##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

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

For the transition period from _________________ to _________________

Commission file number 000-24594

WEST COAST REALTY INVESTORS, INC.(Exact name of registrant as specified in its charter)

|                               |  |                    
|------------------------------ |  | -------------------
|Delaware                       |  | 95-4246740         
|State or other jurisdiction of |  | (IRS Employer      
|incorporation or organization  |  | Identification No.)

3000 SAND HILL ROAD, BUILDING 3, SUITE 140
MENLO PARK, CALIFORNIA     94025
(Address of principal executive offices)    (Zip Code)

(650) 233-7140
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

Yes ü                   No

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 11, 2002, 2,927,967 shares of the Registrants Common Stock were
outstanding, prior to the 1:3 reverse stock split of November 15, 2002.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                 |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONSOLIDATED BALANCE SHEETS                    
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME              
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|                              |                                                                                               | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES     
|                              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION  
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN 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 AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|CERTIFICATION                
|Exhibit 3.2                  
|Exhibit 10.1                 
|Exhibit 10.2                 
|Exhibit 10.3                 



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##### Table of Contents



WEST COAST REALTY INVESTORS, INC.

REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

TABLE OF CONTENTS

|                                |  |  |  |                |  |                                                                                       |    |                                                                                                                 |    |  |    | 
|------------------------------- |  |  |  | -------------- |  | ------------------------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|Part I -  Financial Information |  |  |  |               
|                                |  |  |  | Item 1.        |  | Consolidated Financial Statements                                                     |    |                                                                                                                 | 3  | 
|                                |  |  |  |                |  |                                                                                       |    | Consolidated Balance Sheets-
     As of September 30, 2002 (unaudited)
     and December 31, 2001 (audited)     |    |  | 4  | 
|                                |  |  |  |                |  |                                                                                       |    | Consolidated Income Statements (unaudited)-
     Three and nine months ended September 30, 2002 and 2001        |    |  | 4  | 
|                                |  |  |  |                |  |                                                                                       |    | Consolidated Statements of Cash Flows (unaudited)-
     Nine months ended September 30, 2002 and 2001           |    |  | 5  | 
|                                |  |  |  |                |  |                                                                                       |    | Consolidated Statements of Stockholders Equity (unaudited)-
     Nine months ended September 30, 2002 and 2001 |    |  | 6  | 
|                                |  |  |  |                |  |                                                                                       |    | Summary of significant accounting policies                                                                      |    |  | 7  | 
|                                |  |  |  |                |  |                                                                                       |    | Notes to consolidated financial statements                                                                      |    |  | 12 | 
|                                |  |  |  | Item 2.        |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |    |                                                                                                                 | 20 | 
|                                |  |  |  | Item 3.        |  | Quantitative and Qualitative Disclosures about Market Risk                            |    |                                                                                                                 | 40 | 
|                                |  |  |  | Item 4.        |  | Controls and Procedures                                                               |    |                                                                                                                 | 40 | 
|                               
|Part II -  Other Information    |  |  |  |               
|                                |  |  |  | Item 1.        |  | Legal Proceedings                                                                     |    |                                                                                                                 | 41 | 
|                                |  |  |  | Item 2.        |  | Changes In Securities and Use of Proceeds                                             |    |                                                                                                                 | 41 | 
|                                |  |  |  | Item 3.        |  | Defaults Upon Senior Securities                                                       |    |                                                                                                                 | 41 | 
|                                |  |  |  | Item 4.        |  | Submission of Matters to a Vote of Security Holders                                   |    |                                                                                                                 | 42 | 
|                                |  |  |  | Item 5.        |  | Other Information                                                                     |    |                                                                                                                 | 42 | 
|                                |  |  |  | Item 6.        |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                                 | 43 | 
|                                |  |  |  | Signatures     |  |                                                                                       | 44 |                                                                                                                
|                                |  |  |  | Certifications |  |                                                                                       | 45 |                                                                                                                

As used in this Report on Form 10-Q, unless the context otherwise requires, the
terms we, us, and our refer to West Coast Realty Investors, Inc., a
Delaware corporation.





