FIRST EQUITY PROPERTIES INC, 10KSB, 1998-01-08

FIRST EQUITY PROPERTIES INC
10KSB, 1998-01-08
REAL ESTATE INVESTMENT TRUSTS

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31673.00003:123197:SCM:3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(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, 1996
. . . . . . . . . . . . . . . . . . . . . .

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ........... to ..............

0-11777
Commission File Number .........................

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 501, 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)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ......... No ..X....

Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and no disclosure will be contained,
to the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

$1,475,831
State the issuer's revenues for its most recent fiscal year. . . . . . . .

As of December 15, 1997, issuer 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.

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

Check whether the issuer 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 ........ No ...X........

DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format (check one):
YES ........ No ...X.......

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ITEM 1. DESCRIPTION OF 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.

TRANSACTION OF SUCCESSION.

Wespac Investors Trust III ("Wespac" or the "Trust"), a California business
trust had its shares of beneficial interest, no par value, registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934 and made its last filing
with the Securities and Exchange Commission (the "Commission") as a Form 10-K
for the fiscal year ended December 31, 1987. Since April 1988, 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. 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 and
resulted in the transaction of succession which created First Equity Properties,
Inc. as the ultimate successor-in-interest to Wespac with each of the
shareholders of Wespac prior to the commencement of the Incorporation Procedure
becoming shareholders of First Equity Properties, Inc. 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."

A simplified explanation of the "Incorporation Procedure" is Wespac was
incorporated in California pursuant to Section 200.5 of the California
Corporation Code under the name Wespac Property Corporation on December 16, 1996
(the "California Corporation") and the California Corporation (as the immediate
successor to Wespac) was then merged with and into a wholly-owned Nevada
subsidiary corporation (the "Merger") named First Equity Properties, Inc. on
December 24, 1996 with the Nevada Corporation being the survivor to such Merger.
The Board of Trustees of Wespac caused the Nevada

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Corporation to be organized in Nevada under the name First Equity Properties,
Inc. by the filing on December 19, 1996 of Articles of Incorporation. Prior to
the Merger, such Nevada Corporation had no significant business, assets or
liabilities of any consequence and no operating history. Under Section 200.5 of
the California Corporation Code, which governs the process of incorporating a
business trust, following the approval of the affirmative vote of a majority of
the outstanding shares of beneficial interest, such existing trust may the file
articles of incorporation with a certificate attached, signed by certain
officers of that trust stating that the incorporation of the association has
been approved by the trustees and the required vote of shareholders and upon the
filing of articles of incorporation pursuant to that section, the resulting
California Corporation succeeded automatically to all the rights and properties
of Wespac and became subject to all of Wespac's debts and liabilities in the
same manner as if the California Corporation had itself incurred them. The three
trustees of Wespac constituted the initial directors of the California
Corporation and the Nevada Corporation and all rights of creditors and all liens
upon property of Wespac were preserved unimpaired. Any action or proceeding
pending by or against Wespac may continue to be prosecuted at judgment, which
shall bind the California Corporation or the California Corporation may proceed
against or be substituted in its place. Following the incorporation of Wespac
into the California Corporation, the Merger was accomplished by Articles of
Merger and a Plan of Merger filed in the States of California and Nevada on
December 24, 1996. The surviving corporation (in this instance First Equity
Properties, Inc., the Nevada Corporation) automatically, by operation of law,
succeeded to all of the assets, rights, duties, liabilities and obligations of
the California Corporation (as successor to Wespac) upon the effectiveness of
the Merger on December 24, 1996. Pursuant to the Merger, each share of
beneficial interest of Wespac issuable pursuant to the Modified Plan has been
deemed converted into one validly issued, fully paid and nonassessable share of
common stock, par value $0.01 per share of FEPI.

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) 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."

Until its sale by the Company on June 1, 1997 to a corporation owned by a
former director and officer of the Company, the Company also owned a 90-room
hotel located at W. 4301 Sunset Boulevard, Spokane, Washington which was a
Rodeway Inn. See "Item 12. Certain Relationships and Related Transactions."

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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"). See "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
business, 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 December 15, 1997, Carmel has 135 employees and CRSL has 5 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.

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
(since sold) located in Spokane, Washington.

The Comfort Inn North is a 96-unit, two and three story wood frame hotel
located on leased land at N. 7111 Division Street on a site consisting of
approximately 78,261 square feet in unincorporated Spokane County, Washington.
The site (which is the subject of a ground lease) is adjacent to the Spokane
city limits on Division Street, which is the major commercial strip in north
Spokane, Washington. The property consists of a single motel building without
elevators, the main portion of which was constructed in 1984, consisting of 82
units and an additional 14 units in a separate wing were added later. Access to
all restrooms is from interior hallways; all rooms are air conditioned; some
rooms have Jacuzzi-type whirlpool baths and other rooms have kitchenettes. The
ground lease, together with an option to renew, runs thorough April 2054,
stipulates reciprocal parking and access easements over the property and
adjacent properties controlled by the lessor and requires the Company as the
lessee to operate a motel on the property.

The Comfort Inn Valley is a 76-unit motel complex located at N. 905
Sullivan Road in the Spokane Valley neighborhood of incorporated Spokane County,
Washington and consists of two separate wood frame, two-story buildings without
elevators, one building containing 50 units and one building containing 26
units. The motel was constructed in phases between 1997 and 1984. Access to the
guest rooms is from interior hallways and additional amenities include one small
meeting room, an outdoor heated but uncovered swimming pool, an indoor
whirlpool, spa and exercise room, and coin operated guest laundry facilities.
The property location consists of 2.41 acres with frontage on a major artery
which connects with the I-90 freeway about one block north of the property.
Although the property does not have direct freeway visibility, it does have

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good access and is located directly across the street from another motel which
has the highest room rates in the Spokane Valley market.

Management of the Company considers the Spokane Properties to be suitable
and adequate for their present uses.

ITEM 3. LEGAL PROCEEDINGS.

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

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

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Pursuant to the Confirmed Plan, Class 6 consisted of the Allowed Interest
of former public shareholders in "Old Common Stock," all of which was cancelled
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 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.

