# UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-QSB

(Mark One)

|[X] | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2005

|[   ] | Transition report under Section 13 or 15(d) of the Exchange Act
|----- | ---------------------------------------------------------------

For the transition period from ___________ to _____________

Commission file number
001-31514

MEREDITH ENTERPRISES, INC.(Exact Name of Small Business Issuer as Specified in its Charter)

|DELAWARE                         |  | 95-4246740         
|-------------------------------- |  | -------------------
|State or Other Jurisdiction of   |  | (I.R.S. Employer   
|of Incoproration or Organization |  | Identification No.)

3000 SAND HILL ROAD, BUILDING 2, SUITE 120
    MENLO PARK, CALIFORNIA            94025
(Address of principal executive offices)    (Zip Code)

(650) 233-7140(Issuer's telephone number, including area code)

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

APPLICABLE ONLY TO
CORPORATE ISSUERS

As of August 3, 2005, there were
953,981 shares of the issuers common stock outstanding (net of 22,984 shares held in
treasury).

Transitional Small Business Disclosure
Format (check one):  Yes        NoX

---

# MEREDITH ENTERPRISES,
INC.

# REPORT ON FORM 10-QSBFOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2005

# TABLE OF CONTENTS

# TABLE OF CONTENTS

|                                                                     | 
|-------------------------------------------------------------------- | 
|Part I  Financial Information                                       | 
|Item 1.  Financial Statements                                        | 
|Consolidated Balance Sheet-                                          | 
|As of June 30, 2005 (unaudited)                                      | 
|Consolidated Statements of Income (unaudited)-                       | 
|Three months and six months ended June 30, 2005 and 2004             | 
|Consolidated Statements of Cash Flows (unaudited)-                   | 
|Six months ended June 30, 2005 and 2004                              | 
|Consolidated Statement of Stockholders Equity (unaudited)-          | 
|Six months ended June 30, 2005                                       | 
|Summary of Accounting Policies                                       | 
|Notes to Consolidated Financial Statements                           | 
|                                                                     | 
|Item 2.  Managements Discussion and Analysis or Plan of Operation   | 
|Item 3.  Controls and Procedures                                     | 
|                                                                     | 
|Part II  Other Information                                          | 
|Item 1.  Legal Proceedings                                           | 
|Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds | 
|Item 3.  Defaults Upon Senior Securities                             | 
|Item 4.  Submission of Matters to a Vote of Security Holders         | 
|Item 5.  Other Information                                           | 
|Item 6.  Exhibits                                                    | 
|Signatures                                                           | 

As used in this Report on Form
10-QSB, unless the context otherwise requires, the terms we, us,
and our refer to Meredith Enterprises, Inc., a Delaware corporation.

---

# PART I.  FINANCIAL INFORMATION

# ITEM 1.  FINANCIAL
STATEMENTS

# MEREDITH ENTERPRISES,
INC.CONSOLIDATED BALANCE SHEET

|June 30,                                                                            | 2005
|----------------------------------------------------------------------------------- | ----
|
|
|Assets                                                                              |     
|                                                                                    |     
|Rental real estate, less accumulated depreciation (Notes 2, 4 and 6)                |     
|Rental real estate held for sale, net (Notes 2 and 6)                               |     
|Construction in progress (Notes 2 and 6)                                            |     
|Cash and cash equivalents                                                           |     
|Restricted cash                                                                     |     
|Deferred rent, net of allowance of $352,540 at June 30, 2005                        |     
|Accounts receivable, net of allowance of $9,343 at June 30, 2005                    |     
|Loan origination fees, net of accumulated amortization of $234,652 at June 30, 2005 |     
|Other assets                                                                        |     
|Other assets related to rental real estate held for sale                            |     
|                                                                                    |     
|Total assets                                                                        |     
|                                                                                    |     
|                                                                                    |     
|Liabilities and Stockholders' Equity                                                |     
|                                                                                    |     
|Liabilities                                                                         |     
|                                                                                    |     
|Notes payable secured by rental real estate (Note 6)                                |     
|Notes payable secured by rental real estate held for sale (Note 6)                  |     
|Accounts payable and accrued liabilities                                            |     
|Security deposits and prepaid rent                                                  |     
|Other liabilities related to rental real estate held for sale                       |     
|                                                                                    |     
|                                                                                    |     
|Total liabilities                                                                   |     
|                                                                                    |     
|Commitments and contingencies (Note 9)                                              |     
|                                                                                    |     
|Stockholders' equity                                                                |     
|Common stock $.01 par value; 4,000,000 shares authorized; 976,965                   |     
|shares issued and outstanding as of June 30, 2005                                   |     
|Preferred stock; $.01 par value; 1,000,000 shares authorized; 0 shares              |     
|issued and outstanding as of June 30, 2005                                          |     
|Treasury stock at cost; 22,984 shares at June 30, 2005                              |     
|Additional paid-in capital                                                          |     
|Dividends in excess of retained earnings                                            |     
|                                                                                    |     
|Total stockholders' equity                                                          |     
|                                                                                    |     
|Total liabilities and stockholders' equity                                          |     
|                                                                                    |     

See accompanying summary of accounting policies and notes to consolidated financial statements.

3

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# MEREDITH ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME

|                                                     | Three months ended | Six months ended
|---------------------------------------------------- | ------------------ | ----------------
|
|
|
|
|
|Revenues                                             |                    |                 
|Rental (Notes 2 and 4)                               |                    |                 
|Tenant reimbursements (Notes 2 and 4)                |                    |                 
|Interest                                             |                    |                 
|                                                     |                   
|                                                     |                    |                 
|                                                     |                   
|Cost and expenses                                    |                    |                 
|Interest                                             |                    |                 
|General and administrative                           |                    |                 
|Depreciation                                         |                    |                 
|Ground rent (Note 9)                                 |                    |                 
|Other operating                                      |                    |                 
|Property tax                                         |                    |                 
|                                                     |                   
|                                                     |                    |                 
|                                                     |                   
|(Loss) income from continuing operations             |                    |                 
|Income (loss) from discontinued operations (Note 3): |                    |                 
|Gain on sale of rental real estate held for sale     |                    |                 
|Income (loss) from discontinued operations           |                    |                 
|                                                     |                   
|Net income                                           |                    |                 
|                                                     |                   
|Net income per share-basic (Note 1):                 |                    |                 
|(Loss) income from continuing operations             |                    |                 
|Discontinued operations:                             |                    |                 
|Gain on sale of rental real estate held for sale     |                    |                 
|Income (loss) from discontinued operations           |                    |                 
|                                                     |                   
|Net income per share-basic                           |                    |                 
|                                                     |                   
|Weighted average shares outstanding                  |                    |                 
|                                                     |                   
|Net income per share-assuming dilution (Note 1):     |                    |                 
|(Loss) income from continuing operations             |                    |                 
|Discontinued operations:                             |                    |                 
|Gain on sale of rental real estate held for sale     |                    |                 
|Income (loss) from discontinued operations           |                    |                 
|                                                     |                   
|Net income per share-assuming dilution               |                    |                 
|                                                     |                   
|Weighted average shares outstanding                  |                    |                 
|                                                     |                   

See
accompanying summary of accounting policies and notes to consolidated financial
statements.

4

---

# MEREDITH ENTERPRISES,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

|Six months ended June 30,                                             | 2005 | 2004
|--------------------------------------------------------------------- | ---- | ----
|
|
|Cash flows from operating activities                                  |      |     
|Net income                                                            |      |     
|Adjustments to reconcile net income to net cash                       |      |     
|provided by operating activities:                                     |      |     
|Depreciation expense                                                  |      |     
|Fair value adjustment to property carrying value                      |      |     
|Interest expense due to amortization of loan origination fees         |      |     
|Gain on sale of rental real estate held for sale                      |      |     
|Increase (decrease) in cash flows from changes in                     |      |     
|operating assets and liabilities:                                     |      |     
|Deferred rent                                                         |      |     
|Accounts receivable                                                   |      |     
|Other assets                                                          |      |     
|Other assets related to rental real estate held for sale              |      |     
|Accounts payable and accrued liabilities                              |      |     
|Security deposits and prepaid rent                                    |      |     
|Other liabilities related to rental real estate held for sale         |      |     
|                                                                      |     
|Net cash provided by operating activities                             |      |     
|                                                                      |     
|Cash flows from investing activities                                  |      |     
|Proceeds released from escrow prior to sale                           |      |     
|Expenditures on construction in progress                              |      |     
|Proceeds from sale of rental real estate held for sale                |      |     
|Change in restricted cash                                             |      |     
|Capital expenditures on rental real estate                            |      |     
|                                                                      |     
|Net cash provided by (used in) investing activities                   |      |     
|                                                                      |     
|Cash flows from financing activities                                  |      |     
|Dividends paid                                                        |      |     
|Purchase of treasury stock                                            |      |     
|Proceeds from exercise of stock options                               |      |     
|Proceeds from notes payable                                           |      |     
|Payments on notes payable secured by rental real estate               |      |     
|Payments on notes payable secured by rental real estate held for sale |      |     
|                                                                      |     
|Net cash used in financing activities                                 |      |     
|                                                                      |     
|Net increase (decrease) in cash and cash equivalents                  |      |     
|Cash and cash equivalents, beginning of year                          |      |     
|                                                                      |     
|Cash and cash equivalents, end of period                              |      |     
|                                                                      |     

See accompanying summary of accounting policies and notes to consolidated financial statements.

5

---

# MEREDITH ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

|                                     | Common Stock | Treasury Stock |  |         | 
|------------------------------------ | ------------ | -------------- |  | ------- | 
|
|
|
|
|
|Balance, December 31, 2004           |              |                |  | 976,965 | 
|Net income for the period            |              |                |  | -       | 
|Purchase of treasury stock           |              |                |  | -       | 
|Dividends declared ($0.45 per share) |              |               
|(Note 1)                             |              |                |  | -       | 
|                                     |             
|Balance, June 30, 2005               |              |                |  | 976,965 | 
|                                     |             

See
accompanying summary of accounting policies and notes to consolidated financial
statements.

6

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Business

Meredith Enterprises, Inc. (formerly
West Coast Realty Investors, Inc.) was originally organized in October 1989 under the laws
of the State of Delaware. We have elected tax status as a Real Estate Investment Trust
(REIT) for federal and state income tax purposes since 1991. Our portfolio
consists of light industrial, retail, suburban office properties and a restaurant
property. As of June 30, 2005, all of our properties were located in California and
Georgia, and we did not own any residential properties. Most of our leases are
triple-net leases where the tenant is responsible for maintenance, taxes and
insurance, either by directly paying such costs or reimbursing us for those costs through
additional rental payments.

# Rental Real Estate,
Rental Real Estate Held for Sale and Depreciation

Assets are stated at lower of cost or net realizable value.  Depreciation is computed using the straight-line method over the
asset's estimated useful lives as follows:

| |  | rental real estate:  31.5 to 39 years;
| | - | --------------------------------------

| |  | leasehold improvements:  Shorter of estimated useful life of  20 years or lease term;
| | - | -------------------------------------------------------------------------------------

| |  | furniture:  7 years
| | - | -------------------

If facts and circumstances indicate
that the cost of an asset may be impaired, we perform an evaluation of recoverability. If
an evaluation is required, we compare the estimated future undiscounted cash flows
associated with the asset to the carrying amount to determine if a write-down to fair
value is required.

Real estate classified as held
for sale is stated at the lower of its carrying amount or estimated fair value less
disposal costs. Depreciation is not recorded on assets classified as held for sale. If we
determine that we should no longer classify an asset as held for sale, we
recompute depreciation so that the accumulated depreciation on the asset at the time of
the reclassification is the same as if it were never classified as held for sale.

In the normal course of business, we
may receive solicited or unsolicited offers to purchase our properties. For the offers we
accept, the prospective buyer will usually require a due diligence period before
consummation of the transaction. It is not unusual for matters to arise that result in the
withdrawal or rejection of the offer during this process. As a result, real estate is not
classified as held for sale until it is likely, in the opinion of management,
that a property will be disposed of in the near term, even if sales negotiations for such
property are currently under way. Properties classified as held for sale are segregated
from rental real estate in our financial statement presentation. As of June 30, 2005, we
classified our 721 West Del Paso Road (Sacramento) property as held for sale,
since it was listed for sale with real estate brokers, it was in suitable condition for
sale, and we believed there was a high likelihood of sale in the near term. On July 1,
2005, we sold this property for a gross sales price of approximately $825,000 and we
recognized a net gain of approximately $130,000 in connection with the sale. There can be
no assurance that a property held for sale will be sold in the near term, at a price we
consider acceptable, or at all.

# Rental Income, Operating
Expense and Capitalized Costs

We recognize rental revenue on a
straight-line basis to the extent that rental revenue is deemed collectible. We capitalize
improvements and betterments that increase the value of the property or extend its useful
life.

We capitalize direct costs associated
with our development and construction activities. We capitalize interest on qualifying
construction expenditures in accordance with Statement of Financial Accounting Standards
(SFAS) No. 34, Capitalization of Interest Cost. During the
development and construction of a new property, we capitalize related interest costs, as
well as other carrying costs such as property taxes and insurance. We begin to expense
these items as the construction of the property becomes substantially complete and the
property becomes available for initial occupancy by tenants. Accordingly, we gradually
reduce the amounts we capitalize as we complete construction. Capitalization of interest
and other carrying costs such as property taxes and insurance ceases entirely upon
completion of development and construction activities.

# Acquisition Costs

We expense internal acquisition
costs, in accordance with Emerging Issues Task Force 97-11, Accounting for Internal
Costs Relating to Real Estate Property Acquisitions.

7

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Loan Origination Fees

Loan origination fees are capitalized
and amortized over the life of the loan and are included in interest expense or
construction in progress if the funds from the loan are used for construction in progress.

