UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

FIRST EQUITY PROPERTIES, INC.

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

214-750-5800

     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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of September 30, 2004, registrant had 1,057,628 shares of Common Stock issued and outstanding.

1

FIRST EQUITY PROPERTIES, INC. & SUBSIDIARIES

FORM 10-Q
September 30, 2004

INDEX

2

FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

ASSETS

3

FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

4

FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

5

FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated 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 2003 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, 2004.

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. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(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.

December 31, 2003 balances have been reclassed to present the assets of the two subsidiaries under the caption “net assets held for sale.” The following table details the assets and liabilities comprising “net assets held for sale” in the financial statements at September 30, 2004 and December 31, 2003 for the entities sold.

The results of discontinued operations of the subsidiaries consisted of the following for the three months and nine months ended September 30, 2004 and September 30, 2003:

NOTE B — REVERSE STOCK SPLIT

On June 7, 2004, the members of the Board of Directors of FEPI proposed and recommended to the stockholders a reverse-split on a 1-for-10 basis of the shares of Common Stock, par value $0.01 per share, without any adjustment to the par value per share, and without any reduction in the authorized number of shares of Common Stock at the same par value. The proposal was approved by the shareholders and became effective July 12, 2004. This resulted in a reclassification between Common Stock and Additional Paid in Capital on the accompanying balance sheet in the amount of $95,133. The share amounts in the accompanying financial statements and notes give effect to this reverse split as if it occurred at the beginning of earliest period presented.

7

FIRST EQUITY PROPERTIES, INC. AND SUBSIDIARIES

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three months ended September 30, 2004 compared to three months ended September 30, 2003

Revenues from operations increased to $60,683 from prior year of $14,748 due to increased interest income because of a new note receivable. Total operating expenses increased to $26,720 in 2004 from $2,402 in 2003. The increase in operating expenses was due to higher legal and professional fees in 2004.

Nine months ended September 30, 2004 compared to nine months ended September 30, 2003

Revenues from operations increased to $120,315 from prior year of $38,794 due to increased interest income because of a new note receivable. Total operating expenses increased to $46,280 in 2004 from $30,558 in 2003. The increase in operating expenses was due to higher legal and professional fees in 2004. The discontinued operations represent the income from the management contracts of the company that were sold in May 2004.

Financial Condition and Liquidity

At September 30, 2004, the Company had total assets of $2,582,021 compared to $40,731,700 at December 31, 2003. Cash and cash equivalents were $638. The decrease in assets results from the Company, in May 2004, selling to a related party the subsidiaries of the Company that provide management services for cash of $250,000 and a note receivable of $1,822,540. As a result, the Company recorded an impairment of $37,931,116, representing the write down of certain assets of the 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. Total liabilities were $2,445,863 versus $2,784,176 at December 31, 2003.

Effective May 1, 2004, First Equity Properties, Inc. (the “Registrant” or “FEPI”) sold all of the issued and outstanding Common Stock of Carmel Realty, Inc., a Texas corporation (“Carmel”) and a 99% limited partnership interest in Carmel Realty Services, Ltd., a Texas limited partnership (“CRSL”) for an aggregate sale price of $2,072,540 (a basis equivalent to a ten times capitalization of the management fees collected by Carmel and CRSL during 2003) to Regis Realty I LLC, a Texas limited liability company (“Regis”). The general partner of CRSL is Basic Capital Management, Inc. a Nevada corporation (“BCM”). The Purchaser, Regis, is related to BCM and performs certain property management and real estate and brokerage activities for other entities. Regis paid cash of $250,000 to FEPI and delivered a promissory note dated May 1, 2004 in the stated principal amount of $1,822,540 payable to the order of FEPI on demand or, if no demand is made prior thereto, on April 30, 2009, with interest payable monthly as it accrues. Such promissory note is secured by a pledge of the Common Stock of Carmel and partnership interest of CRSL sold.

8

Item 4. Controls and Procedures

	(a)		As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Vice President, Treasurer and Chief Accounting Officer, of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s Vice President, Treasurer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting him to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.
	(b)		There have been no significant changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2004 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

Part II Other Information

Item 4. Submission of Matters to a Vote of Security Holders

Pursuant to the requirement of NRS 78.2055, 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 recommendation was submitted to the holder of approximately 75% of the outstanding common stock, Nevada Sea Investments, Inc., which executed a written consent dated June 8, 2004, pursuant to NRS 78.320 adopting and approving the 1-for-10 reverse stock split of the shares of Common Stock without any change in the par value and without any reduction in the authorized number of shares of common Stock of FEPI pursuant to the Articles of Incorporation. The 1-for-10 reverse stock split was to effective on the date (the “Effective Date”) which was the later to occur of (I) the date of filing with the Secretary of State of Nevada of an amendment to the Certificate of Incorporation, or (ii) the last day of any required waiting period under Rule 14c-2(b) under the Securities Exchange Act of 1934. Under that rule, the reverse stock split could not become effective until 20 days after the mailing of an Information Statement pursuant to Section 14c under the Securities Exchange Act of 1934 to existing stockholders of FEPI. The Effective Date of the reverse stock split is July 12, 2004. The CUSIP number for the post-split shares is 320097-20-7.

9

Item 4. Submission of Matters to a Vote of Security Holders — continued

Under the approved action, based upon the 10,570,944 old shares outstanding on the Effective Date, the 1-for-10 reverse stock split would decrease the number of outstanding shares by approximately 90%, which, after giving effect to an upward adjustment of “rounding up” for any fractional shares, added 534 shares to result in 1,057,628 post-split shares outstanding. The 1-for-10 reverse stock split did not adversely effect any stockholders proportionate equity interest in FEPI subject to the provisions for elimination of fractional shares by rounding up to the next whole share which slightly increased the proportionate holdings of all stockholders other than Nevada Sea Investments, Inc. Each post-split share continues to be entitled to one vote at each stockholders meeting as was the case with each outstanding old share.

In connection with the implementation of the 1-for-10 reverse stock split, no certificate or script representing any fractional share interest will be issued, but a holder of the old shares received in lieu of any fraction of a post-split share to which the holder would otherwise be entitled a single whole post-split share on a “rounding up” basis without regard to any price. The result of this “rounding up” process increased slightly the holdings of those stockholders who held a number of old shares which was not evenly divisible by 10, resulting in an increase of 534 shares.

FEPI’s old shares of Common Stock, while available for trading in the over-the-counter market, to the knowledge of management, have not resulted in any material trading activity since their initial issuance in 1997. The old shares were issued pursuant to the terms of an Order Confirming Plan of Reorganization dated May 15, 1996, entered May 20, 1996, as modified by the First Modification Plan of Reorganization (the “Confirmed Plan”) resulting from 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.

Item 6. Exhibits

The following exhibits are filed herewith or incorporated by reference as indicated:

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.

10

SIGNATURES

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

	FIRST EQUITY PROPERTIES, INC.
November 12, 2004	/s/ Ken L. Joines,
	Vice President, Secretary and Chief
	Accounting Officer

11