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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 described under "Item 1.
Business," 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the fourth quarter of the fiscal year covered by this report, a vote
of the "interest holders" (shareholders) of Wespac was sought pursuant to the
requirements of the Modification. No meeting of such holders was held, but an
"information statement" was distributed to such holders pursuant to the
requirements of an order of the Court in the 1994 Reorganization, seeking a
written ballot from such holders. The "Incorporation Procedure" proposal was
distributed to such holders who, by November 29, 1996, approved the proposal by
a vote of more than 84% in favor.

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 shares of Beneficial
Interest of the Trust 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 the Trust 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.

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As of December 15, 1997, the 10,570,944 shares of Common Stock of FEPI
issued and outstanding were held by approximately 2,400 holders of record.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the company had current assets of $144,504. Of that
amount $76,355 was held in cash. Total current liabilities were $633,580. The
Company's long-term debt at December 31, 1996 totaled $3,610,092, which includes
mortgage notes payable related to the motel properties owned by the Company.

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 is
collateralized by a deed of trust on the property and a security agreement on
the related personal property. Interest only is due in monthly installments
beginning in July 1997, for a period of 60 months. The entire balance is due on
July 10, 2002. In addition, the Company committed to loaning the buyer $160,000
to fund needed renovations on the property.

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
approximately $33,000,000, 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

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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.

Motel revenues totaling $1,431,975 represent revenues from the thee motel
properties for the period from June 15, 1996 to December 31, 1996. Motel
revenues will decrease in 1997, due to the sale of one of the properties
effective June 1, 1997, as discussed in Note L to the financial statements.

Legal and accounting expenses include professional fees related to the
reorganization plan, and are expected to decrease in 1997.

Franchise fees totaling $89,392 relate to various motel franchise
agreements, which call for between 5% and 6% of gross room receipts, plus
certain other costs, to be paid for marketing and reservation services and
royalty fees.

In connection with the reorganization plan, the Company entered into
employment agreements with certain of the Company's key employees, providing for
total compensation of $110,000 per year.

ITEM 7. FINANCIAL STATEMENTS.

The Financial Statements, together with an index thereto, are attached
hereto following the signature page to this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

During the two most recent fiscal years 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

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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.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CENTRAL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

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 12. Certain Relationships and Related Transactions."

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY

<S> <C> <C>
Karl L. Blaha 49 President

F. Terry Shumate 58 Vice President, Secretary
and Treasurer
</TABLE>

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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"), 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"), 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,
Secretary and Treasurer of Davister Corp. (real estate) in Dallas, Texas, and
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. Mr. Shumate was also a member of the Board of
Trustees and Vice President, Secretary and Treasurer of Arlington Realty
Investors (now known as Watermark Investors Trust), a publicly-held REIT, from
November 10, 1993 until December 5, 1995.

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

-11-
<PAGE> 13

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 10. 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 year ended December 31, 1996, 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 11. 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 December 15, 1997, 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:

-12-
<PAGE> 14

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS

<S> <C> <C> <C>
Shares of Common Nevada Sea Investments, Inc. 5,285,472 50%
Stock, par value $0.01 10670 North Central Expressway shares
per share Suite 501
Dallas, Texas 75231

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

- -------------
(1) Based on 10,570,944 shares of common stock outstanding on December
15, 1997.

As of December 15, 1997, according to the stock transfer records of the
Company and other information available to the Company, each of the directors
and executive officers of the Company, and all present executive officers and
directors as a group, beneficially own the following shares:

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS (a)

<S> <C> <C> <C>
Shares of Common Karl L. Blaha none none
Stock, par value $0.01 10670 North Central Expressway
per share Suite 300
Dallas, Texas 75231

Shares of Common F. Terry Shumate none none
Stock, par value $0.01 10670 North Central Expressway
per share Suite 416
Dallas, Texas 75231

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

- ----------------
(a) Based on 10,570,944 shares of common stock outstanding on December
15, 1997.

-13-
<PAGE> 15

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On June 25, 1996, in connection with the Confirmed Plan, the Company
received an advance of funds from Nevada Sea in the amount of $250,000 unsecured
and bearing interest at the rate of 8% per annum. All principal and interest
under such advances is due June 14, 1998. Subsequent to the initial advance,
Nevada Sea and/or its affiliates have advanced an additional $261,627 to the
Company under the same terms and conditions. As of December 31, 1996, the sum of
$511,627 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 $33,000,000, 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
L to the Financial Statements.

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.

Effective June 1, 1997, the Company sold a 90-room Roadway Inn located at
W. 4301 Sunset Boulevard, Spokane, Washington to Georgie Liebelt. At the time of
the sale the Company paid off the underlying debt secured by the property sold.
Ms. Liebelt was appointed a Trustee of Wespac in January 1994 and served in that
capacity until implementation of the Incorporation Procedure. She was an initial
director of the Company and Regional Director for the Company responsible for
all operations involving the hotel properties located in Spokane, Washington.
Ms. Liebelt resigned as a Director effective March 1, 1997. The purchase price
for the Roadway Inn was $1,475,000 paid by the delivery of a promissory note
from Spokane House, Inc. (a Washington corporation wholly owned by Georgie
Liebelt) secured by a Deed of Trust covering the property and a security
interest on all related personal property. Such note bears interest at 5% per
annum for the period from June 1, 1997 to

-14-
<PAGE> 16

June 1, 1998 and increases by 1% per annum until it reaches 9% for the period
from June 1, 2001 to July 10, 2002. At the time of maturity of the Note, Spokane
House, Inc. is 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 is committed to loaning to
Spokane House, Inc. $160,000 to fund needed renovations on the property.

-15-
<PAGE> 17

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) 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).

2.6 Certificate of the 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).
</TABLE>

-16-
<PAGE> 18

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

<S> <C>
2.7 Final Decree issued by the Court on February 11, 1997
(incorporation by reference is made to Exhibit 2.7 to Form 8-K
of First Equity Properties, Inc. for event reported June 19,
1996).

3.1 Articles of Incorporation of Wespac Property Corporation as
filed with and endorsed by the Secretary of State of California
on December 16, 1996 (incorporation by reference is made to
Exhibit 3.1 to Form 8-K of First Equity Properties, Inc. for
event reported June 19, 1996).

3.2 Articles of Incorporation of First Equity Properties, Inc.
filed with and approved by the Secretary of State of Nevada on
December 19, 1996 (incorporation by reference is made to Exhibit
3.2 to Form 8-K of First Equity Properties, Inc. for event
reported June 19, 1996).