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##### Table of Contents






PART I- FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




WEST COAST REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |             |  
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ----------- | ------------ | - | ---------- | ----------- | -
|                                           |                                                                                                                                                                                 |   | September 30, |             | December 31,
|                                           |                                                                                                                                                                                 |   | 2002          |             | 2001        
|                                           |                                                                                                                                                                                 |   |               |             |             
|                                           |                                                                                                                                                                                 |   | (Unaudited)   |             | (Audited)   
|Assets                                     |                                                                                                                                                                                 |   |               |             |              |   |            |            
|                                           | Rental real estate, less accumulated depreciation (Note 1)                                                                                                                      |   | $             | 24,316,161  |              |   | $          | 29,458,317  |  
|                                           | Cash and cash equivalents                                                                                                                                                       |   |               | 4,442,183   |              |   |            | 1,123,827   |  
|                                           | Deferred rent                                                                                                                                                                   |   |               | 534,361     |              |   |            | 545,030     |  
|                                           | Accounts receivable                                                                                                                                                             |   |               | 80,534      |              |   |            | 14,184      |  
|                                           | Loan origination fees, net of accumulated
amortization of $99,516 and $144,483 at September 30, 2002
and December 31, 2001, respectively                                        |   |               | 461,586     |              |   |            | 167,389     |  
|                                           | Rental real estate held for sale, net (Note 1)                                                                                                                                  |   |               | 7,444,818   |              |   |            | 5,402,842   |  
|                                           | Deposits and acquisition costs (Note 4)                                                                                                                                         |   |               | 4,553,452   |              |   |            |            |  
|                                           | Other assets                                                                                                                                                                    |   |               | 150,779     |              |   |            | 51,022      |  
|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |            
|Total assets                               |                                                                                                                                                                                 | $ | 41,983,874    |             |              | $ | 36,762,611 |            
|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |            
|Liabilities and Stockholders Equity       |                                                                                                                                                                                 |   |               |             |              |   |            |            
|Liabilities                                |                                                                                                                                                                                 |   |               |             |              |   |            |            
|                                           | Accounts payable and other liabilities                                                                                                                                          |   | $             | 335,314     |              |   | $          | 284,622     |  
|                                           | Due to related party (Note 5)                                                                                                                                                   |   |               | 24,577      |              |   |            | 37,477      |  
|                                           | Security deposits and prepaid rent                                                                                                                                              |   |               | 226,139     |              |   |            | 303,852     |  
|                                           | Notes payable (Note 6)                                                                                                                                                          |   |               | 24,578,774  |              |   |            | 19,796,510  |  
|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |            
|Total liabilities                          |                                                                                                                                                                                 |   | 25,164,804    |             |              |   | 20,422,461 |            
|Commitments and contingencies(Note 11)     |                                                                                                                                                                                 |   |              |             |              |   |           |            
|Stockholders equity                       |                                                                                                                                                                                 |   |               |             |              |   |            |            
|                                           | Common stock $.01 par value; 5,000,000 shares authorized;
975,989 shares issued and outstanding as of September 30,
2002 and December 31, 2001 (Note 7, adjusted for 1:3 split) |   |               | 29,280      |              |   |            | 29,280      |  
|                                           | Additional paid-in capital                                                                                                                                                      |   |               | 27,147,772  |              |   |            | 27,147,772  |  
|                                           | Dividends in excess of retained earnings                                                                                                                                        |   |               | (10,357,982 | )            |   |            | (10,836,902 | )
|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |            
|Total stockholders equity                 |                                                                                                                                                                                 |   | 16,819,070    |             |              |   | 16,340,150 |            
|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |            
|Total liabilities and stockholders equity |                                                                                                                                                                                 | $ | 41,983,874    |             |              | $ | 36,762,611 |            
|                                           |                                                                                                                                                                                 |   |               |             |              |   |            |            

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

3



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WEST COAST REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME

