10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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

Commission file number 0-11777

FIRST EQUITY PROPERTIES, INC.

(Exact name of registrant as specified in the charter)

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

1800 Valley View Lane, Suite 300, Dallas, Texas 75234

(Address of principal executive offices)

214-750-5800

(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 Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ. No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ. No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of September 30, 2005, registrant had 1,057,628 shares of Common Stock issued and outstanding.

FIRST EQUITY PROPERTIES, INC.

FORM 10-Q
September 30, 2005

INDEX

	Page No.
Part I Financial Information:
Item 1. Financial Statements
Balance Sheets September 30, 2005 (Unaudited) and December 31, 2004		3
Statement of Earnings (Unaudited) Three Months and Nine Months Ended September 30, 2005 and 2004		4
Statement of Cash Flows (Unaudited) Nine Months Ended September 30, 2005 and 2004		5
Notes to Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 4. Controls and Procedures		8
Part II Other Information:
Item 6. Exhibits		9
Certification Pursuant to Section 302
Certification Pursuant to Section 906

2

FIRST EQUITY PROPERTIES, INC.

BALANCE SHEETS

	Sep 30, 2005			December 31,
	(Unaudited)			2004
ASSETS
Cash and cash equivalents	$	6,624		$	4,621
Notes and interest receivable — related party		2,407,540			2,626,588
	$	2,414,164		$	2,631,209
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable — related party	$	2,069,713		$	2,448,936
Total liabilities		2,069,713			2,448,936
Stockholders’ 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
Capital in excess of par value		1,376,682			1,376,682
Retained earnings (deficit)		(1,042,807	)		(1,204,985	)
Total stockholders’ equity		344,451			182,273
	$	2,414,164		$	2,631,209

3

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF EARNINGS

For the three months and nine months ended September 30, 2005 and 2004

(Unaudited)

	Three months ended Sep 30,				Nine months ended Sep 30,
	2005		2004		2005		2004
Revenue
Interest income — related party	$	60,683	$	60,683	$	180,071	$	120,315
		60,683		60,683		180,071		120,315
Operating expenses
General and administrative		1,428		3,766		3,318		5,659
Legal and professional fees		5,156		22,954		14,575		40,621
Total operating expenses		6,584		26,720		17,893		46,280
Net income from continuing operations		54,099		33,963		162,178		74,035
Income from discontinued operations		—		—		—		45,715
Impairment loss		—		—		—		(37,931,116	)
NET EARNINGS (LOSS)	$	54,099	$	33,963	$	162,178	$	(37,811,116	)
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	)
Weighted average shares outstanding		1,057,628		1,057,628		1,057,628		1,057,628

4

FIRST EQUITY PROPERTIES, INC.

STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2005 and 2004

(Unaudited)

	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	162,178		$	(37,811,366	)
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Impairment loss		—			37,931,116
(Increase) decrease in
Interest receivable		219,048			(120,312	)
Increase (decrease) in
Accounts payable		—			1,191
Accounts payable — affiliate		(379,223	)		(256,118	)
Net cash provided by (used for) operating activities		2,003			(259,489	)
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	)
Cash and cash equivalents at beginning of period		4,621			6,127
Cash and cash equivalents at end of period	$	6,624		$	638
Noncash investing and financing activities:
Note received in sale of subsidiaries		—			1,822,540

5

FIRST EQUITY PROPERTIES, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2005

(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.

NOTE B – DISCONTINUED OPERATIONS

Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. This statement requires that the operations related to segments that have been sold, or segments that are intended to be sold, be presented as discontinued operations in the statement of operations for all periods presented, and the segments intended to be sold are to be designated as “held for sale” on the balance sheet. In the event of a future asset sale, the company is required to reclassify portions of previously reported operations to discontinued operations within the Statements of Operations. For the 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.

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. Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three months ended September 30, 2005 compared to three months ended September 30, 2004

Currently the Company’s primary assets are interest-bearing securities. Revenues from operations in 2005 were the same as the prior year. Total operating expenses decreased to $6,584 in 2005 from $26,720 in 2004. The decrease in operating expenses was due to lower legal and professional fees in 2005.

Nine months ended September 30, 2005 compared to nine months ended September 30, 2004

Revenues from operations increased to $180,071 from prior year of $120,315 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 contracts of the company that were sold in May 2004. Also, the impairment loss in 2004 is not present in 2005.

Financial Condition and Liquidity

At September 30, 2005, the Company had total assets of $2,414,164 compared to $2,631,209 at December 31, 2004. Cash and cash equivalents increased to $6,624 at September 30, 2005 from $4,621 at December 31, 2004. Total liabilities were $2,069,713 versus $2,448,936 at December 31, 2004. The decrease in assets results from the collection of interest receivable which was in turn used to pay liabilities.

Item 4. Controls and Procedures

Based upon their most recent evaluation, which was completed as of the end of the period covered by this report, the Acting Principal Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at September 30, 2005 to ensure that information required to be disclosed in reports within the time period specified in Securities and Exchange Commission rules and forms. There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2005, that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

8

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. Exhibits

(a) Exhibits

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.

9

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to he signed on its behalf by the undersigned thereunto duly authorized.

	FIRST EQUITY PROPERTIES, INC.
November 21, 2005	/s/ Ken L. Joines,
	Vice President, Secretary and Chief
	Accounting Officer

10

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Ken L. Joines, Vice President, Secretary and Chief Accounting Officer of First Equity Properties, Inc. (“FEPI”), certify that:

1.	I have reviewed this report on Form 10-Q of FEPI;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	I am responsible for establishing and maintaining internal controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f) for the registrant and have:

(a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to insure that material information relating to the registrant is made known to me by others within those entities, particularly for the periods presented in this report;
(b)	Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: November 21, 2005
	/s/ Ken L. Joines
	Vice President, Secretary and Chief Accounting Officer

EX-32.1

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

In connection with the Quarterly Report of First Equity Properties, Inc. (the “Company”), on Form 10-Q for the period ended September 30, 2005, as filed with Securities Exchange Commission on the date hereof (the “Report”), I, Ken L. Joines, Vice President, Secretary and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 21, 2005	/s/ Ken L. Joines
	Ken L. Joines
	Vice President, Secretary and Chief
	Accounting Officer