3.3 Bylaws of First Equity Properties, Inc. as adopted December 20,
1996 (incorporation by reference is made to Exhibit 3.3 to Form
8-K of First Equity Properties, Inc. for event reported June 19,
1996).

3.4 Agreement and Plan of Merger of Wespac Property Corporation and
First Equity Properties, Inc. dated December 23, 1996
(incorporation by reference is made to Exhibit 3.4 to Form 8-K
of First Equity Properties, Inc. for event reported June 19,
1996).

3.5 Articles of Merger of Wespac Property Corporation into First
Equity Properties, Inc. as filed with and approved with the
Secretary of State in Nevada December 24, 1996 (incorporation by
reference is made to Exhibit 3.5 to Form 8-K of First Equity
Properties, Inc. for event reported June 19, 1996).
</TABLE>

-17-
<PAGE> 19

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

<S> <C>
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.

21(*) Subsidiaries of the Registrant

27(*) Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K.

During the period covered by this report, no reports on Form 8-K were
filed. However, a Current Report on Form 8-K was filed on February 25, 1997,
with respect to events occurring during the period covered by this report,
reporting events under Items 1 (Changes in Control of Registrant), 3 (Bankruptcy
Receivership), 5 (Other Events), and 7 (Financial Statements and Exhibits).

In addition, on March 25, 1997 the Company filed with the Securities and
Exchange Commission a Form 8-B Registration Statement (Registration of
Securities of Certain Successor Issuers) relating to the transaction of
succession and issuance of the Company's Common Stock described in Items 1. and
3. above and in the Form 8-K Current Report filed February 25, 1997.

- ----------
(*) Filed herewith.

-18-
<PAGE> 20

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: December 31, 1997

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 December 31, 1997
- ----------------------- (Principal Executive
Karl L. Blaha Officer)

/s/ F. Terry Shumate Director, Vice December 31, 1997
- ----------------------- President, Secretary
F. Terry Shumate and Treasurer
(principal financial
and accounting
officer)

<PAGE> 21

INDEX TO FINANCIAL STATEMENTS

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

FINANCIAL STATEMENTS

Balance sheet as of December 31, 1996 F-2

Statement of operations for the period from June 15, 1996 (fresh start)
through December 31, 1996 F-3

Statement of changes in shareholders' equity for the period from June
15, 1996 (fresh start) through December 31, 1996 F-4

Statement of cash flows for the period from June 15, 1996 (fresh start)
through December 31, 1996 F-5

Notes to financial statements F-6

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.
</TABLE>

<PAGE> 22

[FARMER, FUQUA, HUNT & MUNSELLE, P.C. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

Board of Directors
First Equity Properties, Inc.

We have audited the accompanying balance sheet of First Equity Properties, Inc.
(formerly WesPac Investors Trust III) as of December 31, 1996 and the related
statements of operations, changes in shareholders' equity and cash flows for 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial
statements. We believe that our audit provides a reasonable basis for our
opinion.

As more fully described in Notes 1 and 2 to the financial statements, effective
June 15, 1996, the Company emerged from bankruptcy. In accordance with an
American Institute of Certified Public Accountants' Statement of Position, the
Company has adopted "fresh start" reporting, whereby its assets, liabilities and
new capital structure have been adjusted to reflect fair values as of June 15,
1996. As a result, the financial statements for periods subsequent to June 15,
1996 reflect this basis of reporting and are not necessarily comparable to the
Company's pre-reorganization financial statements.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Equity Properties, Inc.
as of December 31, 1996 and the results of its operations and its cash flows for
the period from June 15, 1996 (fresh start) through December 31, 1996, in
conformity with generally accepted accounting principles.

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

August 8, 1997
Dallas, Texas

F-1

<PAGE> 23

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
BALANCE SHEET
December 31, 1996

ASSETS
<TABLE>
<S> <C>
Motel property and equipment, less
accumulated depreciation of $129,136 $ 5,678,361
Cash and cash equivalents 76,355
Account receivable - trade 47,657
Prepaid expenses 20,492
-----------

$ 5,822,865
===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Notes Payable $ 3,875,538
Notes Payable - Related Parties 511,627
Accounts payable - trade 181,494
Accrued liabilities 102,554
Other current liabilities 84,086
-----------

Total liabilities 4,755,299

Commitments and contingencies --

Shareholders' Equity
Preferred stock, $0.01 par, 5,000,000 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
Capital in excess of par value 1,281,548
Retained earnings (deficit) (319,692)
-----------

Total shareholders' equity 1,067,566
-----------

$ 5,822,865
===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-2

<PAGE> 24

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
STATEMENT OF OPERATIONS
For the Period from June 15, 1996 (fresh start) through December 31, 1996

<TABLE>
<S> <C>
Revenue
Motel $ 1,431,975
Other 43,856
------------

1,475,831
Operating expenses
Salaries and wages 532,109
Legal and accounting 209,341
Other operating expenses 140,164
Depreciation and amortization 129,136
Telephone and utilities 119,469
General and administrative 101,554
Insurance and taxes 97,255
Repairs and maintenance 97,223
Franchise fees 89,392
Advertising and promotion 69,934
------------

Total operating expenses 1,585,577
------------

Loss from operations (109,746)

Other expenses
Interest expense (209,946)
------------

Net loss $ (319,692)
============

Loss per share $ (.03)
============

Weighted average shares outstanding 10,570,944
============

</TABLE>

The accompanying notes are an integral part of this financial statement.