|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |            |        |           | 
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------- | ------- | ------------- | ---------- | ------------- | ------- | ------------- | ------- | ---- | --------- | ----------- | ---------- | ------ | --------- | 
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         | Three         |         | Three         |            | Nine          |         | Nine         
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         | months ended  |         | months ended  |            | months ended  |         | months ended 
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         | September 30, |         | September 30, |            | September 30, |         | September 30,
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         | 2002          |         | 2001          |            | 2002          |         | 2001         
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |              
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         | (Unaudited)   |         | (Unaudited)   |            | (Unaudited)   |         | (Unaudited)  
|Revenues                                                                                                                    |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|                                                                                                                            |                                                                                                              |                                                                                                                              | Rental (Notes 1 and 3)     |         | $             | 769,850 |               |            | $             | 761,703 |               |         | $    | 2,331,243 |             |            | $      | 2,254,789 | 
|                                                                                                                            |                                                                                                              |                                                                                                                              | Interest                   |         |               | 14,913  |               |            |               | 12,054  |               |         |      | 23,505    |             |            |        | 44,827    | 
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|                                                                                                                            |                                                                                                              |                                                                                                                              | 784,763                    |         |               |         | 773,757       |            |               |         | 2,354,748     |         |      |           | 2,299,616   |           
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|Cost and expenses                                                                                                           |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|                                                                                                                            |                                                                                                              |                                                                                                                              | Interest                   |         |               | 387,512 |               |            |               | 235,340 |               |         |      | 817,473   |             |            |        | 756,509   | 
|                                                                                                                            |                                                                                                              |                                                                                                                              | General and administrative |         |               | 371,740 |               |            |               | 184,383 |               |         |      | 829,800   |             |            |        | 367,903   | 
|                                                                                                                            |                                                                                                              |                                                                                                                              | Impairment loss (Note 1)   |         |               |        |               |            |               | 371,772 |               |         |      |          |             |            |        | 371,772   | 
|                                                                                                                            |                                                                                                              |                                                                                                                              | Operating                  |         |               | 127,732 |               |            |               | 101,702 |               |         |      | 262,661   |             |            |        | 304,370   | 
|                                                                                                                            |                                                                                                              |                                                                                                                              | Depreciation               |         |               | 111,799 |               |            |               | 121,341 |               |         |      | 335,396   |             |            |        | 365,746   | 
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|                                                                                                                            |                                                                                                              |                                                                                                                              | 998,783                    |         |               |         | 1,014,538     |            |               |         | 2,245,330     |         |      |           | 2,166,300   |           
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|Net
(loss) income before discontinued operations andgain on sale of rental real
estate and rental real estate held for sale |                                                                                                              |                                                                                                                              | (214,020                   | )       |               |         | (240,781      | )          |               |         | 109,418       |         |      |           | 133,316     |           
|                                                                                                                            | Discontinued operations and
gain on sale of rental real
estate and rental real
estate held for sale (Note 2) |                                                                                                                              |                            | 557,484 |               |         |               | (3,214,194 | )             |         |               | 955,096 |      |           |             | (2,797,847 | )     
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|Net income (loss)                                                                                                           |                                                                                                              | $                                                                                                                            | 343,464                    |         |               |         | ($3,454,975   | )          |               | $       | 1,064,514     |         |      |           | ($2,664,531 | )         
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|Net
income per share  basic and assuming dilution (Note 7, adjusted for 1:3 split):                                        |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|                                                                                                                            |                                                                                                              | Net (loss) income before
discontinued operations
and gain on sale of rental
real estate and rental real estate held for sale |                            |         | ($0.22        | )       |               |            | ($0.25        | )       |               | $       | 0.11 |           |             | $          | 0.14   |          
|                                                                                                                            |                                                                                                              | Discontinued operations
and gain on sale of rental
real estate and rental
real estate held for sale                          |                            | $       | 0.57          |         |               |            | ($3.29        | )       |               | $       | 0.98 |           |             |            | ($2.87 | )        
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           
|Net income per share                                                                                                        |                                                                                                              | $                                                                                                                            | 0.35                       |         |               |         | ($3.54        | )          |               | $       | 1.09          |         |      |           | ($2.73      | )         
|                                                                                                                            |                                                                                                              |                                                                                                                              |                            |         |               |         |               |            |               |         |               |         |      |           |             |           

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

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WEST COAST REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                    |                                                                               |   |               |             |               |   |             |           |  
|----------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | - | ------------- | ----------- | ------------- | - | ----------- | --------- | -
|                                                                                    |                                                                               |   | Nine months   |             | Nine months  
|                                                                                    |                                                                               |   | ended         |             | ended        
|                                                                                    |                                                                               |   | September 30, |             | September 30,
|                                                                                    |                                                                               |   | 2002          |             | 2001         
|                                                                                    |                                                                               |   |               |             |              
|                                                                                    |                                                                               |   | (Unaudited)   |             | (Unaudited)  
|Cash flows from operating activities                                                |                                                                               |   |               |             |               |   |             |          
|Net income (loss)                                                                   |                                                                               | $ | 1,064,514     |             |               |   | ($2,664,531 | )        
|Adjustments to reconcile net income to net cash provided by operating
activities:   |                                                                               |   |               |             |               |   |             |          
|                                                                                    | Depreciation expense                                                          |   |               | 359,374     |               |   |             | 540,422   |  
|                                                                                    | Interest expense due to amortization of loan origination fees                 |   |               | 36,049      |               |   |             | 28,801    |  
|                                                                                    | Gain on sale of rental real estate and rental real estate held for sale       |   |               | (734,211    | )             |   |             |          |  
|                                                                                    | Impairment loss                                                               |   |               |            |               |   |             | 3,800,000 |  
|                                                                                    | Equity contribution by Affiliates through expense reimbursements              |   |               |            |               |   |             | 170,402   |  
|Increase (decrease) in cash flows from changes in operating assets and
liabilities: |                                                                               |   |               |             |               |   |             |          
|                                                                                    | Deferred rent                                                                 |   |               | 10,669      |               |   |             | 45,451    |  
|                                                                                    | Accounts receivable                                                           |   |               | (66,350     | )             |   |             | 11,203    |  
|                                                                                    | Loan origination fees                                                         |   |               | (26,732     | )             |   |             |          |  
|                                                                                    | Other assets                                                                  |   |               | (104,757    | )             |   |             | (34,476   | )
|                                                                                    | Accounts payable and other liabilities                                        |   |               | 50,692      |               |   |             | 16,793    |  
|                                                                                    | Due to related party                                                          |   |               | (12,900     | )             |   |             | 14,968    |  
|                                                                                    | Security deposits and prepaid rent                                            |   |               | (77,713     | )             |   |             | 16,474    |  
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|Net cash provided by operating activities                                           |                                                                               |   | 498,635       |             |               |   | 1,945,507   |          
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|Cash flows from investing activities                                                |                                                                               |   |               |             |               |   |             |          
|                                                                                    | Proceeds from sale of rental real estate and rental real estate
held for sale |   |               | 3,578,357   |               |   |             |          |  
|                                                                                    | Deposits and acquisition costs                                                |   |               | (4,548,452  | )             |   |             |          |  
|                                                                                    | Additions to rental real estate                                               |   |               | (103,339    | )             |   |             | (117,189  | )
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|                                                                                    | Net cash (used in) investing activities                                       |   |               | (1,073,434  | )             |   |             | (117,189  | )
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|Cash flows from financing activities                                                |                                                                               |   |               |             |               |   |             |          
|                                                                                    | Dividends declared and paid                                                   |   |               | (585,594    | )             |   |             | (878,444  | )
|                                                                                    | Proceeds from notes payable                                                   |   |               | 15,020,000  |               |   |             |          |  
|                                                                                    | Payments on notes payable                                                     |   |               | (10,237,736 | )             |   |             | (342,859  | )
|                                                                                    | (Increase) in loan origination fees                                           |   |               | (303,515    | )             |   |             | (10,743   | )
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|Net cash provided by (used in) financing activities                                 |                                                                               |   | 3,893,155     |             |               |   | (1,232,046  | )        
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|Net increase in cash and cash equivalents                                           |                                                                               |   | 3,318,356     |             |               |   | 596,272     |          
|Cash and cash equivalents,beginning of period                                       |                                                                               |   | 1,123,827     |             |               |   | 1,248,335   |          
|                                                                                    |                                                                               |   |               |             |               |   |             |          
|Cash and cash equivalents,end of period                                             |                                                                               | $ | 4,442,183     |             |               | $ | 1,844,607   |          
|                                                                                    |                                                                               |   |               |             |               |   |             |          

