasurer  
 (Acting Principal Executive Officer and Chief
Financial and Accounting Officer)

109