# Cash and Cash Equivalents

We consider cash in the bank, liquid
money market funds and all highly liquid certificates of deposit, with original maturities
of three months of less, to be cash and cash equivalents. We place funds in what we
believe are creditworthy, high-quality financial institutions. Cash and cash equivalent
balances are held by various financial institutions and at times exceed the Federal
Deposit Insurance Corporation limit of $100,000.

# Consolidation

The accompanying consolidated
financial statements include the accounts of Meredith Enterprises, Inc. and other
subsidiaries that hold title to individual properties. All significant intercompany
balances and transactions have been eliminated in consolidation. Included in the
accompanying consolidated financial statements are the assets of wholly owned entities
whose assets are not available to satisfy debts and other obligations other than those
incurred by such entities.

# Use of Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates. Our
significant estimates include the assessment of fair value on property held for investment
and or for sale. It is reasonably possible that actual results could be materially
different than our estimates.

# Net Income Per Share

We calculate net income per share by
dividing net income by the weighted average number of shares outstanding for the period.
We have granted stock options, and their dilutive effect, if any, is included in our
calculation of net income per share.

# Comprehensive Income

SFAS No. 130, Reporting
Comprehensive Income, as promulgated by the Financial Accounting Standards Board
(FASB), establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is comprised of net income and all changes to stockholders
equity except those due to investments by owners and distributions to owners. Other than
net income, we do not have any components of comprehensive income in the three and six
months ended June 30, 2005, and 2004.

# Reclassifications

We have made certain
reclassifications to the prior years financial statements for our properties held
for sale from operating to discontinued operations, to conform to the presentation of the
current periods financial statements.

# Descriptive Information
about Reportable Segments

SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information requires certain descriptive
information to be provided about an enterprises reportable segments. We have
determined that we have one operating and reportable segment, rental real estate and
rental real estate held for sale, which comprised 93% of our total assets at June 30, 2005
and over 99% of our total revenues (including discontinued operations) for the three and
six months ended June 30, 2005 and 2004. All the rental real estate we own is located in
California and Georgia. We do not use reporting by geographic region.

All revenues are from external
customers, and there are no revenues from transactions with other segments. See Note 2 for
tenants that contributed 10% or more of our total revenues for the three and six months
ended June 30, 2005 and 2004. Interest expense on debt is not allocated to individual
properties, even if such debt is secured by a specific property. Because we are organized
as a REIT, we owe no federal or state income taxes and have accordingly made no provision
for those taxes; see Note 7.

8

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Stock-Based Compensation

We account for our stock based
compensation arrangements for employees and directors using the intrinsic value method
pursuant to Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees, as clarified by FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation. As such, compensation expense is recorded
when, on the date

of the grant, the fair value of the
underlying common stock exceeds the exercise price for stock options or the purchase price
for issuances or sales of common stock. Pursuant to SFAS No. 123 Accounting for
Stock-Based Compensation, we disclose the pro forma effects of using the fair value
method of accounting for stock-based compensation arrangements.

Pro forma information regarding net
income and earnings per share required by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, which amended SFAS No.
123, was determined as if we had accounted for the employee and non-employee director
stock options granted in the periods indicated under the fair value method described in
SFAS No. 148. The fair value for these options was estimated as of the date of grant using
a Black-Scholes option pricing model, with the following weighted average assumptions for
the six months ended June 30, 2004 (because all of our outstanding options became fully
vested prior to 2005, there is no pro-forma stock-based compensation expense during the
three and six months ended June 30, 2005):

| |  | 2004
| |  | ----
| |  |     
| |  |     
| |  |     
| |  |     

The Black-Scholes option-pricing
model was developed for use in estimating the fair market value of traded options that
have no vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the expected stock
price volatility. Because options granted under our stock option plan have characteristics
significantly different from those of traded options, and because, in managements
opinion, changes in the subjective input assumptions can materially affect the fair value
estimate, the existing models do not necessarily provide a reliable single measure of the
fair value of stock options granted under our stock option plan.

For purposes of pro forma
disclosures, we amortize the estimated fair value of the options over the options
vesting periods. Our pro forma information, as if we had adopted SFAS No. 123 as
discussed above, follows:

|                                                        | Three months ended | Six months ended
|------------------------------------------------------- | ------------------ | ----------------
|
|
|Numerator:                                              |                    |                 
|Net income, as reported                                 |                    |                 
|Less -total stock-based compensation expense determined |                    |                 
|under the fair value based method, net of applicable    |                    |                 
|taxes                                                   |                    |                 
|                                                        |                   
|Pro forma net income                                    |                    |                 
|                                                        |                   
|Basic-as reported                                       |                    |                 
|                                                        |                   
|Basic-pro forma                                         |                    |                 
|                                                        |                   
|Weighted average shares outstanding                     |                    |                 
|                                                        |                   
|Diluted-as reported                                     |                    |                 
|                                                        |                   
|Diluted-pro forma                                       |                    |                 
|                                                        |                   
|Weighted average shares outstanding                     |                    |                 
|                                                        |                   

9

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# New Accounting
Pronouncements

In December 2004, the FASB issued
SFAS No. 123 (R), Share-Based Compensation. It replaces SFAS No. 123,
Accounting for Stock Issued to Employees. SFAS No. 123 (R) requires the
compensation cost relating to share-based payment transactions be recognized in financial
statements. We are required apply it beginning January 1, 2006 to options that vest on or
after that date. All options we have issued to date have completely vested, and under our
current option plan, we are authorized to issue additional options to purchase 4,996
shares. We do not anticipate issuing any options during 2005. Further, under stock
exchange rules, we must submit any plan for additional
options for stockholder approval; we do not expect to submit a plan for stockholder
approval during 2005. To the extent we do not propose a new option plan, we do not expect
the adoption of SFAS 123(R) to have a material adverse impact on our net income and net
income per share.

In December 2004, the FASB issued
SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of Accounting Principles
Board (APB) Opinion No. 29. The amendments made by SFAS No. 153 are
based on the principle that exchanges of nonmonetary assets should be measured on the fair
value of assets exchanged. The statement eliminates the exception for nonmonetary
exchanges of similar productive assets and replaces it with a broader exception for
exchanges of nonmonetary assets that do not have commercial substance. The statement is
effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15,
2005, and the adoption of SFAS No. 153 did not have a material effect on our financial
statements.

In May 2005, the FASB issued SFAS
No. 154, Accounting Changes and Error Corrections (SFAS 154),
which replaces APB Opinion No. 20, Accounting Changes and SFAS
No. 3, Reporting Accounting Changes in Interim Financial StatementsAn
Amendment of APB Opinion No. 28. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the required method for
reporting a change in accounting principle and the reporting of a correction of an error.
SFAS 154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005 and is required to be adopted in the first
fiscal quarter of 2006. We are currently evaluating the effect that the adoption of
SFAS 154 will have on our consolidated results of operations and financial condition
but do not expect it to have a material impact.

10

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 1NET INCOME,
DIVIDENDS PER SHARE AND OPTION ACTIVITY

Dividends are declared by the board
of directors and based on a variety of factors, including the previous quarters net
income (loss) from operations before depreciation and amortization, cash requirements to
meet REIT distribution tests, other cash requirements and other factors as the board of
directors deems appropriate. In 2004 and for the first quarter of 2005, we paid quarterly
dividends at the rate of $0.25 per share. On May 12, 2005, the board of directors declared
a dividend of $0.20 per share, which was paid on June 7, 2005 to stockholders of record on
May 27, 2005. The dividend rate represents a $0.05 per share reduction from the dividend
level of the prior quarter. On July 28, 2005, the board of directors declared a dividend
of $0.20 per share.

Our stockholders approved and adopted
the 2002 Stock Incentive Plan in September 2002, and it provides for the issuance of
incentive stock options, non-qualified stock options, restricted shares and other grants.
The maximum number of shares that may be issued under the plan is 150,000. Generally, the
option price may not be less than the fair market value of a share on the date that the
option is granted, and the options generally vest either immediately or over two years.
There were no changes in options outstanding during the six months ended June 30, 2005:

| |  |  | Weighted                              
| |  |  | --------------------------------------
|
|
|
|
| |  |  | Balance at the beginning of the period
| |  |  | Granted                               
| |  |  | Exercised                             
| |  |  | Cancelled                             
| |  | 
| |  |  | Balance at end of period              
| |  | 
| |  |  | Exercisable                           
| |  |  |                                       
| |  |  | Shares available for future           
| |  |  | grants at June 30, 2005               
| |  |  |                                       

The options expire in 2013 and 2014,
and the weighted average remaining contractual life of these options is approximately nine
years. The following table sets forth the computation of basic and diluted earnings per
share with respect to net income:

|                                                 | Three months ended | Six months ended
|------------------------------------------------ | ------------------ | ----------------
|
|
|Numerator:                                       |                    |                 
|(Loss) income from continuing operations         |                    |                 
|Gain on sale of rental real estate held for sale |                    |                 
|Income (loss) from discontinued operations       |                    |                 
|                                                 |                   
|Net income                                       |                    |                 
|                                                 |                   
|Denominator for basic earnings per               |                    |                 
|share - weighted average shares                  |                    |                 
|Effect of dilutive securities - stock options    |                    |                 
|                                                 |                   
|Denominator for diluted earnings per share       |                    |                 
|adjusted for weighted average shares             |                    |                 
|                                                 |                   

11

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 1  NET INCOME, DIVIDENDS PER SHARE AND OPTION ACTIVITY, Continued

|                                                 | Three months ended | Six months ended
|------------------------------------------------ | ------------------ | ----------------
|
|
|Basic earnings per share:                        |                    |                 
|(Loss) income from continuing operations         |                    |                 
|Discontinued operations:                         |                    |                 
|Gain on sale of rental real estate held for sale |                    |                 
|Income (loss) from discontinued operations       |                    |                 
|                                                 |                   
|Net income per share- basic                      |                    |                 
|                                                 |                   
|Diluted earnings per share:                      |                    |                 
|(Loss) income from continuing operations         |                    |                 
|Discontinued operations:                         |                    |                 
|Gain on sale of rental real estate held for sale |                    |                 
|Income (loss) from discontinued operations       |                    |                 
|                                                 |                   
|Net income per share- assuming dilution          |                    |                 
|                                                 |                   

Anti-dilutive items are excluded from
this calculation.

# NOTE 2RENTAL REAL
ESTATE

Our major categories of rental real
estate are:

| |  | June 30, 2005
| |  | -------------
|
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              

Our major categories of rental real estate
held for sale are:

| |  | June 30, 2005
| |  | -------------
|
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              
| |  |              

During 2004, we began the development
of our Garden Grove Festival Center, a multi-tenant shopping center. As of June 30, 2005,
our construction in progress on that property totaled $6,340,179, which includes land
valued at its cost plus development expenditures, capitalized interest and accrued
interest. We estimate that we will incur approximately $3,400,000 of additional
development expenditures, until the project is complete in late 2005 or early 2006. We
expect to fund the development cost from the construction

12

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

loan secured by our Garden Grove
property (Banco Popular), our Garden Grove Festival Center and our 717 West Del Paso Road
property in Sacramento.

During the three months ended June
30, 2005, one tenant represented 10% or more of our total rental revenue including
discontinued operations and another two tenants represented approximately 8% each. For the
three months ended June 30, 2004, no one tenant represented 10% of our total rental
revenue including discontinued operations, although two tenants represented approximately
8% each.

# NOTE 3DISCONTINUED
OPERATONS

On January 1, 2002, we adopted SFAS
No. 144, whereby net income (loss) and gain on sale of real estate for properties sold or
considered held for sale are reflected in our consolidated statements of income as
discontinued operations for all periods presented. In addition, we have
determined to separately reflect the assets and liabilities of properties held for sale or
sold in the current period as Rental real estate held for sale, net
Other assets related to rental real estate held for sale, Notes payable
secured by rental real estate held for sale and Other liabilities related to
rental real estate held for sale in the balance sheets for all periods presented.

During the second quarter of 2004, we
determined that the two Sacramento properties (717 and 721 West Del Paso Road) and the
Fresno property no longer met the required criteria for classification as held for sale.
Accordingly, we removed them from that category in our financial statements and as
required, we computed depreciation expense on those properties as if they had never been
classified as held for sale, catching up the depreciation that was not
expensed in prior periods. In September 2004, we sold our Fresno property for a net gain
of $344,314, and in May 2005, we sold our Riverside property for a net gain of $594,881.
As of June 30, 2005, we again classified our 721 West Del Paso Road property as held for
sale, since it was listed for sale with real estate brokers, it was in suitable condition
for sale and we believe there was a high likelihood of sale in the near term. On July 1,
2005, we sold the property for a gross sales price of approximately $825,000, and we
recognized a net gain of approximately $130,000 in connection with the sale.

In accordance with SFAS No. 144, we
have reclassified the results of the 721 West Del Paso Road as discontinued operations,
since we had committed to sell the property as of June 30, 2005 and there was a firm
commitment as of that date; see Note 10. Further, results for the properties we have sold
are also included in discontinued operations for the three and six months ended June 30,
2005 and 2004 as follows:

|                                           | Three months ended | Six months ended
|------------------------------------------ | ------------------ | ----------------
|
|
|
|Revenues                                   |                    |                 
|Rental                                     |                    |                 
|Tenant Reimbursements                      |                    |                 
|                                           |                   
|                                           |                    |                 
|                                           |                   
|Cost and expenses                          |                    |                 
|Interest                                   |                    |                 
|General and administrative                 |                    |                 
|Depreciation                               |                    |                 
|Operating                                  |                    |                 
|Property tax                               |                    |                 
|Impairment loss                            |                    |                 
|                                           |                   
|                                           |                    |                 
|                                           |                   
|Income (loss) before gain on sale of       |                    |                 
|rental real estate held for sale           |                    |                 
|Gain on rental real estate held for sale   |                    |                 
|                                           |                   
|Income (loss) from discontinued operations |                    |                 
|                                           |                   

13

---

During the three and six months ended
June 30, 2004, we recorded fair value adjustments of $39,491 and $91,061, respectively, to
reduce the operating income from our Riverside property to zero and reduce the carrying
value of the property by a corresponding amount each period, as a portion of its fair
value was previously determined to equal the present value of its expected future cash
flows. The tenant of our Riverside property failed to make rent payments from January 1,
2005 to May 9, 2005, and we recognized no operating income from our Riverside property. On
May 9, 2005, we sold the Riverside property for a net gain of $594,881. Subsequent to the
sale of the property, we accepted a payment of $75,000, from the tenant, as settlement for
the entire outstanding rent and other charges of approximately $143,000. The $75,000 was
recorded during the three months ended June 30, 2005.