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

5



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WEST COAST REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                                       |                             |  |                                      |  |            |   |              |  |          |   |            |  |  |  |              |           |   |   |            |           |  
|------------------------------------------------------ | --------------------------- |  | ------------------------------------ |  | ---------- | - | ------------ |  | -------- | - | ---------- |  |  |  | ------------ | --------- | - | - | ---------- | --------- | -
|                                                       |                             |  | Nine months ended September 30, 2002
|                                                       |                             |  |                                     
|                                                       |                             |  | (Unaudited)                         
|                                                       |                             |  |                                      |  |            |   |              |  |          |   |            |  |  |  | Dividends    |           |   |   |           
|                                                       |                             |  | Common Stock                         |  | Additional |   | in Excess of |  |          |   |           
|                                                       |                             |  |                                      |  | Paid-In    |   | Retained     |  |          |   |           
|                                                       |                             |  | Shares                               |  | Amount     |   | Capital      |  | Earnings |   | Total     
|                                                       |                             |  |                                      |  |            |   |              |  |          |   |           
|Balance,December 31, 2001 (Note 7,
adjusted for split) |                             |  | 975,989                              |  |            | $ | 29,280       |  |          | $ | 27,147,772 |  |  |  | ($10,836,902 | )         |   | $ | 16,340,150 |          
|                                                       | Net income                  |  |                                      |  |            |   |              |  |          |   |            |  |  |  |              | 1,064,514 |   |   |            | 1,064,514 |  
|                                                       | Dividends declared (Note 7) |  |                                      |  |            |   |              |  |          |   |            |  |  |  |              | (585,594  | ) |   |            | (585,594  | )
|                                                       |                             |  |                                      |  |            |   |              |  |          |   |            |  |  |  |              |           |   |   |            |          
|Balance, September 30, 2002                            |                             |  | 975,989                              |  |            | $ | 29,280       |  |          | $ | 27,147,772 |  |  |  | ($10,357,982 | )         |   | $ | 16,819,070 |          
|                                                       |                             |  |                                      |  |            |   |              |  |          |   |            |  |  |  |              |           |   |   |            |          

|                                                       |                                                                           |  |                                      |  |            |   |              |  |          |   |            |         |  |  |              |            |   |   |            |            |  
|------------------------------------------------------ | ------------------------------------------------------------------------- |  | ------------------------------------ |  | ---------- | - | ------------ |  | -------- | - | ---------- | ------- |  |  | ------------ | ---------- | - | - | ---------- | ---------- | -
|                                                       |                                                                           |  | Nine months ended September 30, 2001
|                                                       |                                                                           |  |                                     
|                                                       |                                                                           |  | (Unaudited)                         
|                                                       |                                                                           |  |                                      |  |            |   |              |  |          |   |            |         |  |  | Dividends    |            |   |   |           
|                                                       |                                                                           |  | Common Stock                         |  | Additional |   | in Excess of |  |          |   |           
|                                                       |                                                                           |  |                                      |  | Paid-In    |   | Retained     |  |          |   |           
|                                                       |                                                                           |  | Shares                               |  | Amount     |   | Capital      |  | Earnings |   | Total     
|                                                       |                                                                           |  |                                      |  |            |   |              |  |          |   |           
|Balance,December 31, 2000 (Note 7,
adjusted for split) |                                                                           |  | 975,989                              |  |            | $ | 29,280       |  |          | $ | 26,977,370 |         |  |  | ($6,704,362  | )          |   | $ | 20,302,288 |           
|                                                       | Net (loss)                                                                |  |                                      |  |            |   |              |  |          |   |            |         |  |  |              | (2,664,531 | ) |   |            | (2,664,531 | )
|                                                       | Equity contribution by affiliates
through expense reimbursements
(Note 5) |  |                                      |  |            |   |              |  |          |   |            | 170,402 |  |  |              |            |   |   |            | 170,402    |  
|                                                       | Dividends declared (Note 7)                                               |  |                                      |  |            |   |              |  |          |   |            |         |  |  |              | (1,317,585 | ) |   |            | (1,317,585 | )
|                                                       |                                                                           |  |                                      |  |            |   |              |  |          |   |            |         |  |  |              |            |   |   |            |           
|Balance, September 30, 2001                            |                                                                           |  | 975,989                              |  |            | $ | 29,280       |  |          | $ | 27,147,772 |         |  |  | ($10,686,478 | )          |   | $ | 16,490,574 |           
|                                                       |                                                                           |  |                                      |  |            |   |              |  |          |   |            |         |  |  |              |            |   |   |            |           