F-3

<PAGE> 25

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Period from June 15, 1996 (fresh start) through December 31, 1996

<TABLE>
<CAPTION>
Common Stock Capital Retained
--------------------------- in excess earnings Total
Shares Amount of par (deficit) equity
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at
June 15, 1996 10,570,944 $ 105,710 $ 1,281,548 $ -- $ 1,387,758

Net loss -- -- -- (319,962) (319,692)
----------- ----------- -------------- ----------- -----------

Balances at
December 31, 1996 10,570,944 $ 105,710 $ 1,281,548 $ (319,962) $ 1,067,566
=========== =========== ============== =========== ===========
</TABLE>

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

F-4

<PAGE> 26

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
STATEMENT OF CASH FLOWS
For the Period from June 15, 1996 (fresh start) through December 31, 1996

<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(319,692)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 129,136
(Increase) decrease in
Accounts receivable - Trade 36,840
Prepaid expenses (2,013)
Increase (decrease) in
Accounts payable 99,028
Accrued expenses 18,166
Other current liabilities (313,970)
---------

Net cash used in operating activities (352,505)
---------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (107,496)
---------

Net cash used in investing activities (107,496)
---------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties 511,627
Payments on long term debt (120,966)
---------

Net cash provided by financing activities 390,661
---------

Net decrease in cash and cash equivalents (69,340)

Cash and cash equivalents at beginning of period 145,695
---------

Cash and cash equivalents at end of period $ 76,355
=========

Supplemental Cash Flow Information:
Interest paid $ 174,211
=========
</TABLE>

The accompanying notes are an integral part this financial statement.

F-5

<PAGE> 27

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

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> 28

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

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 financial statements for the period ended
December 31, 1996. 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 postpetition 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 before considering
liabilities 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> 29

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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

In 1996, the Company adopted 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

In the normal course of business the Company extends unsecured credit
to motel guests. The Company performs ongoing credit evaluations of
these customers. The Company places its cash investments in high credit
quality institutions and, by policy, limits the amount of credit
exposure to any one institution.

F-8
<PAGE> 30

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Loss per Share

Per share information is computed using weighted average common and
common equivalent shares outstanding during the respective periods.

NOTE D - PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
Land and Improvements $ 984,578
Buildings and Improvements 4,269,173
Furniture and fixtures 553,746
-----------

5,807,497
Less accumulated depreciation and amortization (129,136)
-----------

$ 5,678,361
===========
</TABLE>

NOTE E - ACCRUED EXPENSES

<TABLE>
<S> <C>
Accrued payroll and payroll taxes $ 53,517
Accrued interest 27,184
Accrued property taxes 21,853
--------

$102,554
========
</TABLE>

NOTE F - NOTES PAYABLE

<TABLE>
<S> <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 $39,219
including interest through
maturity on April 1, 1998;
collateralized by all motel
property and equipment $ 3,433,769

Bankruptcy claim payable,
unsecured, at 10% per annum,
payable in annual installments
of $ 22,858 through June 2000 91,429

Bankruptcy claims payable,
unsecured, at 8% per annum,
payable in annual installments
of $ 73,000 through June 2001 350,340
-----------

3,875,538
Less current portion (265,446)
-----------

$ 3,610,092
===========
</TABLE>

F-9

<PAGE> 31

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE F - NOTES PAYABLE - CONTINUED

At December 31, 1996 maturities of notes payable are as follows:

<TABLE>
<S> <C> <C>
1997 $ 265,446
1998 3,381,747
1999 98,858
2000 98,855
2001 30,632
----------

$3,875,538
==========
</TABLE>

NOTE G - NOTES PAYABLE - RELATED PARTIES

On June 25, 1996, in connection with the confirmed bankruptcy plan, a
new shareholder, Nevada Sea Investments, Inc. ("Nevada Sea"), loaned
the Company $250,000, unsecured, bearing interest at 8% per annum. All
principal and interest is due June 14, 1998. Subsequent to the initial
loan, Nevada Sea or its affiliates advanced another $261,627 to the
Company under similar terms. At December 31, 1996, $511,627 is due to
Nevada Sea or its affiliates.

NOTE H - CAPITAL TRANSACTIONS

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-10

<PAGE> 32

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE I - INCOME TAXES

SFAS 109 provides for deferred tax assets for such items as
depreciation and amortization timing differences and net operating loss
(NOL) carryforwards. Due to the Company's history of operating losses
and uncertainties regarding realization of the tax benefits in future
years, all such deferred tax assets have been fully offset by valuation
allowances.

At December 31, 1996, the following NOL carryforwards are available:

<TABLE>
<CAPTION>
Expiration Date Amount
<S> <C>
2000 $ 4,660,000
2001 2,026,000
2002 6,512,000
2003 5,735,000
2004 9,386,000
2005 9,985,000
2008 191,000
2011 159,000
-----------

$38,654,000
===========
</TABLE>

NOTE J - RELATED PARTY TRANSACTIONS

Other than as disclosed elsewhere in these financial statements, the
Company had the following 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., which was acquired by the Company after year-end. (See
Note L.)

F-11

<PAGE> 33

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE K - COMMITMENTS AND CONTINGENCIES

The Company leases land for one of the motel properties, under an
operating lease, at a monthly base rent plus a consumer price index
factor (total monthly payment of $7,344 at December 31, 1996) through
April 30, 2028 with an option to renew, under certain conditions,
through April 30, 2054. During the period ended December 31, 1996, land
lease expense was $49,953. The estimated annual minimum lease payments
remaining on the initial lease term as of December 31, 1996 are:

<TABLE>
<S> <C>
1997 $ 88,128
1988 88,128
1999 88,128
2000 88,128
2001 88,128
Thereafter 2,408,832
----------
$2,849,472
==========
</TABLE>

The Company has various motel franchise agreements calling for between
5% and 6% of gross room receipts, plus certain other costs, 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 L - SUBSEQUENT EVENTS

Effective June 1, 1997, the Company sold one of the motel properties to
a former officer and director of the Company, and paid off the
underlying mortgage, in return for a note receivable with a face amount
of $1,475,000 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 is collateralized by a deed of trust on the property and a security
agreement on the related personal property. Interest only is due in
monthly installments beginning in July 1997, for a period of 60 months.
The entire balance is due on July 10, 2002. At the maturity of the
note, the buyer is obligated to pay the lower of the total of the
unpaid principal and interest due on the note, or the appraised value
of the property as of June 1, 2002. Accordingly, the note receivable
has been recorded at an amount equal to its book basis, resulting in no
gain or loss on the transaction. In addition, the Company committed to
loaning the buyer $160,000 to fund needed renovations on the property.