# NOTE 4FUTURE
MINIMUM RENTAL INCOME

As of June 30, 2005, future minimum
rental income under the existing leases for rental real estate and rental real estate held
for sale that have remaining noncancelable terms in excess of one year are as follows:

| | Years ending December 31, | Amount
| | ------------------------- | ------
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       

Future minimum rental income does not
include lease renewals or new leases that may result after a non-cancelable lease expires.

# NOTE 5RELATED
PARTY TRANSACTIONS

We acquired 2.5 acres of land in
March 2003 and are building an approximate 30,000 square foot shopping center on the land.
A firm owned by Mr. Gary Coursey, one of our directors, provides architectural services
for this project. During the six months ended June 30, 2005 and 2004, we paid $19,227 and
$61,277 respectively, to Mr. Courseys firm.

We have retained Isakson-Barnhart
Properties, Inc. as the property manager of our Northlake Festival Shopping Center in
Atlanta, Georgia. Isakson-Barnhart Properties manages over 1.0 million square feet of
retail and office space in Georgia, North Carolina and Tennessee. Mr. E. Andrew Isakson,
one of our directors, is president of Isakson-Barnhart Properties, Inc. Under the property
management agreement, Isakson-Barnhart Properties manages, maintains and operates the
shopping center for us. In return for its services, we pay a monthly property management
fee to Isakson-Barnhart Properties equal to the greater of (a) 3% of the gross income of
the property actually collected for that month or (b) $2,500. In addition, we pay
Isakson-Barnhart Properties a leasing commission, in the range of $2.00 to $4.50 per
square foot depending on the size of the space and whether there is a co-broker, on new
leases or expansion of current leases. We also pay a construction maintenance fee of 5% of
the total cost of tenant improvements or other construction where Isakson-Barnhart
Properties supervises the project. Under this agreement, we paid a total of $119,437 and
$71,762, respectively, to Isakson-Barnhart Properties in the six months ended June 30,
2005 and 2004. The agreement is renewable annually, and either party is allowed to
terminate the agreement upon 30 days prior written notice to the other. In addition,
Mr. Isakson owns a 50% interest in a retail shopping center that is located adjacent to
our retail shopping center.

During October 2004, we purchased
20,000 shares of our common stock at the fair market value, plus brokerage commissions,
for a total of $13.52 per share. During November 2004, we sold 12,000 shares of our common
stock at $13.52 to a company that is co-managed by Mr. Allen K. Meredith, our Chief
Executive Officer, President and Chairman of our Board of Directors. We have entered into
an agreement with Mr. Meredith that Mr. Meredith or his affiliates will purchase the
remaining 8,000 shares we hold as treasury stock at $13.52 per share, our cost for such
shares, on or before March 31, 2005. To date, Mr. Meredith has not purchased these shares.

During June 2005, we purchased 7,400
shares of our common stock at $14.52 per share from a company that is co-managed by Mr.
Allen K. Meredith, our Chief Executive Officer, President and Chairman of our Board of
Directors. We made this purchase in a private transaction, and the price is based on the
mid point of the bid and ask prices on the American Stock Exchange when we concluded the
oral agreement to purchase the shares.

14

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 6NOTES PAYABLE

Notes payable consist of the
following:

|June 30,                                                                | 2005
|----------------------------------------------------------------------- | ----
|Notes payable secured by rental real estate:                            |     
|                                                                        |     
|Variable rate interest only promissory note secured by our Garden Grove |     
|property (Banco Popular), land we have begun to develop in Garden       |     
|Grove and our 717 West Del Paso Road property.  The note bears          |     
|interest rate at prime plus 1.25% (prime rate was 6.25% at June 30,     |     
|2005), is due November 29, 2005 and is a construction loan for the      |     
|improvements on the land we hold in Garden Grove; we may borrow up to   |     
|$6,500,000 under this loan                                              |     
|8.33% promissory note secured by our Roseville property, monthly        |     
|principal and interest payments are $11,510 due July 1, 2008            |     
|6.97% promissory note secured by our Folsom property, monthly principal |     
|and interest payments of $32,567 due September 1, 2009 with a balloon   |     
|payment of $4,479,793                                                   |     
|6.97% promissory note secured by our Irvine property, monthly principal |     
|and interest payments of $25,105 due September 1, 2009 with a balloon   |     
|payment of $3,453,364                                                   |     
|6.97% promissory note secured by our Sacramento property (Horn Road),   |     
|monthly principal and interest payments of $11,276 due September 1,     |     
|2009 with a balloon payment of $1,551,049                               |     
|6.97% promissory note secured by our Tustin property, monthly principal |     
|and interest payments of $30,677 due September 1, 2009 with a balloon   |     
|payment of $4,219,765                                                   |     
|7.64% promissory note secured by our Atlanta, GA property (Northlake    |     
|Festival Shopping Center), monthly principal and interest payments of   |     
|$124,753 fully amortizing with the final payment due December 1,        |     
|2027.  Starting December 2010, year 13 of the note, the interest rate   |     
|increases to a minimum of 9.64%                                         |     
|                                                                        |     
|Subtotal - notes payable secured by rental real estate                  |     
|                                                                        |     
|Notes payable secured by rental real estate held for sale:              |     
|                                                                        |     
|8.25% promissory note secured by our Riverside property, monthly        |     
|principal and interest payments of $9,116, due March 8, 2005.  On       |     
|April 28, 2005, we agreed with the lender to extend the maturity date   |     
|of the note from March 8, 2005 to May 31, 2005, made an additional      |     
|$50,000 principal payment and agreed to a new interest rate of 8.50%.   |     
|On May 9, 2005, we sold this property and paid off the loan.            |     
|                                                                        |     
|Total notes payable                                                     |     
|                                                                        |     

Many of our notes payable contain
significant penalties should we pay off the loan before its scheduled maturity. Some of
these notes also contain cross collateral provisions where the note holder has
security rights against properties other than the primary property securing the note.

During the six months ended June 30,
2005 and 2004, we incurred interest expense of $1,186,182 and $1,279,605, respectively,
and capitalized interest of $122,691 and $96,847, respectively.

15

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

The aggregate annual future
maturities at June 30, 2005 of notes payable secured by rental real estate and notes
payable secured by rental real estate held for sale are as follows:

| | Years ending December 31, | Amount
| | ------------------------- | ------
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       
| |                           |       

# NOTE 7TAXES ON
INCOME

We have elected to be taxed as a REIT under
Sections 856-860 of the Internal Revenue Code of 1986, as amended, for federal income tax
purposes. This requires, among a number of other organizational and operational
requirements, that we distribute at least 90% of our taxable income (excluding capital
gains) to our stockholders. In addition, California and Georgia, the states in which we
own and operate real estate properties, have provisions equivalent to the federal REIT
provisions. Accordingly, we have made no provision for federal or state income taxes in
the accompanying financial statements.

# NOTE 8SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash
flow information follows:

|Six months ended June 30,                                                                  | 2005 | 2004
|------------------------------------------------------------------------------------------ | ---- | ----
|
|Cash paid during the period for interest                                                   |      |     
|                                                                                           |      |     
|Supplemental disclosure of non-cash investing                                              |      |     
|activities:                                                                                |      |     
|Transfer of assets to rental real estate held for sale                                     |      |     
|Transfer of assets to other assets - related to rental real estate held for sale           |      |     
|Transfer of liabilities to other liabilities - related to rental real estate held for sale |      |     
|Transfer of assets held for sale to rental real estate                                     |      |     
|Transfer of liabilities held for sale to other liabilities                                 |      |     
|Transfer of liabilities held for sale to security deposits and prepaid rent                |      |     
|Transfer of liabilities held for sale to notes payable                                     |      |     

# NOTE 9COMMITMENTS
AND CONTINGENCIES

We purchased the Northlake Festival
Shopping Center in October 2002 and assumed the existing ground lease. The ground lease
expires in October 2057, and any improvements on the property revert back to the ground
lessor. The ground lease provides for fixed rent and additional rent calculated on 7% of
the gross rents received from tenants. The fixed rent may escalate based on appraisals,
with the following limitations:

| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 

We have entered into an employment
agreements with Allen K. Meredith, our Chief Executive Officer, President and Chairman of
our Board of Directors, and Charles P. Wingard, our Chief Financial Officer, under which
we would be obligated to make severance payments to either or both of them upon their
termination or resignation for certain reasons, of one years salary plus bonus, if
any.

16

---

We have entered into an agreement
with Mr. Meredith that he or his affiliates will purchase the 8,000 shares we hold as
treasury stock at $13.52 per share, our cost for such shares, on or before March 31, 2005.
To date, Mr. Meredith has not purchased these shares.

We are a defendant in a lawsuit
entitled John Lonberg & Ruthee Goldkorn v. Sanborn Theaters, Inc., a California
Corporation Doing Business as Marketplace Cinema and So-Cal Cinema, Inc., a California
Corporation; and Salts-Troutman-Kaneshiro, Inc., West Coast Realty Investors, Inc., USDC
Central District of California, Eastern Division Case No. CV-97-6598AHM (JGx). This
is an Americans with Disabilities Act claim brought against the Market Place Cinema, our
Riverside property that we sold on May 9, 2005. We owned the theater and leased it to
Sanborn Theaters, Inc., which operated it. The plaintiffs allege certain features of the
theater discriminated against them and violated state and federal disabled access laws.
The plaintiffs demand statutory damages, damages for emotional distress, a
lodestar multiplier, attorneys fees and punitive damages. Although the
plaintiffs have not quantified their damages, we expect that their claims will exceed
$300,000. The United States Department of Justice has intervened in this suit. This case
has now been stayed pending the outcome of a similar case filed against AMC Theaters.
We cannot determine the likelihood of an unfavorable outcome or range of potential loss,
if any. We believe we have complied with all applicable provisions of law and intend to
vigorously defend the allegations contained in the lawsuit. We believe that the lawsuit
will not have a material impact on our continuing operations, future cash flows or overall
financial condition.

The tenant in our Ontario property,
Adelphia Communications, Inc. (Adelphia), has filed for bankruptcy protection. Presently,
the rent is current and the property is occupied by Adelphia. Several companies have
claimed amounts due for remodeling work and other work ordered by Adelphia on our
property, and they have filed mechanics liens on our property. We have not yet
determined the validity of these liens, and there may be defenses to these claims. If our
lease with Adelphia is affirmed in the bankruptcy proceeding, then Adelphia would be
responsible for the discharge of these claims. If our lease with Adelphia is not affirmed
in the bankruptcy proceeding, and the bankruptcy proceedings do not fully pay these
creditors, then we would be responsible for these claims to the extent they are valid, if
at all. We believe that these liens will not have a material impact on our continuing
operations or overall financial condition. Recently, Time Warner and Comcast have agreed
to buy the assets of Adelphia. We do not know, however if this transaction will have an
effect on our lease.

We lease our corporate office in
Menlo Park and have committed to pay rent of approximately $81,000 per year for 2005 and
2006. We lease office space and obtain related services in Los Angeles on a month-to-month
basis at $1,000 per month.

# NOTE 10 
SUBSEQUENT EVENTS

# Sale of 721 West Del
Paso Road Property in Sacramento

On July 1, 2005, pursuant to a sales
agreement, we sold our 721 West Del Paso Road property in Sacramento. The gross sales
price under the agreement was $825,000, and we recorded a net gain of approximately
$130,000 in connection with the sale.

# Quarterly Dividend of
$0.20 Per Share

On July 28, 2005, our board of
directors declared a dividend of $0.20 per share to the stockholders of record on August
18, 2005, payable on August 31, 2005.