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

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

West Coast Realty Investors, Inc. was 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.
Through March 31, 2002, we were advised by West Coast Realty Advisors, Inc.
(WCRA) and our properties were managed by West Coast Realty Management, Inc.
(WCRM) (collectively, the Advisor), each of which is a wholly-owned
subsidiary of Associated Financial Group, Inc. The Advisor managed and oversaw
our investments, subject to the direction of the board of directors. Our
management and advisory relationships with the Advisor were terminated
effective March 31, 2002, and since that date we have been self-managed and
self-administered.

We were organized for the purpose of investing in, holding and managing
income-producing residential, industrial, retail and commercial properties.
Although all of our properties were located in California as of September 30,
2002, we purchased a large shopping center in the Atlanta, Georgia area in
October 2002 (see Note 12). We do not own any residential properties. Most of
our leases are triple-net leases that make the tenant responsible for
maintenance, taxes and insurance.

Presentation of Interim Information

The accompanying unaudited financial statements include all normal adjustments
considered necessary, in the opinion of management, to present fairly the
financial position as of September 30, 2002 and the results of operations and
cash flows for the three and nine-month periods ended September 30, 2002 and
2001. Interim results are not necessarily indicative of results for a full
year.

The financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in our audited financial statements
and notes for the fiscal year ended December 31, 2001. Please review these
unaudited financial statements in conjunction with the audited financial
statements and the notes to them included in our annual report on Form 10-K for
the year ended December 31, 2001.

Rental Real Estate and Depreciation

Assets are stated at lower of cost or net realizable value. Depreciation is
computed using the straight-line method over their estimated useful lives of
31.5 to 39 years for financial reporting purposes.

In the event that facts and circumstances indicate that the cost of an asset
may be impaired, an evaluation of recoverability would be performed. If an
evaluation were required, the estimated future undiscounted cash flows
associated with the asset would be compared to the carrying amount to determine
if a write-down to market 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.

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the normal course of business, we may receive offers to purchase our
properties, either solicited or unsolicited. For the offers we accept, the
prospective buyer will usually require a due diligence period
before closing 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 the property are currently under way.
Properties classified as held for sale are segregated from rental real estate
in our financial statement presentation. As of September 30, 2002, we
classified six properties as held for sale, as they were listed for sale with
real estate brokers and we believed there was a high likelihood of sale in the
near term. There can be no assurance that the properties held for sale will be
sold in the near term, at prices we consider acceptable, or at all. Four
properties were classified as held for sale as of December 31, 2001.

Rental Income, Operating Expense and Capitalized Costs

Rental revenue is recognized on a straight-line basis to the extent that rental
revenue is deemed collectible. Percentage rents in the three and nine-month
periods ended September 30, 2002 and 2001 were immaterial, and recognized when
received. Improvements and betterments that increase the value of the property
or extend its useful life are capitalized.

Acquisition Costs

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

Loan Origination Fees

Loan origination fees are capitalized and amortized over the life of the loan
and included in interest expense.

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 financial institutions we believe
to be creditworthy and of high quality. Cash and cash equivalent balances are
held with various financial institutions and at times may exceed the Federal
Deposit Insurance Corporation limit of $100,000.

Consolidation

The accompanying consolidated financial statements include the financial
position, results of operations, and cash flows of West Coast Realty Investors,
Inc. and two wholly owned limited liability companies. All significant
intercompany amounts have been eliminated.

Use of Estimates

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and 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.

Net Income Per Share

We calculate net income per share by dividing the net income by the weighted
average number of shares outstanding for the period, adjusted for the 1:3
split. See Note 7. We are obligated to grant options to purchase
66,667 split adjusted shares of our stock to Allen Meredith, our President and Chief Operating
Officer. As of September 30, 2002, no options have been issued to Mr. Meredith
and there is therefore no dilutive impact for these options. See Note 11. We
did not have any other potentially dilutive securities in the three and
nine-month periods ended September 30, 2002 or 2001.