F-12

<PAGE> 34

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE L - SUBSEQUENT EVENTS - CONTINUED

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 approximately
$33,000,000, 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 will be accounted for using the purchase method of
accounting. The following table presents, on a pro forma basis, a
condensed unaudited consolidated balance sheet at December 31, 1996,
giving effect to the acquisition as if it had occurred on that date:

Unaudited

<TABLE>
<S> <C>
Net property and equipment $ 5,740,000
Other assets 46,406,000
-----------

$52,146,000
===========

Other liabilities $11,279,000
Long-term debt 4,122,000
Equity 36,745,000
-----------

$52,146,000
===========
</TABLE>

The Company's consolidated statement of earnings will not include the
revenues and expenses of the Acquired Companies until the year ended
December 31, 1997. The following unaudited pro forma results were
developed assuming the Acquired Companies had been acquired on June 15,
1996 (fresh start):

F-13

<PAGE> 35

FIRST EQUITY PROPERTIES, INC.
(FORMERLY WESPAC INVESTORS TRUST III)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996

NOTE L - SUBSEQUENT EVENTS - CONTINUED

Unaudited

<TABLE>
<S> <C>
Net sales $7,313,000
Net earnings (loss) 4,505,000
Earnings per share 0.43
</TABLE>

A brokerage commission totaling approximately $498,000 was recognized
by Carmel Realty, Inc. in a prior period, on a sales transaction which
had a repurchase option. Although management believes the repurchase
option will not be exercised, if it were, Carmel Realty, Inc. would be
obligated to refund the commission.

F-14
<PAGE> 36
INDEX TO EXHIBITS

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

<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
DESIGNATION DESCRIPTION OF EXHIBIT
- ----------- ----------------------

<S> <C>
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).

<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
DESIGNATION DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
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.

21(*) Subsidiaries of the Registrant

27(*) Financial Data Schedule
</TABLE>
- ----------
(*) Filed herewith.

<PAGE> 1
EXHIBIT 3.6

================================================================================

CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Filed by:
(After issuance of Stock)

FIRST EQUITY PROPERTIES, INC.
- --------------------------------------------------------------------------------
Name of Corporation

We the undersigned Karl L. Blaha and
---------------------------
President or Vice President

F. Terry Shumate of FIRST EQUITY PROPERTIES, INC.
- -------------------------------- ----------------------------------
Secretary or Assistant Secretary Name of Corporation

do hereby certify:

That the Board of Directors of said corporation at a meeting duly
convened, held on the 1st day of January 1997, adopted a resolution to amend
the original articles as follows:

Article FOURTH hereby amended to read as follows:

- See Exhibit "A" attached and incorporated herein

The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 10,570,944 that the
said change(s) and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.

/s/ KARL L. BLAHA
-------------------------------
Karl L. Blaha, President

/s/ F. TERRY SHUMATE
-------------------------------
F. Terry Shumate, Secretary

State of Texas )
)ss.
County of Dallas )

On November 17, 1997 personally appeared before me, a Notary Public,
Karl L. Blaha and F. Terry Shumate who acknowledged and executed the above
instrument.

/s/ KRISTI HEDGCOXE
[NOTARY SEAL] ------------------------------
Notary Public, State of Texas

* Only the President or Vice President's signature need to be acknowledged.

<PAGE> 2
FIRST EQUITY PROPERTIES, INC.
UNANIMOUS WRITTEN CONSENT OF
THE BOARD OF DIRECTORS

Pursuant to the authority contained in Section 78.315 of the Nevada
General Corporation Law, the undersigned, being all of the members of the Board
of Directors of FIRST EQUITY PROPERTIES, INC., a Nevada corporation, do hereby
adopt the following recitals and resolutions with the same force and effect as
though adopted at a Special Meeting of said Board of Directors duly called and
held:

WHEREAS, the Articles of Incorporation of this Corporation
provide for a class of Preferred Stock to consist of 5,000,000 shares,
par value $0.01 per share of the Corporation which, subject to the
provisions of applicable law, authorize the Board of Directors of the
Corporation to provide for the issuance for time to time in one or more
series of any number of shares of such Preferred Stock and by filing a
certificate pursuant to the Nevada Revised Statutes, to establish the
number of shares to be included in such series and to fix the
designation, relative rights preferences, qualifications and
limitations of the shares of each such series;

WHEREAS, this Board of Directors desires to designate a series
of Preferred Stock and to provide for various rights, preferences,
privileges, voting powers, limitations and other matters relating to
such series as set forth below;

NOW, THEREFORE, BE IT RESOLVED that the form of Certificate of
Designations, Preferences and Relative Participating Optional or Other
Special Rights and Qualifications, Limitations or Restrictions thereof
of the Series A 8% Cumulative Preferred Stock of the Corporation
attached hereto as Exhibit "1" be, and the same hereby is adopted and
approved in the same manner as though fully restated herein and further
that the officers of this Corporation be, and they hereby are, and each
of them hereby is, authorized and directed to take any and all action
and to execute and deliver, in the name and on behalf of the
Corporation, any and all documents required, necessary or appropriate,
including certificates, as may be necessary in order to cause the
Certificate of Designations substantially in the form annexed hereto as
Exhibit "1" to be filed with the Secretary of State of Nevada as a
Certificate amendatory to the Articles of Incorporation, as amended,
together with such changes therein as the officer(s) executing same
may, in his or their sole discretion, approve the execution thereof to
be conclusive evidence with respect to any such changes and with
respect to such approval or necessity thereof or therefor, and be it

FURTHER RESOLVED, that the form and content of that certain
Purchase Agreement effective January 1, 1997 between this Corporation
and Syntek West, Inc. be reviewed by this Board (the "Purchase
Agreement") pursuant to which this Corporation will acquire all of the
issued and outstanding common capital stock of Carmel Realty, Inc. and
an 81.6% limited partnership interest in Carmel Realty Services, Ltd.
in exchange for and in consideration of the issuance of 32,500 shares

1 of 2
<PAGE> 3
of Series A Cumulative Preferred Stock be, and the same hereby is, approved and
further that all of the officers of this Corporation be, and they hereby are,
and each of them hereby is authorized and directed to take any and all action
and to execute and deliver in the name and on behalf of this Corporation the
Purchase Agreements and any and all documents required, necessary or
appropriate, including certificates or documents of transfer, as may be
necessary in order to cause the Purchase Agreement to be consummated; and be it

FURTHER RESOLVED, that subject to the filing of the Certificate of
Designations with the Secretary of the State of Nevada and subject to the terms
and conditions of the Purchase Agreement, the Corporations shall issue to
Syntek West, Inc. such number of shares of Series A 8% cumulative Preferred
Stock of the Corporation as required under the terms of such Purchase Agreement
not to exceed 32,500 shares; and be it

FURTHER RESOLVED, that the form of stock certificate attached hereto
as Exhibit "2" be, and the same hereby is approved as the form of certificate
of the Corporation to represent shares of Series A 8% Cumulative Stock; and be
it

FURTHER RESOLVED, that all of the officers of this Corporation be,
and they hereby are, and each of them hereby is, authorized and directed to
take any and all further actions and to execute and deliver such other and
further documents and certificates as they may deem necessary, advisable or
appropriate in order to carry out or perform the purposes and intentions of the
foregoing resolutions.