17

---

ITEM
2.     MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

# Special Note Regarding
Forward-Looking Statements

This quarterly report contains
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements are identified by words such as believes,
expects, may, will, should,
seeks, approximately, intends, plans,
pro forma, estimates, or anticipates or in their
negative form or other variations, or by discussions of strategy, plans or intentions.
Forward-looking statements are based on assumptions, data or methods that may be
incorrect, imprecise or incapable of being realized. These statements include our
statements of this nature concerning the following:

| |  | the commercial real estate market;
| | - | ----------------------------------

| |  | our future revenues;
| | - | --------------------

| |  | our future revenue mix, net operating income and operating results;
| | - | -------------------------------------------------------------------

| |  | our future cash requirements;
| | - | -----------------------------

| |  | our critical accounting estimates;
| | - | ----------------------------------

| |  | competition, our competitors and our ability to compete;
| | - | --------------------------------------------------------

| |  | our financial and managerial controls, reporting systems and procedures, and other systems and processes;
| | - | ---------------------------------------------------------------------------------------------------------

| |  | property values;
| | - | ----------------

| |  | any particular tenants intentions or financial condition, such as its
plans to renew or terminate a property lease,
| | - | --------------------------------------------------------------------------------------------------------------------

| |  | or the likelihood that it will default upon a property lease;
| | - | -------------------------------------------------------------

| |  | vacancies;
| | - | ----------

| |  | interest rates;
| | - | ---------------

| |  | our operating costs;
| | - | --------------------

| |  | litigation matters and legal proceedings, our defenses to such matters and our contesting of such matters;
| | - | ----------------------------------------------------------------------------------------------------------

| |  | our ability to meet our debt obligations, including the loan that matures in 2005 that is
secured by our Garden Grove Festival property;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | the proposed sales of certain properties;
| | - | -----------------------------------------

| |  | our ability to obtain outside financing;
| | - | ----------------------------------------

| |  | identifying, acquiring and successfully integrating new properties;
| | - | -------------------------------------------------------------------

| |  | the type and locations of real estate investments we may make;
| | - | --------------------------------------------------------------

| |  | our continued ability to qualify as a real estate investment trust under applicable federal tax law;
| | - | ----------------------------------------------------------------------------------------------------

| |  | our ability to successfully construct the planned shopping center on 2.5 acres in Garden Grove,
California;
| | - | -----------------------------------------------------------------------------------------------------------

| |  | environmental risks;
| | - | --------------------

| |  | natural disasters and other threats to our properties; and
| | - | ----------------------------------------------------------

| |  | the economies of the geographic areas where our properties are located.
| | - | -----------------------------------------------------------------------

These statements are subject to risks
and uncertainties that could cause actual results and events to differ materially. For a
detailed discussion of these risks and uncertainties, see the portion of this Item 2
entitled Risk Factors  That May Affect Future Results. We undertake no
obligation to update forward-looking statements to reflect events or circumstances
occurring after the date of this Quarterly Report on Form 10-QSB.

# Overview

We are a real estate company engaged
in acquiring, owning and managing suburban office, retail shopping center and light
industrial properties. We have elected to be taxed as a REIT for federal income tax
purposes, which requires, among a number of other organizational and operational
requirements, that we distribute at least 90% of our taxable income (excluding capital
gains) to our stockholders.

Dividends are declared by the board
of directors and are based on a variety of factors, including the previous quarters
net income (loss) from operations before depreciation and amortization, cash requirements
to meet REIT distribution tests, other cash requirements and other factors as the board of
directors deems appropriate. In 2004 and for the first quarter of 2005, we paid quarterly
dividends at the rate of $0.25 per share. On May 12, 2005, the board of directors declared
a dividend of $0.20 per share, which was paid on June 7, 2005 to stockholders of record on
May 27, 2005. On July 28, 2005, the board of directors declared a dividend of $0.20 per
share, payable on August 31, 2005. We cannot assure stockholders that we will maintain the
quarterly dividend at that level or that we will in fact pay dividends in any future
period.

At June 30, 2005, we had a real estate portfolio of 10 properties, including:

| |  | three light industrial properties totaling 151,225 square feet;
| | - | ---------------------------------------------------------------

| |  | one retail shopping center of 321,621 square feet;
| | - | --------------------------------------------------

| |  | one restaurant facility of 5,133 square feet; and
| | - | -------------------------------------------------

18

---

| |  | five suburban office properties totaling 114,606 square feet (one 11,200 square foot property is held for sale);
| | - | ----------------------------------------------------------------------------------------------------------------

In addition, we are constructing a
multi-tenant shopping center comprising approximately 30,000 square feet on a 2.5 
acre parcel in Garden Grove, California. We sometimes referred to this project as our
Garden Grove Festival development or property.

Until 2002, our business focus was
the ownership and operation of suburban office properties and light industrial buildings.
We have broadened our focus to include large shopping centers and properties outside of
California. We acquired an Atlanta, Georgia shopping center in October 2002.

All of our properties are located in
California and Georgia. Because our only Georgia property is our Northlake Festival retail
center in Atlanta, any reference in this report to the location of any other property is
to a city in California. Many of our leases are triple-net leases where the
tenant is responsible for maintenance, taxes and insurance.

We believe that the following factors
and events will pose particular challenges for us in 2005 and beyond. The following
statements are forward-looking statements within the meaning of the federal securities
laws, and these factors and others are addressed in more detail in Risk Factors That May
Affect Future Results.

| |  | Existing and Anticipated Vacancies. At present, our portfolio is approximately 91%
leased, although some tenants have vacated the leased premises and continue to pay rent.
In May 2004, our lease with AMC Theaters, comprising 26,900 square feet in our Northlake
Festival property, expired. AMC Theaters has not occupied the space since 2002, and we do
not expect to be able to lease this space in 2005. We are exploring options to reconfigure
the space to be suitable for other uses, and we may incur significant costs to complete
such a renovation, including the lack of income during a construction and lease up period.
Another two tenants have vacated approximately 16,000 and 13,500 square feet but are still
liable under leases through September 2005 and January 2019, respectively. A tenants
lease of 19,800 square feet of space in our two Sacramento properties expired in July
2004, although the tenant paid rent on a month-to-month basis through September 30, 2004
and continues to lease 1,575 square feet on a month-to-month basis. On July 1, 2005, we
sold one of the properties. We may incur significant costs as we attempt to re-lease the
9,625 square feet of vacant space in the remaining Sacramento property, and we may be
unable to re-lease that space in a timely manner. The lease for approximately 38,000
square feet on our Tustin property expires on September 30, 2005, and we may not be able
to re-lease the space at the same rent level, or for the same square footage.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Loss of Revenues from Disposed Properties. We sold our Fresno property in September
2004, our Riverside property in May 2005 and our 721 West Del Paso Road property (in
Sacramento) in July 2005. We will no longer receive any revenues from the properties we
sold or other properties we may potentially sell.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Development of Garden Grove Property. Part of our business plan and growth strategy
involves divesting vacant and other select properties and redeploying the net cash
proceeds into new properties where we expect the yield and long-term growth to be greater.
Consistent with that strategy, we have sold several properties as noted above. We
purchased a 2.5-acre parcel of undeveloped land in Garden Grove and we have begun the
construction of a multi-tenant shopping center comprising approximately 30,000 square feet
on this parcel. We believe that our cash flow from operations will begin to improve as we
finish the development and complete the lease  up of this shopping center.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Debt maturities.Our construction loan secured by our Garden Grove property is
scheduled to mature in the fourth quarter of 2005, with a balloon payment equal to the
amount outstanding on the construction loan. We may borrow up to $6,500,000, and as of
June 30, 2005, the total amount outstanding on this loan was $4,049,134. In the second
quarter of 2005, the estimated cost of constructing the project increased by approximately
$800,000, primarily due to higher than usual rainfall in the area. We are in negotiations
to increase the maximum amount allowed to be borrowed to $7,300,0000 and to extend the
maturity date of the loan to March 2006 as described in Liquidity and Capital Resources
below, but we may not be able to do so as we expect. If we are unable to pay off or extend
the maturity date of the loan, we have an option to roll the loan into a 5-year promissory
note, secured by our Garden Grove property.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Lease with Adelphia Communications, Inc. in our Ontario property.Adelphia has
filed for bankruptcy protection, and although it is current in its lease payments with us,
a bankruptcy court could terminate the lease. Further, various companies have filed liens
against the property for remodeling work ordered by Adelphia. If the bankruptcy court
terminates our lease, and the payments to the creditors from the bankruptcy proceedings
are less than their claims and the liens are indeed valid, then we would be responsible
for the obligations. Recently, Time Warner and Comcast have agreed to buy the assets of
Adelphia. We do not know, however if this transaction will have an effect on our lease.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of June 30, 2005, we had total
assets of $54,872,185, total secured indebtedness of $35,974,493, total liabilities of
$37,114,205 and a debt-to-total assets ratio of 65%, calculated on the basis of generally
accepted accounting principles. Because this calculation

19

---

method reflects accumulated
depreciation and does not reflect any appreciation of the properties beyond their cost, it
may result in assets being valued at less than their fair market values as determined by
the board of directors. Further, this calculation excludes the effects, if any, of the
ground lease on the Northlake Festival property.

On January 1, 2002, we adopted SFAS
No. 144, whereby net income (loss) and gain on sale of real estate for properties sold or
considered held for sale are reflected in our consolidated statements of income as
discontinued operations for all periods presented. In addition, we have
determined to separately reflect the assets and liabilities of properties held for sale or
sold in the current period as Rental real estate held for sale, Other
assets related to rental real estate held for sale, Notes payable secured by
rental real estate held for sale and Other liabilities related to rental real
estate held for sale in the balance sheets for all periods presented.

During the second quarter of 2004, we
determined that the two Sacramento properties (717 and 721 West Del Paso Road) and the
Fresno property no longer met the required criteria for classification as held for sale.
Accordingly, we removed them from that category in our financial statements and as
required, we computed depreciation expense on those properties as if they had never been
classified as held for sale, catching up the depreciation that was not
expensed in prior periods. In September 2004, we sold our Fresno property for a net gain
of $344,314, and in May 2005, we sold our Riverside property for a net gain of $594,881.
In July 2005, we sold our 721 West Del Paso Road property for a gross sales price of
approximately $825,000, and we recognized a net gain of approximately $130,000 in
connection with the sale.

In accordance with SFAS No. 144, we
have reclassified the results of the 721 West Del Paso Road as discontinued operations,
since we had committed to sell the property as of June 30, 2005. Further, results for the
properties we have sold are included in discontinued operations for the three and six
months ended June, 30, 2005 and 2004. Operations for the three and six months ended June
30, 2005 and 2004 represented full quarters of rental operations for all of our properties
we classify as continuing operations.

# Results of Operations

# Quarter Ended June 30, 2005 Compared to Quarter Ended June 30, 2004

Rental revenue decreased by $155,586
(9%) for the quarter ended June 30, 2005, compared to the quarter ended June 30, 2004,
primarily due to:

| | (a) | the expiration in May 2004 of the 26,900 square feet lease with AMC Theaters at
               our Northlake Festival property, which provided approximately $90,000 of
               additional revenue for the three months ended June 30, 2004; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | our receiving rent on only 1,575 square feet of space in our 717 West Del Paso
               Road property in the 2005 period compared to our receiving rent on 11,200 square
               feet of space at our 717 West Del Paso Road property in the 2004 period, which
               provided approximately $40,000 of additional revenue for the three months ended
               June 30, 2004.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tenant reimbursements decreased by
$21,610 (9%) for the quarter ended June 30, 2005, compared to the quarter ended June 30,
2004, primarily due to vacancies at our Northlake Festival property for the three months
ended June 30, 2005.

Interest expense increased by $2,479
(1%) for the quarter ended June 30, 2005, compared to the quarter ended June 30, 2004,
primarily due lender fees on the loan secured by our Roseville property, which were
included in interest expense.

General and administrative costs
decreased by $6,086 (2%) for the quarter ended June 30, 2005, compared to the quarter
ended June 30, 2004. This decrease was principally due to the timing of invoices for
professional services.

Depreciation expense decreased by
$38,738 (13%) for the quarter ended June 30, 2005, compared to the quarter ended June 30,
2004, due largely to reclassifying the 717 West Del Paso Road to the operating category in
June 2004 and charging depreciation of approximately $35,000 for that property in 2004 but
not in 2005, to catch up the depreciation that was not expensed in prior
periods in accordance with SFAS 144.

Ground rent decreased by $6,417 (3%)
for the quarter ended June 30, 2005, compared to the quarter ended June 30, 2004, due to
lower rental income in the Northlake Festival property in 2005, which in turn reduced the
ground rent payable under our lease with the ground lessor.

Other operating expenses increased by
$124,765 (87%) in the quarter ended June 30, 2005, compared to the quarter ended June 30,
2004, due primarily to refurbishing the parking lot and building repairs at our Northlake
Festival property and higher insurance costs for vacant properties.

20

---

Property tax expense increased by
$7,437 (6%) in the quarter ended June 30, 2005, compared to the quarter ended June 30,
2004, primarily due to increases at our Northlake and 717 West Del Paso Road properties.

Income from discontinued operations
increased from a loss of $88,581 for the quarter ended June 30, 2004 to income of $43,150
for the quarter ended June 30, 2005, primarily due to (a) the sale of our Fresno property
during September 2004 and (b) receiving a settlement payment from the tenant of our
Riverside property in connection with the property sale during May 2005, which was
previously reserved.

Net income for the quarter ended June
30, 2005 was $620,947 compared to $152,616 for the quarter ended June 30, 2004. This
increase was due primarily to the net gain of $594,881 we recognized in connection with
the sale of our Riverside property, offset in part by higher operating expenses and lower
rental revenue.

The diluted weighted average number
of shares outstanding was 1,001,234 and 1,002,834 for the quarters ended June 30, 2005 and
2004, respectively. For the reasons explained in the preceding paragraph, net income per
share assuming dilution increased to $0.62 for the quarter ended June 30, 2005 from $0.15
for the quarter ended June 30, 2004.

# Six months ended June 30, 2005 compared to six months ended June 30, 2004

Rental revenue decreased by $235,748
(7%), for the six months ended June 30, 2005, as compared to the six months ended June 30,
2004, primarily due to:

| | (a) | the expiration in May 2004 of the 26,900 square feet lease with AMC Theaters at
               our Northlake Festival property, which provided approximately $160,000 of
               additional revenue for the six months ended June 30, 2004; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | our receiving rent on only 1,575 square feet of space in our 717 West Del Paso
               Road property in the 2005 period compared to our receiving rent on 11,200 square
               feet of space at our 717 West Del Paso Road property in the 2004 period, which
               provided approximately $66,000 of additional revenue for the six months ended
               June 30, 2004.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tenant reimbursements decreased by
$32,795 (6%) for the six months ended June 30, 2005, compared to the six months ended June
30, 2004, primarily due to vacancies at our Northlake Festival property for the six months
ended June 30, 2005.