Comprehensive Income

Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS 130) 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. We do not have any components of comprehensive income
other than net income in the three and nine-month periods ended September 30,
2002 or 2001.

Reclassifications

We have made reclassifications to the prior years financial statements to
conform to the presentation of the current years financial statements.

Descriptive Information about Reportable Segments

Financial Accounting Standards Board Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement 131), requires
certain descriptive information to be provided about an enterprises reportable
segments. We have determined that we have one operating and reportable
segment, real estate (including rental real estate held for sale), which
comprised 76% of our total assets at September 30, 2002 and 95% of our total
assets at December 31, 2001 and approximately 99% our total revenues (including
revenue from discontinued operations) for both quarterly periods ended
September 30, 2002 and 2001. All the rental real estate we presently own is
located in California and Georgia. We acquired an Atlanta, Georgia shopping
center in October 2002 as described in Note 12. Because most of our leases are
to single tenants under long-term leases, the economic prospects of the region
generally do not affect our rental income or operating expense. Accordingly,
we do not use reporting by geographic region.

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our business focus has been the ownership and operation of suburban office
properties and light industrial buildings, although we acquired a shopping
center in the Atlanta, Georgia area in October 2002 (see Note 12) and may
pursue other real estate opportunities. We evaluate performance and allocate
resources primarily based on the opportunity for growth of net operating income
(NOI). Like the real estate industry generally, we define NOI as the excess
of all revenue generated by the property (primarily
rental revenue) less direct operating expenses (primarily, but not limited to,
property taxes, insurance, property management and maintenance expense, to the
extent not paid by the tenant). NOI excludes depreciation, capitalized
expenditures and interest expense. In addition to NOI growth prospects, we
evaluate properties for planned capital expenditures and various risks such as
non-payment of rent by tenant, term of the lease and other factors. NOI from
our properties including discontinued operations totaled $820,278 and
$1,070,403 in the three-month periods ended September 30, 2002 and 2001,
respectively, and $2,660,912 and $3,057,373 in the nine month periods ended
September 30, 2002 and 2001, respectively.

All revenues are from external customers and there are no revenues from
transactions with other segments. Interest income is not separately reported,
as it is immaterial. Interest expense on debt is not allocated to individual
properties, even if that debt is secured. Because we are organized as a REIT,
we have not provided for federal or state income taxes. See Note 8.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board finalized Statements No.
141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after September 30, 2001. SFAS
141 also requires that we recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after September 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142 that we reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that we identify reporting units for the purposes
of assessing potential future impairments of goodwill, reassess the useful
lives of other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance with the
guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires us to complete a transitional goodwill impairment
test nine months from the date of adoption. We are also required to reassess
the useful lives of other intangible assets within the first interim quarter
after adoption of SFAS 142.

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We had no previous transactions that resulted in the recognition of goodwill or
other intangible assets. We have adopted SFAS 141 and SFAS 142 and there was no
material effect on our financial statements.

Statement of Financial Accounting Standard 143 (SFAS 143), Accounting for Asset
Retirement Obligations, was issued in September 2001 and is effective for
fiscal years beginning after September 15, 2002. SFAS 143 requires that any
legal obligation related to the retirement of long-lived assets be quantified
and recorded as a liability, with the associated asset retirement cost
capitalized on the balance sheet in the period it is incurred when a reasonable
estimate of the fair value of the liability can be made. We have adopted SFAS
143 and there was no material effect on our financial statements.

Statement of Financial Accounting Standard 144 (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, was issued in August 2001 and is
effective for fiscal years beginning after December 15, 2001. SFAS 144 provides
a single, comprehensive accounting model for impairment and disposal of
long-lived assets and discontinued operations. We have adopted SFAS 144 and
there was no effect on net income, only changes in the classification of the
income and expense of discontinued operations.

Accounting Pronouncements Issued But Not Yet Adopted

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This statement eliminates the current requirement that gains and losses on debt
extinguishment must be classified as extraordinary items in the income
statement. Instead, such gains and losses will be classified as extraordinary
items only if they are deemed to be unusual and infrequent, in accordance with
the current GAAP criteria for extraordinary classification. In addition, SFAS
145 eliminates an inconsistency in lease accounting by requiring that
modifications of capital leases that result in reclassification as operating
leases be accounted for consistent with sale-leaseback accounting rules. The
statement also contains other nonsubstantive corrections to authoritative
accounting literature. The changes related to debt extinguishment will be
effective for fiscal years beginning after May 15, 2002, and the changes
related to lease accounting will be effective for transactions occurring after
May 15, 2002. Adoption of this standard will not have any immediate effect on
our financial statements.