IN WITNESS WHEREOF, each of the undersigned have executed this
Unanimous Written Consent to be effective as of January 1, 1997.

/s/ KARL L. BLAHA
-----------------------------
Karl L. Blaha

/s/ F. TERRY SHUMATE
-----------------------------
F. Terry Shumate

2 of 2
<PAGE> 4
FIRST EQUITY PROPERTIES, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING OR OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF
OF PREFERRED STOCK
BY RESOLUTION OF THE BOARD OF DIRECTORS

We, Karl L. Blaha, President and F. Terry Shumate, Secretary of FIRST
EQUITY PROPERTIES, INC., a corporation organized and existing under the
Business Corporation Law of the State of Nevada, in accordance with the
provisions of Section 78.195 of the Nevada Revised Statutes thereof DO HEREBY
CERTIFY:

THAT, pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation, as amended, of FIRST EQUITY PROPERTIES, INC.
(the "Corporation"), and pursuant to the provisions of NRS 78.1955 (which
section provides that no shareholder action is required in order to effectuate
this designation), said Board of Directors by unanimous written consent,
effective January 1, 1997, adopted certain recitals and resolutions providing
for the designations, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions thereof, of a
series of Preferred Stock of the Corporation, specifically the Series A 8%
Cumulative Preferred Stock, which recitals and resolutions are as follows:

WHEREAS, Article Fourth of the Articles of Incorporation,
as amended, of the Corporation authorizes the Corporation to issue not
more than 5,000,000 shares of Preferred Stock, $.01 par value per
share (the "Preferred Stock") and 40,000,000 shares of Common Stock,
$0.01 par value per share (the "Common Stock"), which Preferred Stock
may be issued from time to time in one or more series and shall be
designated as the Board of Directors may determine to have such voting
powers, preferences, limitations and relative rights with respect to
the shares of each series of the class of Preferred Stock of the
Corporation as expressly provided in a resolution or resolutions
providing for the issuance of such series adopted by the Board of
Directors which is vested with the authority in respect thereof,

WHEREAS, no shares of such Preferred Stock has been
previously designated hereof,

WHEREAS, the Board of Directors now desires to amend the
Articles of Incorporation to designate one series of the Preferred
Stock.

NOW, THEREFORE BE IT RESOLVED, that pursuant to the
authority granted to the Board of Directors by Article Fourth of the
Articles of Incorporation, as amended, the Board of Directors hereby
further amend the Articles of Incorporation to provide for the
issuance of one single series of Preferred Stock consisting of the
number of shares in such series as set forth below and, subject to the
provisions of Article Fourth of the Articles of Incorporation, as
amended, of the Corporation, hereby fixes and determines with respect
to such series the following designations, preferences and relative
participating, optional or other special rights, if any, and
qualifications, limitations or restrictions thereof:

1 of 7
<PAGE> 5
1. DESIGNATION. The distinctive designation of such series shall be
the Series A 8% Cumulative Preferred Stock and each share of the Series A 8%
Cumulative Preferred Stock shall have a par value of $0.01 per share and a
preference on liquidation under paragraph 6 below of up to $1,000 per share.
The Series A 8% Cumulative Preferred Stock is sometimes referred to herein as
the "Series A Preferred Stock."

2. NUMBER OF SHARES. The number of shares which shall constitute the
series A Preferred Stock shall be such number as may actually be issued by the
Corporation, not to exceed a maximum of 40,000 shares, which number may be
decreased (but not below the number then outstanding), from time to time by the
Board of Directors, subject to the provisions hereof.

3. DIVIDENDS AND DIVIDEND RATE. Holders of record on the fifteenth day
of each March, June, September, and December of each year of shares of the
Series A Preferred Stock shall be entitled to receive dividends, when and as
declared by the Board of Directors of the Corporation and to the extent
permitted under the Nevada General Corporation Law, payable quarterly on each
March 31, June 30, September 30 and December 31 of each year, (each a "Dividend
Reference Date: and, collectively, the "Dividend Reference Dates"), in
preference to and with priority over dividends upon all "Junior Securities" (as
defined in paragraph 6 below). Except as otherwise provided herein, dividends,
on each shares of Series A Preferred Stock (a "Share") will accrue (but not
compound) cumulatively on a daily basis at the rate per share of eighty dollars
($80) per annum ($20.00 per calendar quarter) from and including the date on
which the date of issuance to and including the date on which the "Redemption
Price" (as defined in paragraph 4 below) of such Share is paid, whether or not
such dividends have been declared and whether or not there are profits, surplus
or other funds of the Corporation legally available for the payment of such
dividends. For purposes of this paragraph 3, the date on which the Corporation
initially issues any Share as its date of issuance, regardless of the number of
times transfer of such Share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates that may be issued
to evidence such Share (whether by reason of transfer of such Share or for any
other reason). Notwithstanding any other requirement of this paragraph unless
the holder of the Series A Preferred Stock requests of the Corporation payment
of dividends in a form other than cash, any and all quarterly dividends on the
Series A Preferred Stock shall be satisfied by payment of cash. So long as any
shares of Series A Preferred Stock are outstanding, the Corporation will not
declare or pay any dividends on Junior Securities (other than dividends in
respect of Common Stock payable in shares of Common Stock) or make, directly or
indirectly, an other distribution of any sort in respect of Junior Securities,
or any payment on account of the purchase or other acquisition of the Junior
Securities, unless on the date of such declaration in the case of a dividend,
or on such date of distribution or payment, in the case of such distribution or
other payment (a) all dividends on the Series A Preferred Stock for all past
quarter-yearly dividend periods have been paid in full and the full dividends
for the then current quarter-yearly period shall have been paid or declared