Interest expense decreased by $58,100
(5%) for the six months ended June 30, 2005, as compared to the six months ended June 30,
2004, due to a higher rate of interest expense being capitalized as our construction in
progress balance increased in connection with the development of our Garden Grove property
and interest expense on the loan secured by our Ontario property, which we paid off in
March 2004.

General and administrative costs
increased by $18,765 (3%) for the six months ended June 30, 2005, as compared to the six
months ended June 30, 2004. This increase was principally due to slightly higher
accounting, salary and rent expenses.

Depreciation expense decreased by
$118,909 (18%) for the six months ended June 30, 2005, compared to the six months ended
June 30, 2004, due largely to reclassifying the 717 West Del Paso Road and Roseville
properties to the operating category in during the six months ended June 30, 2004 and
charging depreciation of approximately $120,000 for those properties in 2004 but not in
2005, to catch up the depreciation that was not expensed in prior periods in
accordance with SFAS 144..

Ground rent decreased by $20,468 (4%)
for the six months ended June 30, 2005, compared to the six months ended June 30, 2004,
due to lower rental income in the Northlake Festival property in 2005, which in turn
reduced the ground rent payable under our lease with the ground lessor.

Other operating expenses increased by
$79,867 (20%) for the six months ended June 30, 2005, compared to the six months ended
June 30, 2004, due primarily to refurbishing the parking lot and building repairs at our
Northlake Festival property and higher insurance costs for vacant properties.

Property tax expense increased by
$15,704 (6%) in the six months ended June 30, 2005, compared to the six months ended June
30, 2004, primarily due to increases at our Northlake and 717 West Del Paso Road
properties.

Income from discontinued operations
increased from a loss of $32,868 for the six months ended June 30, 2004 compared to income
of $14,619 for the six months ended June 30, 2005, primarily due to (a) the sale of our
Fresno property during September 2004 and (b) receiving a settlement payment from the
tenant of our Riverside property in connection with the property sale during May 2005,
which was previously reserved.

21

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Net income for the six months ended
June 30, 2005 was $761,144 compared to $303,403 for the six months ended June 30, 2004.
This increase was due primarily to the net gain of $594,881 we recognized in connection
with the sale of our Riverside property, offset in part by higher operating expenses and
lower rental revenue.

The diluted weighted average number
of shares outstanding was 1,002,104 and 1,004,869 for six months ended June 30, 2005 and
2004, respectively. For the reasons explained in the preceding paragraph, net income per
share assuming dilution increased to $0.76 for the six months ended June 30, 2005 from
$0.30 for the six months ended June 30, 2004.

# Liquidity and Capital
Resources

Our primary source of liquidity to
fund distributions, principal payments on notes payable and minor capital expenditures is
our cash flows from operating activities. To qualify as a REIT for federal income tax
purposes, among other requirements, we must distribute annually at least 90% of our REIT
taxable income (excluding capital gains). Accordingly, we currently intend to continue to
make, but have not contractually bound ourselves to make, regular quarterly distributions
to holders of our common stock. In 2004 and for the first quarter of 2005, we paid
quarterly dividends at the rate of $0.25 per share. On May 12, 2005, the board of
directors declared a dividend of $0.20 per share, which was paid on June 7, 2005 to
stockholders of record on May 27, 2005. The dividend rate represents a $0.05 per share
reduction from the dividend level of the prior quarter. On July 28, 2005 the board of
directors declared a dividend of $0.20 per share. During the first six months of 2005, the
total of dividends paid and scheduled principal amortization on notes payable exceeded our
net cash provided by operating activities. To address this shortfall, we used existing
cash balances. Future dividends, if any, will be declared and paid in the sole discretion
of the board of directors.

As a policy, we keep cash balances on
hand for reserves for unexpected cash requirements. Our primary sources for liquidity to
fund asset acquisitions, major capital expenditures and balloon payments on notes payable
are:

| | (a) | existing cash balances (subject to maintaining reasonable cash reserves),
| | --- | -------------------------------------------------------------------------

| | (b) | the proceeds from refinancing selected notes payable to higher balances and
| | --- | ---------------------------------------------------------------------------

| | (c) | the net proceeds from asset sales, the proceeds from refinancing selected
               existing notes payable and from selling selected properties.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

Further, we may attempt to obtain
funding by entering into joint ventures or issuing additional equity in the form of common
or preferred stock. To increase our financial flexibility, we may seek to obtain a
revolving line of credit, although there can be no assurance we will be successful.

The following table presents our
contractual cash obligations as of June 30, 2005:

|                               | Payments Due by Period
|------------------------------ | ----------------------
|
|
|Notes payable secured by       |                       
|rental real estate and         |                       
|real estate held for sale(1)   |                       
|Minimum payments due under the |                       
|ground lease at the            |                       
|Northlake Festival             |                       
|property (2)                   |                       
|Other                          |                       
|                               |                       
|Total Contractual Cash         |                       
|Obligations                    |                       
|                               |                       

|(1) | See Note 6 Notes Payable of the notes to the financial statements included
          in this report for a detailed description of our notes payable.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 9 Commitments and Contingencies of the notes to the financial
          statements included in this report for a description of the terms of this ground
          lease.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the payments due in
the table above, we also have employment contracts with our two officers.

At June 30, 2005, our total
investments in rental real estate and rental real estate held for sale totaled $43,943,885
for ten properties. In addition, we own a parcel of land and improvements with a cost
basis of $6,340,179 on which we are building the Garden Grove Festival shopping center.
Depending upon the availability and cost of external capital, we anticipate making
additional investments in suburban office, retail shopping center and light industrial
properties, although we may invest in other types of real estate. We intend

22

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to fund new investments from the
sources described above.

Our $4,049,134 construction loan,
under which allows we may borrow a maximum of $6,500,000, is secured by our approximate
30,000 square foot Garden Grove Festival shopping center, our Banco Popular property and
our 717 West Del Paso Road property and is scheduled to mature in November 2005. In the
second quarter of 2005, the estimated cost of constructing the project increased by
approximately $800,000, primarily due to higher than usual rainfall in the area. We are in
negotiations to increase the maximum amount allowed to be borrowed to $7,300,000 and to
extend the maturity date of the loan to March 2006, although we cannot assure you we will
be successful. If we are unable to pay off or extend the maturity date of the loan upon
maturity, we have an option to roll the loan into a 5-year promissory note, secured by our
Garden Grove property.

We do not believe we will be able to
use our Ontario property as security for a loan until the bankruptcy court accepts our
lease with the tenant (if the lease is accepted, if at all), and we cannot estimate when
the bankruptcy court may act. We may renovate the 26,900 square foot space vacated by AMC
Theaters in our Northlake Festival property to a use other than that of a theater, at a
potentially significant cost. In addition, the lease on our 37,740 square foot property in
Tustin expires on September 30, 2005. We do not believe the tenant will renew the lease
and we believe tenant improvement costs and lease commissions related to leasing the
property to a new tenant or tenants would be significant.

We believe our liquidity and various
sources of capital are sufficient to fund operations including capital expenditures and
leasing commissions, meet debt service and dividend requirements under the Internal
Revenue Code for REIT status and finance future investments, although we cannot provide
assurances that we will be successful in obtaining such capital. We cannot assure
stockholders that we will maintain the current $0.20 per share quarterly dividend level or
that we will pay dividends in any future period. We believe our properties are in good
condition without significant deferred maintenance obligations, and many are leased under
triple-net leases, which reduce our risk pertaining to excessive maintenance
and operating costs. However, we anticipate we will continue to require outside sources of
financing to meet our liquidity needs beyond 2005, such as scheduled debt repayments
(including balloon payments on our debt) and property acquisitions.

Our certificate of incorporation and
bylaws do not limit the amount of debt that we may incur. We have adopted a policy that we
shall not incur any additional liabilities if, after giving effect to the additional
liabilities, total liabilities would exceed 65% of what the board of directors believes is
the fair market value of our portfolio. If we decide to change this policy to increase the
percentage of debt we incur above 65% of our overall portfolio fair market value, we will
implement the change only after we seek and obtain the approval of the holders of a
majority in voting power of our outstanding shares.

We may use our funds to purchase our
common stock from time to time. In October 2004, we purchased 20,000 shares of common
stock for approximately $270,000, and in June of 2005, we purchased 14,984 shares of
common stock for approximately $216,000.

# Cash Flows in 2005

Our cash resources increased $695,708
during the six months ended June 30, 2005. Cash provided by operating activities in this
period was $562,935, primarily from net income adjusted for non-cash items such as
depreciation, amortization and gain on sale. Investing activities in 2005 provided
$300,657 of cash resources, primarily from proceeds received from the sale of our
Riverside property, offset in part by expenditures for the development of our Garden Grove
Festival property and improvements at our Northlake Festival property. For the six months
ended June 30, 2005, financing activities used $167,884 in cash resources, due largely to
the payment of the loan secured by our Riverside property and dividends of $436,034,
offset by proceeds from our construction loan for the improvements on the land we hold in
Garden Grove.

# Cash Flows in 2004

Our cash resources decreased
$2,880,119 during the six months ended June 30, 2004. Cash provided by operating
activities in this period was $907,474, primarily from net income adjusted for non-cash
items such as depreciation and amortization. Investing activities in 2004 resulted in a
$305,605 use of cash resources, primarily for predevelopment costs on our Garden Grove
Festival property. For the six months ended June 30, 2004, financing activities used
$3,481,988 in cash resources, due largely to paying off the loan on our Ontario property.

# Critical Accounting
Policies and Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. We evaluate our estimates and assumptions on an
ongoing basis based on a combination of historical information and various other
assumptions that we believe are reasonable under the particular circumstances. Actual
results may differ from these estimates based on different assumptions or conditions. We
define

23

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critical accounting policies as those
that require managements most difficult, subjective or complex judgments. A summary
of our critical accounting policies follows. Additional discussion of accounting policies
that we consider significant, including further discussion of the critical accounting
policies described below, can be found in the notes to our consolidated financial
statements.

Revenue Recognition. We
recognize minimum rents on the straight-line method over the terms of the leases, as
required under Statement of Financial Accounting Standard No. 13. Some of our leases also
provide for additional revenue based on contingent percentage income. We record this
revenue on an accrual basis once the tenant achieves the targeted percentage of income.
The leases also typically provide for tenant recoveries of common area maintenance, real
estate taxes and other operating expenses. These recoveries are recognized as revenue in
the period the applicable costs are incurred, except for several tenants where the revenue
is recognized when the revenue is billable to the tenant under the lease. Rents due, but
not yet collected, are recognized to the extent determined by management to be
collectible. While we believe that the likelihood of collection of amounts over six months
past due is low, we reserve for uncollectible accounts on a case-by-case basis. As of June
30, 2005, for our rental real estate, we had no receivables over 90 months old, and we
have provided approximately $9,350 as uncollectible receivables. As of June 30, 2005, for
our rental real estate held for sale, we had approximately $58,000 in receivables over 90
months old and we have reserved the entire amount as uncollectible receivables.

Real Estate. We record real
estate assets at the lower of cost or fair value if impaired. We evaluate the
recoverability of our investment in real estate whenever events or changes in
circumstances indicate that the carrying amount of an asset may be impaired. Our
assessment of recoverability of our real estate assets includes, but is not limited to
recent operating results, expected cash flows and our plans for future operations.

Capitalized Interest.We
capitalize direct costs associated with our development and construction activities. We
capitalize interest on qualifying construction expenditures in accordance with SFAS No. 34
Capitalization of Interest Cost. During the development and construction of a
new property, we capitalize related interest costs, as well as other carrying costs such
as property taxes and insurance. We begin to expense these items as the construction of
the property becomes substantially complete and the property becomes available for initial
occupancy by tenants. Accordingly, we gradually reduce the amounts we capitalize as we
complete construction. Capitalization of interest and other carrying costs such as
property taxes and insurance ceases entirely upon completion of development and
construction activities.

We segregate properties classified as
held for sale from rental real estate in our financial statement presentation. We stop
recording depreciation on a property once it is classified as held for sale.

On January 1, 2002, we adopted SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
requires that the assets and liabilities and the results of operations of any properties
which have been sold during 2002, or otherwise qualify as held for sale as of December 31,
2002, be presented as discontinued operations in our consolidated financial statements in
both current and prior periods presented. The property specific real estate classified as
held for sale is stated at the lower of its carrying amount or estimated fair value less
disposal costs.

In accordance with SFAS No. 144, we
carry our investments in real estate at cost and periodically evaluate them for indicators
of impairment. The evaluation of impairment and the determination of values are based on
several factors, and future events could occur which would cause management to conclude
that indicators of impairment exist and a reduction in carrying value to estimated fair
value is warranted.

Critical Accounting Estimates.
We believe the critical accounting estimates we make relate to the valuation of our
properties for impairment and legal and other contingencies. We believe these estimates
are judgmental and not subject to strict, quantifiable analysis. As appropriate, we engage
counsel and other parties, to assist us in making these estimates.

# New Accounting
Pronouncements

In December 2004, the FASB issued
SFAS No. 123 (R), Share-Based Compensation. It replaces SFAS No. 123,
Accounting for Stock Issued to Employees. SFAS No. 123 (R) requires the
compensation cost relating to share-based payment transactions be recognized in financial
statements. We are required to apply it beginning January 1, 2006 to options that vest on
or after that date. All options we have issued to date are completely vested and under our
current option plan, we are authorized to issue additional options to purchase 4,996
shares. We do not anticipate issuing any options during 2005. Further, under stock
exchange rules, we must submit any plan for additional options for stockholder approval.
We do not expect to submit a plan for stockholder approval during 2005. To the extent we
do not propose a new option plan, we do not expect the adoption of SFAS 123(R) to have a
material adverse impact on our net income and net income per share.