In July, 2002, the FASB issued FASB Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which nullifies EITF Issues No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) and No. 88-10, Costs Associated with Lease Modification or
Termination. Statement 146 fundamentally changes how a company should account
for future restructurings.
The primary change from EITF Issue No. 94-3 is in when to recognize and how to
measure a liability for costs associated with an exit or disposal activity.
The guidance in EITF Issue No. 94-3 specified that a company should recognize a
liability for an exit cost at the date it commits to a plan to exit or dispose
of an activity. However, it was concluded in Statement 146 that a companys
commitment to a plan, by itself, does not create a present obligation to others
that meets the definition of a liability as defined in FASB Concepts Statement
No. 6, Elements of Financial Statements. As a result, Statement 146 requires
that a company recognize a liability for a cost associated with an exit or
disposal activity only when it meets the

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

definition of liability (i.e., when
the liability is incurred). For example, a company will now have to wait until
leased property (under an operating lease) is no longer used before it records
a liability for future rentals and such liability would be measured at fair
value. One-time termination benefits to employees are still accruable (but at
fair value) at the date of an exit plan if certain criteria similar to those in
EITF Issue No. 94-3 are met. Statement 146 also requires that a company
initially measure the liability at its fair value. The EITF Issue No. 94-3
only required the liability be reported when the costs can be reasonably
estimated, but provided no guidance on how to measure it.

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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  RENTAL REAL ESTATE

Our major categories of rental real estate are:

|                              |  |               |            |              |  |   |            |  
|----------------------------- |  | ------------- | ---------- | ------------ |  | - | ---------- | -
|                              |  | September 30, |            | December 31,
|                              |  | 2002          |            | 2001        
|                              |  |               |            |             
|                              |  | (Unaudited)   |            | (Audited)   
|Land                          |  | $             | 9,003,328  |              |  | $ | 10,672,326 |  
|Buildings and improvements    |  |               | 17,532,011 |              |  |   | 21,141,666 |  
|                              |  |               |            |              |  |   |            |  
|                              |  |               | 26,535,539 |              |  |   | 31,813,992 |  
|Less accumulated depreciation |  |               | (2,219,179 | )            |  |   | (2,355,675 | )
|                              |  |               |            |              |  |   |            |  
|Net rental real estate        |  | $             | 24,316,161 |              |  | $ | 29,458,317 |  
|                              |  |               |            |              |  |   |            |  

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

|                                     |  |               |            |              |  |   |            |  
|------------------------------------ |  | ------------- | ---------- | ------------ |  | - | ---------- | -
|                                     |  | September 30, |            | December 31,
|                                     |  | 2002          |            | 2001        
|                                     |  |               |            |             
|                                     |  | (Unaudited)   |            | (Audited)   
|Land                                 |  | $             | 2,548,472  |              |  | $ | 2,476,319  |  
|Buildings and improvements           |  |               | 6,070,089  |              |  |   | 3,977,000  |  
|                                     |  |               |            |              |  |   |            |  
|                                     |  |               | 8,618,561  |              |  |   | 6,453,319  |  
|Less accumulated depreciation        |  |               | (1,173,743 | )            |  |   | (1,050,477 | )
|                                     |  |               |            |              |  |   |            |  
|Net rental real estate held for sale |  | $             | 7,444,818  |              |  | $ | 5,402,842  |  
|                                     |  |               |            |              |  |   |            |  

Once a property is classified as held for sale, we stop charging depreciation
expense related to it.

In conjunction with the implementation of our business plan, we have determined
that some properties, primarily properties with small retail operations or
limited prospects for appreciation, are inconsistent with our new investment
objectives. Based on appraisals, estimated disposal costs and holding periods,
we determined, with the Advisor, that the total expected future cash flows and
the ultimate disposition of certain properties were less than their carrying
values at September 30, 2001. As a result, an impairment loss of $3,800,000,
primarily related to the Riverside, CA and Vacaville, CA properties, was
recorded in that quarter, measured as the amount by which the carrying amount
of the asset exceeded its fair value.

We earned a portion of our rental revenue from tenants whose individual rents
represented more than 10% of our total rental revenue (including revenue from
tenants in properties included in discontinued operations) for the three and
nine month periods ending September 30, 2002 and 2001. Specifically:

-Four tenants accounted for 20%, 16%, 13% and 10%,
respectively, in the three- month period ended September 30,
2002.

-Five tenants accounted for 22%, 19%, 15%, 12% and 10%,
respectively, in the three- month period ended September 30,
2001.

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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-Four tenants accounted for 21%, 16%, 13% and 11%,
respectively, in the nine-month period ended September 30,
2002.

-Five tenants accounted for 20%, 15%, 13%, 13% and 10%,
respectively, in the nine-month period ended September 30,
2001.

The tenant in our Ontario, CA property is a subsidiary of Adelphia
Communications, Inc, which has filed for protection under the federal
bankruptcy laws. The tenant has paid its rent through November 30, 2002.
We do not yet know whether we will be adversely affected this bankruptcy
filing.