2 of 7
<PAGE> 6
in a sum sufficient for the payment thereof set apart, and (b) after giving
effect to such payment of dividends, other distributions, purchase or
redemption, the aggregate capital of the Corporation applicable to all capital
stock of the Corporation then outstanding plus the earned and capital surplus
of the Corporation shall exceed the aggregate amount payable on involuntary
dissolution, liquidation or winding up of the Corporation on all Shares of the
Preferred Stock and all stock ranking prior to or on a parity with the Series A
Preferred Stock as to dividends or assets outstanding after the payment of such
dividends, other distributions, purchase or redemption. Dividends shall not be
paid or declared and set apart for payment on any series of Preferred Stock for
any dividend period (including the Series A Preferred Stock) unless dividends
have been or are, contemporaneously, paid and declared and set apart for
payment on all outstanding series of Preferred Stock entitled thereto for all
dividend periods terminating on the same or earlier date. If any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series A Preferred Stock, such payment will be distributed
ratably among the then holders of Series A Preferred stock so that an amount
equal is paid with respect to each outstanding Share.

4. Redemption. The Corporation may, at any time after issuance thereof
and from time to time thereafter, at the election of the Board of Directors of
the Corporation redeem any or all of the Series A Preferred Stock then
outstanding by written notice. If mailed, such notice shall be deemed to be
delivered when deposited in the United States Mail, postage prepaid, addressed
to the holder of shares of Series A Preferred Stock at his address as it
appears on the stock transfer records of the Corporation. Such notice shall set
forth (a) the shares to be so redeemed, (b) the date fixed for redemption,
(c) the applicable Redemption Price, and (d) the place at which the holder(s)
may obtain payment of the applicable Redemption Price upon surrender of the
share certificate(s). If less than all shares of Series A Preferred Stock at
any time outstanding shall be called for redemption, such shares shall be
redeemed pro rata by lot drawn or other manner deemed fair in the sole
discretion of the Board of Directors to redeem one or more such shares without
redeeming all such shares of Series A Preferred Stock. If such notice of
redemption shall have been so mailed, on or before the Redemption Date, the
Corporation may provide for payment of sum sufficient to redeem the applicable
number of Series A Preferred Stock called for redemption either (I) by setting
aside the sum required to be paid as the Redemption Price by the Corporation,
separate and apart from its other funds, in trust for the account of the
holder(s) of the shares of Series A Preferred Stock to be redeemed or (ii) by
depositing such sum in a bank or trust company (either located in the state
where the principal executive office of the Corporation is maintained, such bank
or trust company having a combined surplus of at least $10,000,000 according to
its latest statement of condition, or such other bank or trust company as may be
permitted by the Articles of Incorporation, as amended, or by law) as a trust
fund, with irrevocable instructions and authority to the bank or trust company
to give or complete the notice of redemption and to pay, on or after the
Redemption Date, the applicable Redemption Price on surrender of certificates
evidencing the share(s) of Series A Preferred Stock so called for redemption
and, in

3 of 7
<PAGE> 7
either event, from and after the Redemption Date (A) the shares(s) of Series A
Preferred Stock deemed to be redeemed, (B) such setting aside or deposit shall
be deemed to constitute full payment for such Shares(s), (C) such Shares(s) so
redeemed shall not longer be deemed to be outstanding, (D) the holder(s)
thereof shall cease to be a shareholder of the Corporation with respect to such
share(s) and (E) such holders(s) shall have no rights with respect thereto
except the right to receive their proportionate share of the funds set aside
pursuant hereto or deposited upon surrender of their respective certificates.
Any interest on the funds so deposited shall be paid to the Corporation. Any
and all such redemption deposits shall be irrevocable except to the following
extent: any funds so deposited which shall not be required for the redemption
of any shares of Series A Preferred Stock because of any prior sale or purchase
by the Corporation other than through the redemption process, subsequent to the
date of deposit but prior to the Redemption Date, shall be repaid to the
Corporation forthwith and any balance of the funds so deposited and unclaimed by
the holder(s) of any shares of Series A Preferred Stock entitled thereto at the
expiration of one calendar year from the Redemption Date shall be repaid to the
Corporation upon its request or demand therefor and after any such repayment the
holder(s) of the share(s) so called for redemption shall look only to the
Corporation for payment of the Redemption Price thereof. In addition to the
redemption under this paragraph 4, the Corporation may redeem or repurchase
shares of the Series A Preferred Stock from any holder(s) thereof who consents
in writing to such redemption and the provisions of this paragraph 4 will not
apply to any such consented redemption. All shares of Series A Preferred Stock
redeemed shall be canceled and retired and no shares shall be issued in place
thereof, but such shares shall be restored to the status of authorized but
unissued shares of Preferred Stock. The "Redemption Price" (herein so called)
shall be an amount equal to the "Liquidation Value" (as defined in paragraph 6
below) of $1,000 per Share plus the amount of all accrued but unpaid dividends
thereon the Redemption Date, which shall include all cumulative dividends in
arrears and also the proportionate part of the dividend accrued since the last
Dividend Reference Date preceding the Redemption Date and whether or not earned
or declared, but without interest.

5. Sinking Fund. The Corporation shall not be required to maintain any
so-called "Sinking Fund" for the retirement on any basis of the Series A
Preferred Stock.

6. Rights on Liquidation. In the event of any liquidation, dissolution
or winding-up of the Corporation, and after paying and providing for the payment
of all creditors of the Corporation, the holders of shares of the Series A
Preferred Stock then outstanding shall be entitled, before any distribution or
payment is made upon any "Junior Securities" (defined to be and mean the Common
Stock and any other equity security of any kind which the Corporation at any
time has issued, issues or is authorized to issue if the Series A Preferred
Stock has priority over such securities as to dividends or upon liquidation), to
receive a liquidation preference in an amount in cash equal to the aggregate
Liquidation Value of all shares of Series A Preferred Stock then outstanding,
whether any such liquidation, dissolution or winding up is