In December 2004, the FASB issued
SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of Accounting Principles
Board (APB) Opinion No. 29. The amendments made by SFAS No. 153 are
based on the principle that exchanges of nonmonetary

24

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assets should be measured on the fair
value of assets exchanged. The statement eliminates the exception for nonmonetary
exchanges of similar productive assets and replaces it with a broader exception for
exchanges of nonmonetary assets that do not have commercial substance. The statement is
effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15,
2005, and the adoption of SFAS No. 153 did not have a material effect on our financial
statements.

In May 2005, the FASB issued SFAS
No. 154, Accounting Changes and Error Corrections (SFAS 154),
which replaces APB Opinion No. 20, Accounting Changes and SFAS
No. 3, Reporting Accounting Changes in Interim Financial StatementsAn
Amendment of APB Opinion No. 28. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the required method for
reporting a change in accounting principle and the reporting of a correction of an error.
SFAS 154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005 and is required to be adopted in the first
fiscal quarter of 2006. We are currently evaluating the effect that the adoption of
SFAS 154 will have on our consolidated results of operations and financial condition
but do not expect it to have a material impact.

# Off-Balance Sheet
Arrangements

We have no off-balance sheet
arrangements

# Inflation

Inflation and changing prices have
not had a material effect on our operations.

# RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS

Stockholders should carefully
consider the risks described below. These risks are not the only ones we face. Additional
risks not presently known to us or that we currently consider immaterial may also
materially impair our business operations and hinder financial performance, including our
ability to pay dividends to our stockholders.

Risks Related to our Stock

We cannot assure stockholders that
we will be able to make future dividend payments at any particular rate, or at all.

While we have declared quarterly
dividends on our common stock regularly in the past, the declaration and payment of
dividends is subject to the discretion of our board of directors. Any determination as to
the payment of dividends, as well as the level of those dividends, will depend on, among
other items, our financial results and condition, general economic and business
conditions, our strategic plans and contractual, legal and regulatory restrictions on our
ability to pay dividends. On September 30, 2003, our board of directors reduced the
dividend for the quarter ended September 30, 2003 to $0.25 per share from $0.30 per share,
and we subsequently paid dividends at the $0.25 per share rate through the first quarter
of 2005. On May 12, 2005, the board of directors declared a dividend of $0.20 per share,
payable on June 7, 2005 to stockholders of record on May 27, 2005. This dividend rate
represents a $.05 per share reduction from the dividend level of the prior quarter. On
July 28, 2005, the board of directors declared a dividend of $0.20 per share, payable on
August 31, 2005 to stockholders of record on August 18, 2005. We cannot assure
stockholders that we will maintain the current quarterly dividend level or that we will
pay dividends in any future period. We anticipate that our revenues in 2005 will be lower
than in 2004 as a result of the following factors:

| |  | The 26,900 square foot space previously occupied by AMC Theatres in our Northlake Festival
property will produce no revenue.
| | - | ----------------------------------------------------------------------------------------------------------------------------

| |  | We sold our Fresno property during September 2004.
| | - | --------------------------------------------------

| |  | We sold our Riverside property on May 9, 2005.
| | - | ----------------------------------------------

| |  | We sold our 721 West Del Paso Road property on July 1, 2005.
| | - | ------------------------------------------------------------

| |  | The tenant in our 717 West Del Paso Road property that occupied 11,200 square feet of
space through July 2004, now occupies only 1,575 square feet of space on a month-to-month
basis.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The 37,740 square foot lease on our Tustin property expires on September 30, 2005.
| | - | ----------------------------------------------------------------------------------

| |  | We anticipate additional costs in consulting, legal and audit fees in 2005 and 2006 to
comply with the provisions of the Sarbanes-Oxley Act of 2002.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

For these reasons, we cannot assure
stockholders that we will maintain the current quarterly dividend level or that we will
pay dividends in any future period. The preceding statements are forward-looking
statements within the meaning of the federal securities laws.

25

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The market value of our common
stock could decrease based on our performance and market perception and conditions.

Our common stock has been listed on
the American Stock Exchange since October 31, 2002. The trading volumes of our stock have
been relatively light, and the market price may not reflect the fair market value of our
common stock at any particular moment. Stockholders are cautioned that prior sales data do
not necessary indicate the prices at which our common stock would trade in a more active
market. The market value of our common stock may be based primarily upon the markets
perception of our growth potential and current and future cash dividends, and may be
secondarily based upon the real estate market value of our underlying assets. The market
price of our common stock can also be influenced by the dividend on our common stock
relative to market interest rates. Rising interest rates may lead potential buyers of our
common stock to expect a higher dividend rate, which would adversely affect the market
price of our common stock. In addition, the value of our common stock could be adversely
affected by general market conditions or market conditions of real estate companies in
general.

We may change some of our policies
without obtaining the approval of our stockholders.

Our board of directors determines
some of our operating and financial policies, including our policies with respect to
acquisitions, growth, operations, leverage, capitalization and dividends. Accordingly,
stockholders will have little direct control over these policies.

Additional issuances of equity
securities may be dilutive to current stockholders.

The interests of our existing
stockholders could be diluted if we issue additional equity securities to finance future
developments and acquisitions instead of incurring additional debt. In November 2004, we
amended our certificate of incorporation to allow for the issuance of preferred stock. Our
ability to execute our business strategy depends on our access to an appropriate blend of
debt financing, which could include a line of credit and other forms of secured and
unsecured debt, equity financing, including common and preferred equity, or joint
ventures.

We may not continue reporting to
the SEC under the Securities Exchange Act of 1934, and our stock may not continue to be
listed and traded on the American Stock Exchange.

We currently expend significant
financial and management resources to comply with the requirements of the Securities
Exchange Act of 1934. We will incur significantly greater costs beginning in 2006, as we
are required to comply with and implement new accounting rules and procedures with the
Sarbanes-Oxley Act of 2002. Based on the number of stockholders who hold our stock, we are
currently required to comply with the Securities Exchange Act of 1934. However, should the
number of stockholders decrease below the 300-stockholder threshold required for reporting
under the Exchange Act, we may suspend our reporting under the Exchange Act. As of August
1, 2005 we have approximately 290 stockholders of record and approximately 50 Depository
Trust Company participants who hold our stock, thus we have approximately 340 stockholders
for purposes of the Exchange Act. Should the number of our stockholders decrease below
300, our board of directors may determine that continued reporting under the Exchange Act
is not in our best interests, and accordingly we would suspend our reporting under the
Exchange Act. If we were to do so, our listing and trading on the American Stock Exchange
would cease. In that event:

| |  | stockholders would be likely to experience reduced liquidity for their shares of common
stock, even if the common stock were to trade in the over-the-counter market through means
that do not require reporting under the Exchange Act (such as the pink
sheets);
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | even if our stock were to be traded in that manner, the trading price and volumes of our
stock could be adversely affected, and we could suffer significant volatility;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | less public information about us would be required or available, officers will no longer
be required to certify the accuracy of our financial statements; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | after a 90 day waiting period, various SEC rules would no longer apply to our insiders and to us.
| | - | -------------------------------------------------------------------------------------------------

# Risks Due to Investment
in Real Estate

Decreased yields from an investment
in real property may result from factors that may cause a decrease in revenues or values
or an increase in operating expenses.

26

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Real property investments are subject
to varying degrees of risk. The yields available from equity investments in real estate
depend upon the amount of revenues generated and expenses incurred. If our properties do
not generate revenues sufficient to meet operating expenses, debt service and capital
expenditures, our results of operations and ability to pay dividends to stockholders and
to pay amounts due on our debt will be adversely affected. The performance of the economy
in each of the areas in which the properties are located can affect occupancy, market
rental rates and expenses, which in turn can affect the revenues from the properties and
their underlying values. The financial results of major local employers may also affect
the revenues and value of some properties. Other factors include:

| |  | the general economic climate;
| | - | -----------------------------

| |  | local conditions in the areas in which properties are located, such as an oversupply of
properties like ours or a reduction in the demand for properties like ours;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the attractiveness of the properties to tenants; and
| | - | ----------------------------------------------------

| |  | competition from other properties like ours.
| | - | --------------------------------------------

# Our tenants may go
bankrupt.

Our tenants may file for bankruptcy protection
or become insolvent in the future. Currently, one of our tenants has filed for bankruptcy
protection. We cannot evict a tenant solely because of its bankruptcy. A court might
authorize the tenant to reject and terminate its lease with us. For example, the
bankruptcy court rejected our lease with one tenant in our Fresno property, and the tenant
vacated the premises in November 2003. When a lease is terminated by the bankruptcy court,
our claim against the bankrupt tenant for unpaid, future rent is subject to a statutory
cap that can be substantially less than the remaining rent actually owed under the lease,
and, even so, our claim for unpaid rent will likely not be paid in full.

# Our tenants may not
renew their leases.

We cannot predict whether current
tenants will renew their leases when they expire or attempt to terminate their leases
before they expire. Because the tenants in our Irvine and Tustin properties are either
subletting the property or not fully using the property for their operations, they may be
less likely to re-lease the properties when the leases expire in December 2007 and
September 2005, respectively, or they may seek to re-lease a smaller space from us.
Further, our lease on two Sacramento properties (717 and 721 West Del Paso Road) expired
in July 2004, and the tenant continued to lease the space through September 30, 2004 on a
month-to-month basis. On October 1, 2004, the tenant vacated the 721 West Del Paso
property, which we sold July 1, 2005. Although the tenant continues to lease a small
portion of the 717 West Del Paso property on a month-to-month basis, the tenant could move
out at any time. We may incur significant costs to re-lease vacant spaces. If we are
unable to promptly sell significant vacant properties or re-lease or renew the leases for
them, or if the rental rates upon such renewal or re-leasing are significantly lower than
expected rates, then our ability to pay dividends to stockholders and to pay amounts due
on our debt may be adversely affected.

# We may be unable to
lease vacant space in our properties.

To lease vacant space, we may need to
pay substantial leasing commissions and renovation costs. We may acquire properties that
are not fully leased, and the cash flow from existing operations may be insufficient to
pay the operating expenses and debt service associated with those properties until they
are fully leased. Operating costs, including real estate taxes, insurance and maintenance
costs, and mortgage payments, if any, do not, in general, decline when circumstances cause
a reduction in income from a property from a vacancy or other reason. In addition, many of
our leases are triple-net leases, i.e., the tenant is responsible for property
taxes, insurance and maintenance. If the tenant no longer leases the property for any
reason, we, and not the tenant, must bear those costs. In addition, if a property is
mortgaged to secure payment of indebtedness and we are unable to meet our mortgage
payments we could sustain a loss as a result of foreclosure on the property. As a result,
our ability to pay dividends to our stockholders could be adversely affected.

# Investments in newly
acquired properties may not perform as we expect.

In the normal course of business, we
typically evaluate potential acquisitions, enter into non-binding letters of intent, and
may, at any time, enter into contracts to acquire and may acquire additional properties.
We can give no assurance, however, that we will have the financial resources to make
suitable acquisitions or that properties that satisfy our investment policies will be
available for acquisition. The acquisition of property entails risks that investments will
fail to perform in accordance with expectations. Those risks may include financing not
being available on favorable terms or at all. Estimates of the costs of improvements to
bring an acquired property up to standards established for the market position intended
for that property might prove inaccurate. Although we evaluate the physical condition of
each new property before we acquire it, we may not detect some defects or necessary
repairs until after we acquire the property. This could significantly increase our total
acquisition cost, which could have a material adverse effect on us and our ability to pay
dividends to stockholders and to pay amounts due on our debt.

27

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The value of our property
interests depends in part on conditions beyond our control.

General and local economic
conditions, neighborhood values, competitive overbuilding, weather, casualty losses and
other factors beyond our control may adversely affect real property income and capital
appreciation. We are unable to determine the precise effect, if any, the performance of
the worldwide or U.S. economies will have on us or on the value of our common stock.

The lack of liquidity of real
estate may reduce economic returns to investors.

Because real estate investments are
relatively illiquid, our ability to adjust our portfolio in response to changes in
economic or other conditions is somewhat limited. Additionally, the Internal Revenue Code
places certain limits on the number of properties a REIT may sell without adverse tax
consequences. To effect our current operating strategy, we will seek to raise funds, both
through outside financing and through the orderly disposition of assets that no longer
meet our investment criteria. Depending upon interest rates, current acquisition
opportunities and other factors, generally we will reinvest the proceeds in suburban
office, retail shopping center and light industrial properties, although we may use those
proceeds for other purposes.

We may be unable to reinvest in
attractive properties, which may affect our returns to stockholders.

We face considerable buying
competition from other real estate companies, many of whom may have greater resources,
experience or expertise than we do. In many cases, this competition for acquisition
properties has resulted in an increase in property prices and a corresponding decrease in
property yields. We can give no assurances that we can reinvest the proceeds realized from
the disposition of assets into new assets that will produce economic returns comparable to
those being realized from the properties disposed of, or that we will be able to acquire
properties meeting our investment criteria. To the extent that we are unable to reinvest
those proceeds, or if the properties we acquire with those proceeds produce a lower rate
of return than the properties we disposed, those results may have a material adverse
effect on us.

If we are unable to reinvest sales
or refinancing proceeds as quickly as we expect, our returns to stockholders may be
adversely affected.

A delay in reinvestment of sales or
refinancing proceeds may have a material adverse effect on us. We may seek to structure
future dispositions as tax-free exchanges, where appropriate, using the non-recognition
provisions of Section 1031 of the Internal Revenue Code to defer income taxation on the
disposition of the exchanged property. For an exchange to qualify for tax-free treatment
under Section 1031 of the Internal Revenue Code, we must meet certain technical
requirements. Given the competition for properties meeting our investment criteria, it may
be difficult for us to identify suitable properties within the required time frames to
meet the requirements of Section 1031.

Substantial competition among
properties and real estate companies may adversely affect our rental revenues and
acquisition opportunities.

All of our properties are located in
developed areas where we face substantial competition from other properties and from other
real estate companies that may develop or renovate competing properties. The number of
competitive properties and real estate companies could have a material adverse effect on
our ability to rent our properties, the rents we charge and our acquisition opportunities.
The activities of these competitors, our ability to rent our properties, the rents we
charge and acquisition opportunities could cause us to pay a higher price for a new
property than we otherwise would have paid or may prevent us from purchasing a desired
property at all, which could have a material adverse effect on us and our ability to pay
dividends to stockholders and to pay amounts due on our debt.

Our geographic concentration of
properties in California and Georgia may adversely affect us.

Our portfolio is located entirely in
California and Georgia. Economic conditions in, and other factors relating to, California
and Georgia, including supply and demand for properties, zoning and other regulatory
conditions and competition from other properties, could adversely affect our performance.
In that regard, these regions have in the past experienced economic recessions and
depressed conditions in the local real estate markets. To the extent general economic or
social conditions in any of these areas deteriorate or any of these areas experiences
natural disasters, the value of the portfolio, our results of operations and our ability
to pay dividends to stockholders and to pay amounts due on our debt could be materially
adversely affected.

We depend on single tenants in
many of our properties, and some of them represent a significant percentage of our
revenues.

Many of our properties are leased to
a single tenant, and some of these single tenant properties are individually significant
to our total revenue. During the six months ended June 30, 2005, the tenant in our Tustin
property, Safeguard Business Systems, Inc., accounted for approximately 11% of our total
rental revenue, including discontinued operations. Further, Tycom Corporation, a tenant in
our Irvine property, and Cal ISO, a tenant in our Folsom property, each accounted for
approximately 8% of our total rental revenue,

28

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including discontinued operations.  A tenant may attempt to terminate its lease before its
 scheduled term, or we may be unable
to renew the lease with the tenant. In that event, we may be unable to re-lease the space
to another anchor tenant of similar or better quality upon expiration of the current lease
on similar or better terms, and we could experience material adverse consequences such as
higher vacancy rates, re-leasing on less favorable economic terms and reduced net income.
Similarly, if one or more of our single tenants goes bankrupt, we could experience
material adverse consequences like those described above. There can be no assurance that
our sole tenants will renew their leases when they expire or will be willing to renew on
similar economic terms.

# Northlake Festival
represents approximately 50% of our revenues.

During the six months ended June 30,
2005, the Northlake Festival property accounted for approximately 50% of our total rental
revenues, including discontinued operations. At June 30, 2005, the occupancy for Northlake
Festival was 88.8%, mainly due to the expiration of the lease with AMC Theaters for 26,900
square feet. We do not expect to re-lease this space in 2005. If economic conditions in
the area of Northlake Festival become depressed and the performance of that center is
adversely affected, our overall financial condition and results of operations will be
adversely affected as well.

Construction and development risks
could adversely affect our profitability.

We currently are renovating some of
our properties and may in the future renovate or build other properties, including tenant
improvements required under leases. Further, in March 2003, we acquired undeveloped land
and are building an approximately 30,000 square foot shopping center on the land. We may
incur renovation or development costs for a property that exceed our original estimates
due to increased costs for materials or labor or other costs that are unexpected. We also
may be unable to complete renovation or development of a property on schedule, which could
result in increased debt service expense or construction costs and loss of rents until the
property is ready for occupancy. Additionally, the time required to recoup our renovation
and construction costs and to realize a return, if any, on such costs can often be
lengthy.

We may be unable to implement our
growth strategy and may fail to identify, acquire or integrate new acquisitions.

Our future growth depends on a number
of factors, including our ability to identify acceptable properties for acquisition,
complete acquisitions on favorable terms, successfully integrate acquired properties and
obtain financing to support expansion. We can give no assurances that we will be
successful in implementing our growth strategy, that growth will indeed occur at all or
that any expansion will improve operating results. The failure to identify, acquire and
integrate new properties effectively could have a material adverse effect on us and our
ability to pay dividends to stockholders and to pay amounts due on our debt. We intend to
acquire properties that meet our investment criteria. Acquisitions of properties entail
risks that investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards established for
the market position intended for that property may prove inaccurate.

We may suffer uninsured and
underinsured losses, and our insurance coverage may be limited.

We carry (or require our tenants to
carry on our behalf) liability, fire, extended coverage and rental loss insurance on our
properties. This insurance has policy specifications, limits and deductibles. We do not
carry flood and earthquake insurance for our properties. In addition, some types of
extraordinary losses (such as those resulting from civil unrest or acts of war) are not
generally insured (or fully insured against) because they are either uninsurable or not
economically insurable. Further, we do not carry insurance coverage for environmental
liabilities. If an uninsured or underinsured loss occurs to a property, we could be
required to use our own funds for restoration or lose all or part of our investment in,
and anticipated revenues from, the property and would continue to be obligated on any
mortgage indebtedness on the property. Any loss of that nature could have a material
adverse effect on us and our ability to pay dividends to stockholders and pay amounts due
on our debt.

Adverse changes in laws may affect
our potential liability relating to the properties and our operations.

Increases in real estate taxes and
income, service and transfer taxes cannot always be passed through to tenants in the form
of higher rents (or charges on triple-net leases), and may adversely affect our cash
available for distribution and our ability to pay dividends to stockholders and to pay
amounts due on our debt. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions on
discharges or other conditions, as well as changes in laws affecting construction and
safety requirements, may result in significant unanticipated expenditures, which could
have a material adverse effect on us and our ability to pay dividends to stockholders and
pay amounts due on our debt.

Compliance with laws benefiting
disabled persons may increase our costs and adversely affect our performance.

A number of federal, state and local
laws (including the Americans with Disabilities Act) and regulations may require
modifications to existing buildings or restrict certain renovations by requiring improved
access to such buildings by disabled persons and may require

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other structural features that add to
the cost of buildings under construction. Legislation or regulations adopted in the future
may impose further burdens or restrictions on us with respect to improved access by
disabled persons. The costs of compliance with these laws and regulations may be
substantial, and restrictions on construction or completion of renovations may limit
implementation of our investment strategy in certain instances or reduce overall returns
on our investments, which could have a material adverse effect on us and our ability to
pay dividends to stockholders and to pay amounts due on our debt. We are a defendant in
one California civil lawsuit in which the plaintiffs have alleged violations of the
Americans with Disabilities Act, and we cannot determine the likelihood of an unfavorable
outcome or range of potential loss, if any.

# We may have liability
under environmental laws.

Under federal, state and local
environmental laws, ordinances and regulations, we may be required to investigate and
clean up the effects of releases of hazardous or toxic substances or petroleum products at
our properties, regardless of our knowledge or responsibility, simply because of our
current or past ownership or operation of the real estate. Thus, we may have liability
with respect to properties we have already sold. If unidentified environmental problems
arise, we may have to take extensive measures to remediate the problems, which could
adversely affect our cash flow and our ability to pay dividends to our stockholders
because:

| |  | we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the
              contamination;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------

| |  | the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or
              caused the contamination;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | even if more than one person may be responsible for the contamination, each person who
shares legal liability under the environmental laws may be held responsible for all of the
clean-up costs; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | governmental entities or other third parties may sue the owner or operator of a contaminated site for damages and
              costs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

These costs could be substantial and
in extreme cases could exceed the value of the contaminated property. The presence of
hazardous or toxic substances or petroleum products and the failure to properly remediate
that contamination may materially and adversely affect our ability to borrow against, sell
or rent an affected property. In addition, applicable environmental laws create liens on
contaminated sites in favor of the government for damages and costs it incurs in
connection with a contamination.

We face particular environmental
risks related to asbestos and liability risk related to mold.

Environmental laws also govern the
presence, maintenance and removal of asbestos. Those laws require that owners or operators
of buildings containing asbestos:

| |  | properly manage and maintain the asbestos;
| | - | ------------------------------------------

| |  | notify and train those who may come into contact with asbestos; and
| | - | -------------------------------------------------------------------

| |  | undertake special precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

Those laws may impose fines and
penalties on building owners or operators who fail to comply with these requirements and
may allow others to seek recovery from owners or operators for personal injury associated
with exposure to asbestos fibers. Some of our properties are located in urban, industrial
and previously developed areas where fill or current or historic industrial uses of the
areas may have caused site contamination.

Recently, there has been an
increasing number of lawsuits against owners and managers of properties alleging personal
injury and property damage caused by the presence of mold in real estate. Some of these
lawsuits have resulted in substantial monetary judgments or settlements. Although our
insurance policy currently does not exclude mold-related claims we cannot assure you that
we will be able to obtain coverage in the future for those claims at a commercially
reasonable price or at all. The presence of significant mold could expose us to liability
to tenants and others if property damage, health concerns, or allegations of that nature,
arise.

# Our environmental due
diligence may be inadequate.

Our policy is to retain independent
environmental consultants to conduct Phase I environmental site assessments and asbestos
surveys of properties we intend to acquire. These assessments generally include a visual
inspection of the properties and the surrounding areas, an examination of current and
historical uses of the properties and the surrounding areas and a review of relevant
state, federal and historical documents. To date, we have not used invasive techniques
such as soil and ground water sampling. In future acquisitions, where we consider it
appropriate, on a property-by-property basis, we may have these consultants conduct
additional testing, including sampling for asbestos, for lead in drinking water, for soil
contamination where underground storage tanks are or were located or where other past site
usages create a potential environmental problem, and for contamination in groundwater.

Notwithstanding these environmental
assessments, we still face the risk that:

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| |  | the environmental assessments and updates did not identify all potential environmental liabilities;
| | - | ---------------------------------------------------------------------------------------------------

| |  | a prior owner created a material environmental condition that is not known to us or the independent consultants
preparing the assessments;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | new environmental liabilities have developed since the environmental assessments were
conducted; or
| | - | ---------------------------------------------------------------------------------------------------

| |  | future uses or conditions, such as changes in applicable environmental
laws and regulations, could result in environmental liability for us.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------

We may acquire properties that are
subject to liabilities for which we have no recourse, or only limited recourse, against
the seller.

These liabilities can include:

| |  | claims by tenants, vendors or other persons dealing with the former owners of the
properties;
| | - | ---------------------------------------------------------------------------------------------

| |  | liabilities incurred in the ordinary course of business; and
| | - | ------------------------------------------------------------

| |  | claims for indemnification by directors, officers and others indemnified by the former owners of the
properties.
| | - | ----------------------------------------------------------------------------------------------------------------

If we are required to spend time and
money to deal with these claims, our intended returns from the affected property may be
materially reduced.

# Risks Due to Real Estate
Financing

We have a significant amount of
indebtedness. As of June 30, 2005, we had total assets of $54,872,185, total secured
indebtedness of $35,974,493, total liabilities of $37,114,205 and a debt-to-total assets
ratio of 65%, using amounts calculated on the basis of generally accepted accounting
principles. Because this calculation method reflects accumulated depreciation and does not
reflect any appreciation of the properties beyond their cost, it may result in assets
being valued at less than their fair market values as determined by the board of
directors. Further, this calculation excludes the effects, if any, of the ground lease on
the Northlake Festival property.

We anticipate that future
acquisitions and properties we develop, if any, will be financed under a line of credit,
construction loans, and other forms of secured or unsecured financing or through our
issuing additional debt or equity. We expect to review periodically our financing options
regarding the appropriate mix of debt and equity financing. If we use equity, rather than
debt, to finance future acquisitions, it could have a dilutive effect on the interests of
our existing stockholders.

Increased debt and leverage can
reduce cash available for distribution and cause losses.

Using debt, whether with recourse to
us generally or only with respect to a particular property, to acquire properties creates
an opportunity for increased net income, but at the same time creates risks. We use debt
to fund investments only when we believe it will enhance our risk-adjusted returns. We
cannot be sure, however, that our use of leverage will prove to be beneficial. Additional
leverage may:

| |  | increase our vulnerability to general adverse economic and industry conditions;
| | - | -------------------------------------------------------------------------------

| |  | limit our flexibility in planning for, or reacting to, changes in our business and the
REIT industry, which may place us at a competitive disadvantage compared to our
competitors that have less debt; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | limit, along with the possible financial and other restrictive covenants in our
indebtedness, our ability to borrow additional funds.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

Any of the foregoing could have a
material adverse effect on us and our ability to pay dividends to stockholders and to pay
amounts due on our debt.

# We may be unable to
renew, repay or refinance our debt financing

We are subject to the normal risks
associated with debt financing, including the risk that our cash flow will be insufficient
to meet required payments of principal and interest, the risk that we will not be able to
renew, repay or refinance our debt when it matures or that the terms of any renewal or
refinancing will not be as favorable as the existing terms of that debt. For many of the
mortgage notes on our properties, the mortgage payment terms do not fully amortize the
loan balance, and a balloon payment of the balance will be due upon its maturity. If we
are unable to refinance our indebtedness on acceptable terms, or at all, we might be
forced to dispose of one or more of the properties on disadvantageous terms, which might
result in losses to us. Those losses could have a material adverse effect on us and our
ability to pay dividends to stockholders and pay amounts due on our debt. Furthermore, if
a property is mortgaged to secure payment of indebtedness and we are unable to meet
mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and
receive an assignment of rents and leases or pursue other remedies, all with a consequent
loss of our revenues and asset value. Foreclosures could also create taxable income
without accompanying cash proceeds, thereby hindering our ability to

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meet the REIT distribution
requirements of the Internal Revenue Code.

# The cost of our
indebtedness may increase due to rising interest rates.

We have incurred and may in the
future again incur debt that bears interest at a variable rate. As of June 30, 2005, we
have a $4,049,134 loan that bears interest at a variable rate. Accordingly, increases in
interest rates would increase our interest costs, which could have a material adverse
effect on us and our ability to pay dividends to stockholders. In addition, an increase in
market interest rates may lead holders of our common shares to expect a higher dividend
yield, which could adversely affect the market price of our common stock.