4 of 7
<PAGE> 8
voluntary or involuntary and the holders of the Series A Preferred Stock shall
not be entitled to any other or further distributions of assets. The term
"Liquidation Value" shall be and mean, as of any particular date, an amount per
Share of Series A Preferred Stock equal to the Redemption Price is such share
were so redeemed in accordance with the provisions of paragraph 5 above, but in
no event shall exceed $1,000 per shares, plus any accrued and unpaid cumulative
dividends. If, upon any dissolution, liquidation or winding-up of the affairs
of the Corporation, the net assets available for distribution shall be
insufficient to permit payment to the holders of all outstanding shares of all
series of Preferred Stock of the amounts to which they respectively shall be
entitled, then the assets of the Corporation to be distributed to such holders
will be distributed ratably among them based upon the amounts payable on the
shares of each such series of Preferred Stock in the event of voluntary or
involuntary dissolution, liquidation or winding-up, as the case may be, in
proportion to the full preferential amounts, together with any and all
arrearage to which they are respectively entitled. Upon any such liquidation,
dissolution or winding-up of the Corporation, after the holders of Preferred
Stock have been paid in full the amounts to which they are entitled, the
remaining assets of the Corporation may be distributed to the holders of Junior
Securities, including Common Stock, of the Corporation. The Corporation will
mail written notice of such liquidation, dissolution or winding-up, not less
than twenty (20) nor more than fifty (50) days prior to the payment date stated
therein to each record holder of Series A Preferred Stock. Neither the
consolidation nor merger of the Corporation into or with any other corporation
or corporations, nor the sale or transfer by the Corporation of all or any part
of its assets, nor a reduction of the capital stock of the Corporation, nor the
purchase or redemption by the Corporation of any shares of its Preferred Stock
or Common Stock or any other class of its stock will be deemed to be a
liquidation, dissolution or winding-up of the Corporation within the meaning of
this paragraph 6.

7. Ranking. The Series A Preferred Stock shall rank on a parity as to
dividends and upon liquidation, dissolution or winding-up with all other shares
of Preferred Stock issued by the Corporation; provided however, that the
Corporation shall not issue any shares of Preferred Stock of any series which
are superior to the Series A Preferred Stock as to dividends or rights upon
liquidation, dissolution or winding-up of the Corporation as long as any shares
of the Series A Preferred Stock are issued and outstanding, without the prior
written consent of the holders of a majority of such shares of Series A
Preferred Stock then outstanding voting separately as a class.

8. Voting Rights. The holders of the shares of Series A Preferred
Stock shall only have the voting rights specifically required by law under the
Nevada General Corporation Law, and shall have the following additional voting
rights subject to and after compliance with any applicable laws and rules or
actual requirements of any exchange upon which any securities of the
Corporation are listed:

(a) except as may otherwise be specifically required by law under
the Nevada General Corporation Law, the holders of the shares of Series A

5 of 7

<PAGE> 9
Preferred Stock shall not have the right to vote such
stock, directly or indirectly, at any meeting of the
shareholders of the Corporation and such shares of
stock shall not be counted in determining the total
number of outstanding shares to constitute a quorum
at any meeting of shareholders;

(b) in the event that, under any
circumstance, the holders of the Series A Preferred
Stock are required by law to vote upon any matter,
the approval of such series shall be deemed to have
been obtained upon the affirmative vote of the
holders of only a majority of the shares of the
Series A Preferred Stock then outstanding;

(c) except as set forth herein, or as
otherwise provided by the Articles of Incorporation,
as amended, or by law, holders of the Series A
Preferred Stock shall have no special voting rights
and their consent shall not be required for the
taking or any corporate action.

9. No Conversion Rights. The Series A Preferred
Stock may not be converted into any other Securities of the
Corporation.

10. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such
shares shall, upon cancellation, become authorized but
unissued shares of Preferred Stock and may be re-issued as
part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth in the
Articles of Incorporation, as amended, or as otherwise
required by law.

IN WITNESS WHEREOF, said FIRST EQUITY PROPERTIES, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by Karl
L. Blaha, its President and F. Terry Shumate its Secretary effective January 1,
1997.

FIRST EQUITY PROPERTIES, INC.

/s/ KARL L. BLAHA
-----------------------------
Karl L. Blaha
President

/s/ F. TERRY SHUMATE
-----------------------------
F. Terry Shumate
Secretary

6 of 7
<PAGE> 10
STATE OF TEXAS

COUNTY OF DALLAS

On January 1, 1997 personally appeared before me a Notary Public,
Karl L. Blaha, President of FIRST EQUITY PROPERTIES, INC., and F. Terry
Shumate, Secretary of FIRST EQUITY PROPERTIES, INC., who acknowledged that they
executed the above instrument.

/s/ KRISTI HEDGCOXE
[NOTARY STAMP] --------------------------------
Notary Public, State of Texas

7 of 7
<PAGE> 11
STATE OF NEVADA
SECRETARY OF STATE

I hereby certify that this is a
true and complete copy of
the document as filed in this
office.

NOV 19 '97

/s/ DEAN HELLER
DEAN HELLER
Secretary of State

By: /s/[ILLEGIBLE]
---------------

<PAGE> 1

Exhibit 21
Subsidiaries of the Registrant

The following is a list of all subsidiaries of First Equity Properties,
Inc., the state or other jurisdiction of organization or incorporation and the
names under which such subsidiaries do business (indention means direct parent
relationship):

<TABLE>
<CAPTION>
Jurisdiction of
Organization or
Name of Entity Incorporation
- -------------------------------------------- ---------------

<S> <C>
First Equity Properties, Inc.* Nevada
Carmel Realty, Inc. Texas
Regis Management Nevada
Corporation (formerly
Williamsburg Management
Corporation)
</TABLE>

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

* First Equity Properties, Inc. is also the holder of a 81.6% limited
partner interest in Carmel Realty Services, Ltd., a Texas limited partnership.

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-15-1996
<PERIOD-END> DEC-31-1996
<CASH> 76,355
<SECURITIES> 0
<RECEIVABLES> 47,657
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,807,497
<DEPRECIATION> 129,136
<TOTAL-ASSETS> 5,822,865
<CURRENT-LIABILITIES> 0
<BONDS> 4,387,165
0
0
<COMMON> 105,710
<OTHER-SE> 961,856
<TOTAL-LIABILITY-AND-EQUITY> 5,822,866
<SALES> 1,431,975
<TOTAL-REVENUES> 1,475,831
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,585,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,946
<INCOME-PRETAX> (319,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (319,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,692)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)

</TABLE>