# We may incur additional
debt and related debt service.

We intend to fund the acquisition of
additional properties partially through borrowings and from other sources such as sales of
properties that no longer meet our investment criteria or the contribution of property to
joint ventures or other financing methods. Our organizational documents do not limit the
amount of debt that we may incur.

If we incur additional debt, the
agreement governing our debt could contain various covenants that limit our discretion in
the operation of our business.

Any additional debt we incur will be
governed by an agreement with our lenders. Typically, these types of agreements contain
various provisions that could limit our discretion in the operation of our business by
restricting our ability to:

| |  | incur additional debt and issue preferred stock;
| | - | ------------------------------------------------

| |  | pay dividends and make other distributions;
| | - | -------------------------------------------

| |  | make investments and other payments;
| | - | ------------------------------------

| |  | redeem or repurchase our capital stock;
| | - | ---------------------------------------

| |  | consolidate or merge;
| | - | ---------------------

| |  | create liens;
| | - | -------------

| |  | sell assets; or
| | - | ---------------

| |  | enter into certain transactions with our affiliates.
| | - | ----------------------------------------------------

Further, the loan documents from our
August 2002 refinancing contain cross-collateral provisions. If one of the four loans is
in default, the lender forecloses on the property securing that loan, and the proceeds
from the foreclosure are not sufficient to repay the defaulted loan in full, the lender
can foreclose upon one or more of the other three properties to recover the loan.
Previously, we had no such cross-collateral provisions in our loans. In addition, the
construction loan on the development of our Garden Grove Festival shopping center and our
Banco Popular property is also secured by our 717 West Del Paso Road property.

If we are unable to pay our
obligations to our secured lenders, they could proceed against any or all of the
collateral securing our indebtedness to them. In addition, a breach of the restrictions or
covenants contained in our loan documents could cause an acceleration of our indebtedness.
We may not have, or be able to obtain, sufficient funds to repay our indebtedness in full
upon acceleration.

# Risk Related to SEC
Regulation

If our internal control over
financial reporting is not considered effective, investors could lose confidence in our
financial reports and our stock price could be adversely affected.

To comply with Section 404 of
the Sarbanes-Oxley Act of 2002, we must furnish a report by our management on our internal
control over financial reporting with our annual report on Form 10-KSB for our fiscal
year ending December 31, 2006. The report will contain, among other matters, an
assessment of the effectiveness of our internal control over financial reporting as of the
end of that fiscal year, including a statement as to whether or not our internal control
over financial reporting is effective. This assessment must include disclosure of any
material weaknesses in our internal control over financial reporting. Material weakness in
internal controls over financial reporting is defined as a significant deficiency,
or a combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected. The report will also contain a statement that our
auditors have issued an attestation report on managements assessment of our internal
controls. We currently expect to begin testing of our internal controls during the second
quarter of fiscal 2006. This testing includes documenting our procedures and an analysis
of the segregation of duties. Because we currently have only four employees we may not be
able to achieve an adequate segregation of duties without hiring additional personnel and
incurring additional costs. In the course of our evaluation and testing of internal
controls, we may identify areas for improvement in the documentation, design and
effectiveness of our internal controls, and these areas of improvement may be material. We
may elect or be required to disclose those

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weaknesses before we have remediated
them. Any disclosure of this nature may adversely affect our stock price. Given the risks
inherent in the design and operation of internal controls over financial reporting, we can
provide no assurance at this time regarding our conclusions, or regarding the conclusions
of our independent auditor, as of December 31, 2006 with respect to the effectiveness of
our internal controls over financial reporting. In any event, we expect to incur material
costs in complying with Section 404.

# Risk Related to
Provisions that Could Limit a Change in Control or Deter a Takeover

Restrictions in our organizational
documents and Delaware law could limit a change in control or deter a takeover.

A number of the provisions in our
certificate of incorporation and bylaws have or may have the effect of deterring a
takeover of the company. These provisions include:

| |  | REIT protective provisions that limit stock ownership to 2.5% for anyone other than Mr.
Allen Meredith, our Chief Executive Officer, President and Chairman of the Board, or
persons who owned more than 2.5% prior to the amendment of our certificate of
Incorporation on November 15, 2004;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a classified board of directors with staggered, three-year terms;
| | - | -----------------------------------------------------------------

| |  | provisions giving the board of directors sole power to set the number of directors;
| | - | -----------------------------------------------------------------------------------

| |  | provisions giving stockholders the right to remove directors only for cause and only by
the affirmative vote of a majority of the total voting power of the outstanding shares;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | prohibition on stockholders from calling special meetings of stockholders; and
| | - | ------------------------------------------------------------------------------

| |  | advance notice requirements for stockholder proposals and nominations for election to the
board of directors at stockholder meetings.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

In addition, Section 203 of the
Delaware General Corporation Law provides, in relevant part, that the corporation shall
not engage in any business combination with an interested stockholder for a
period of three years following the time on which such stockholder first becomes an
interested stockholder unless:

| | (a) | before the stockholder first becomes an interested stockholder, the board
of directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder (the board of directors has approved Mr. Meredith becoming an
interested stockholder);
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | upon becoming an interested stockholder, the stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares); or
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | on or after the time on which the stockholder becomes an interested
stockholder, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the interested
stockholder.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These provisions may prevent our
stockholders from receiving the benefit from any premium to the market price of our common
stock offered by a bidder in a takeover context. Even in the absence of a takeover
attempt, the existence of these provisions may adversely affect the prevailing market
price of our common stock if they are viewed as discouraging takeover attempts in the
future. These provisions may facilitate management entrenchment that may delay, defer or
prevent a change in our control, which may not be in the best interests of our
stockholders.

# Change of control
agreements could deter a change of control.

We have entered into change of
control agreements with Mr. Meredith, our Chief Executive Officer, President and Chairman
of the Board, and Mr. Wingard, our Vice President and Chief Financial Officer, providing
for the payment of money to them upon the occurrence of a change of control, as defined in
these agreements. If either Mr. Meredith or Mr. Wingard resigns or is terminated within
one year following a change of control, we will make a severance payment equal to a
portion of the executives base salary, his average bonus over last three years and
medical and other benefits. Based upon their current salaries and benefit levels, this
provision would result in payments totaling at least $210,000 to Mr. Meredith and $133,875
to Mr. Wingard. The agreements with Mr. Meredith and Mr. Wingard may deter changes of
control because of the increased cost for a third party to acquire control of us, thus
limiting the opportunity for stockholders to receive a premium for our common stock over
then-prevailing market prices.

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# Tax Risks

Although we believe we are organized
and are operating to qualify as a REIT under the Internal Revenue Code, we cannot give
assurances that we have in fact operated or will be able to continue to operate in a
manner so as to qualify or remain so qualified.

We may incur tax liabilities as a
consequence of failure to qualify as a REIT.

Qualification as a REIT involves both
the application of highly technical and complex Internal Revenue Code provisions for which
there are only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within our control. For example, to
qualify as a REIT, at least 95% of our taxable gross income in any year must be derived
from qualifying sources and we must pay dividends to stockholders aggregating annually at
least 90% of our REIT taxable income (excluding net capital gains). Thus, to the extent
revenues from non-qualifying sources represent more than 5% of our gross income in any
taxable year, we will not satisfy the 95% income test and may fail to qualify as a REIT,
unless certain relief provisions apply. Even if those relief provisions apply, a tax would
be imposed with respect to excess net income, which could have a material adverse effect
on us and our ability to pay dividends to stockholders and to pay amounts due on our debt.
We cannot give assurances that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such qualification. If
we fail to qualify as a REIT, we will be subject to federal income tax (including any
applicable alternative minimum tax) on our taxable income at corporate rates, which would
likely have a material adverse effect on us and our ability to pay dividends to
stockholders and to pay amounts due on our debt. In addition, unless entitled to relief
under certain statutory provisions, we would also be disqualified from treatment as a REIT
for the four taxable years following the year during which REIT qualification is lost.
This treatment would reduce funds available for investment or distributions to
stockholders because of the additional tax liability to us for the year or years involved.
In addition, we would no longer be required to make, and indeed may not make,
distributions to stockholders. To the extent that distributions to stockholders would have
been made in anticipation of qualifying as a REIT, we might be required to borrow funds or
to liquidate certain investments to pay the applicable tax. Further, to maintain our real
estate investment trust status, we may borrow funds on a short-term basis to meet the real
estate investment trust distribution requirements, even if the then-prevailing market
conditions are not favorable for these borrowings.

Gain on disposition of assets
deemed held for sale in the ordinary course is subject to 100% tax.

We currently classify one of our properties
as held for sale and may attempt to sell other properties. If we sell any of our
properties, the Internal Revenue Service may determine that the sale is a disposition of
an asset held primarily for sale to customers in the ordinary course of a trade or
business. Gain from this kind of sale generally will be subject to a 100% tax. Whether an
asset is held primarily for sale to customers in the ordinary course of a trade or
business depends on the particular facts and circumstances of the sale. Although we
will attempt to comply with the terms of safe-harbor provisions in the Internal Revenue
Code prescribing when asset sales will not be so characterized, we cannot assure
stockholders that we will be able to do so.

# ITEM 3.   CONTROLS AND PROCEDURES

As of June 30, 2005, we carried out
an evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our current disclosure controls and procedures are effective as of June 30,
2005.

There was no change in our internal
control over financial reporting that occurred during the quarter ended June 30, 2005 that
has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

The design of any system of controls
and procedures is based in part upon certain assumptions about the likelihood of future
events. There can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.

34

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# PART II  OTHER
INFORMATON

# ITEM 1.  LEGAL
PROCEEDINGS

We are a defendant in a lawsuit
entitled John Lonberg; Ruthee Goldkorn v. Sanborn Theaters, Inc. and So-Cal Cinema, Inc.;
Salts, Troutman and Kaneshiro, Inc.; West Coast Realty Investors, Inc., in the U.S.
District Court for the Central District of California (Case #CV-97-6598AHM(JGx)). We were
added as a defendant in the plaintiffs First Amended Complaint filed May 7, 1998.

The plaintiffs alleged violations of
the federal Americans with Disabilities Act and the California Unruh Civil Rights Act with
respect to their movie-going experiences, including inadequate physical accommodations for
individuals with disabilities and insensitive theater personnel. Sanborn Theaters, Inc
(Sanborn) is the tenant and theater operator. Salts, Troutman and Kaneshiro,
Inc. is the architect who designed the theater and its interiors. (We sold the theater on
May 9, 2005.)

The plaintiffs seek actual damages of
$1,000 for each violation of law; three times actual damages; and attorneys fees,
expenses and costs. The plaintiffs also seek mandatory injunctive relief requiring the
defendants to reconfigure the theater.

The plaintiffs have agreed to dismiss
their claims under the Unruh Civil Rights Act.

The U.S. Department of Justice, Civil Rights
Division (DOJ) filed a Motion to Intervene in the case on March 1, 1999. DOJ
has sued Sanborn only, and preliminary discussions have been held between the DOJ and
Sanborn. Sanborn intends to vigorously defend against the DOJ.

We cannot determine the likelihood of
an unfavorable outcome or range of potential loss, if any. We believe we have complied
with all applicable provisions of law and intend to vigorously defend against the
allegations contained in the lawsuit. We believe that the lawsuit will not have a material
impact on our continuing operations or overall financial condition.

# ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We sold no unregistered equity
securities in the quarter ended June 30, 2005.

# Small Business Issuer
Purchases of Equity Securities

|           |  |  |  | (d)   
|---------- |  |  |  | ------
|
|
|
|
|
|
|
|April 2005 |  |  |  | -     
|May 2005   |  |  |  | -     
|June 2005  |  |  |  | 14,984
|           | 
|Total      |  |  |  | 14,984
|           | 

| | (1) | On December 7, 2004, we announced that we intend to buy back shares in the open
               market or in privately negotiated transactions time to time through December 7,
               2005. We did not specify a maximum number of shares or maximum dollar value of
               shares we might purchase. During June 2005, we purchased 7,584 shares of our
               common stock at then current market prices on the American Stock Exchange that
               averaged $14.32 per share. Also during June 2005, we purchased 7,400 shares of
               our common stock at the price of $14.52 per share from a company co-managed by
               Mr. Allen K. Meredith, our Chief Executive Officer, President and Chairman of
               the Board of Directors. We made this purchase in a private transaction, and the
               price is based on the mid point of the bid and ask prices on the American Stock
               Exchange when we concluded the oral agreement to purchase the shares.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM
3.  DEFAULTS UPON SENIOR SECURITIES

None.

35

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

None.

# ITEM 5.   OTHER
INFORMATION

On June 16, 2005, we purchased 7,400
shares of our common stock at a price of $14.52 per share from Meredith I, LLC. Mr. Allen
K. Meredith, our Chief Executive Officer, President and Chairman of the Board of
Directors, and his spouse are the sole co-managers of Meredith I, LLC, have shared joint
authority over the disposition of all shares of Common Stock held by Meredith I, LLC, as
well as the acquiring, holding and voting of such shares, provided that Mr.
Merediths decision is determinative. We made this purchase in a private transaction,
and the price is based on the mid point of the bid and ask price on the American Stock
Exchange when we concluded the oral agreement to purchase the shares. Mr. and Mrs.
Meredith disclaim beneficial ownership of shares held by Meredith I, LLC except to the
extent of their individual pecuniary interest therein.

# ITEM 6.   EXHIBITS

| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 

# SIGNATURES

Pursuant
to the requirements of the 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

| |  | Meredith Enterprises, Inc.
| |  | --------------------------

|Dated:   August 5, 2005 |  | /s/ Charles P. Wingard
Charles P. WingardChief Financial Officer(principal financial and accounting officer)
|----------------------- |  | ------------------------------------------------------------------------------------------------------------