NOTE 2  DISCONTINUED OPERATIONS

As of September 30, 2002, we have six properties designated as held for
sale and during the nine months ended September 30, 2002, we sold two
properties. The operations of these properties during the three and
nine-month periods ended September 30, 2002 and 2001 are as follows:

|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |           | 
|---------------------------------------------------------------- | -------------------------- |  | ------------- | ------- | ------------- |  | ------------- | --------- | ------------- |  | ------- | ------- |  |  | ---------- | --------- | 
|                                                                 |                            |  | Three         |         | Three         |  | Nine          |           | Nine         
|                                                                 |                            |  | months ended  |         | months ended  |  | months ended  |           | months ended 
|                                                                 |                            |  | September 30, |         | September 30, |  | September 30, |           | September 30,
|                                                                 |                            |  | 2002          |         | 2001          |  | 2002          |           | 2001         
|                                                                 |                            |  |               |         |               |  |               |           |              
|                                                                 |                            |  | (Unaudited)   |         | (Unaudited)   |  | (Unaudited)   |           | (Unaudited)  
|Revenues                                                         |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|                                                                 | Rental                     |  | $             | 215,291 |               |  | $             | 446,342   |               |  | $       | 781,646 |  |  | $          | 1,239,783 | 
|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|                                                                 |                            |  | 215,291       |         |               |  | 446,342       |           |               |  | 781,646 |         |  |  | 1,239,783  |          
|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|Cost and expenses                                                |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|                                                                 | Interest                   |  |               | 111,986 |               |  |               | 128,498   |               |  |         | 345,717 |  |  |            | 389,321   | 
|                                                                 | General and administrative |  |               |        |               |  |               | 44        |               |  |         | 1,749   |  |  |            | 49,088    | 
|                                                                 | Impairment loss            |  |               |        |               |  |               | 3,428,228 |               |  |         |        |  |  |            | 3,428,228 | 
|                                                                 | Operating                  |  |               | 37,131  |               |  |               | 35,940    |               |  |         | 189,316 |  |  |            | 132,569   | 
|                                                                 | Depreciation               |  |               | 6,851   |               |  |               | 67,826    |               |  |         | 23,979  |  |  |            | 203,477   | 
|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|                                                                 |                            |  | 155,968       |         |               |  | 3,660,536     |           |               |  | 560,761 |         |  |  | 4,202,683  |          
|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|Subtotal                                                         |                            |  | 59,323        |         |               |  | (3,214,194    | )         |               |  | 220,885 |         |  |  | (2,962,900 | )        
|Insurance recovery from lawsuit                                  |                            |  |              |         |               |  |              |           |               |  |        |         |  |  | 165,053    |          
|Gain on sale of rental real
estate and real estate held
for sale |                            |  | 498,161       |         |               |  |              |           |               |  | 734,211 |         |  |  |           |          
|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          
|Net income (loss) from
discontinued operations                   |                            |  | 557,484       |         |               |  | (3,214,194    | )         |               |  | 955,096 |         |  |  | (2,797,847 | )        
|                                                                 |                            |  |               |         |               |  |               |           |               |  |         |         |  |  |            |          

NOTE 3  FUTURE MINIMUM RENTAL INCOME

As of September 30, 2002, future minimum rental income under the existing
leases that have remaining noncancelable terms in excess of one year are as
follows:

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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                           |      |        |           |           |            | 
|-------------------------- | ---- | ------ | --------- | --------- | ---------- | 
|Years ending September 30, |      | Amount
|                           |      |       
|                           | 2003 |        | $         | 3,598,062 |           
|                           | 2004 |        |           | 3,082,877 |           
|                           | 2005 |        |           | 3,102,923 |           
|                           | 2006 |        |           | 2,240,024 |           
|                           | 2007 |        |           | 1,682,558 |           
|Thereafter                 |      |        | 5,896,824 |          
|                           |      |        |           |          
|                           |      | Total  |           | $         | 19,603,268 | 
|                           |      |        |           |          

Future minimum rental income does not include lease renewals or new leases that
may result after a noncancelable lease expires and includes future minimum
rental income from discontinued operations.

NOTE 4  DEPOSITS AND ACQUISITION EXPENSES

As of September 30, 2002, we had made deposits totaling $4,400,000 toward the
purchase of a shopping center in the Atlanta, Georgia area. In addition, we
incurred approximately $148,000 in legal and other costs toward the purchase of
that property. We purchased this property in October 2002. See Note 12.

NOTE 5  RELATED PARTY TRANSACTIONS

Until March 31, 2002, we had two agreements with the Advisor: (a) to provide
advice on investments, and (b) to administer our day-to-day operations,
including property management. Our management and advisory relationships with
the Advisor were terminated effective March 31, 2002. Since that date, we have
been fully self-administered and self-managed, and no fees are due the Advisor.

During the quarter ended March 31, 2002, no advisory fees were due to the
Advisor, and the Advisor did not charge us for property management fees or for
a reimbursement of overhead costs due to the relatively low level of service
provided in that period.

At September 30, 2002, the Advisor and a related entity owned at total of
22,556 of our shares, which is less than 1% of our outstanding shares. Two of
our directors are also directors of the Advisor and its affiliates.

The following related party transactions are included in the statements of
income:

|                                                                                                                              |  |                    |   |                   |  |      |        |      |  |  |   |  |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | - | ----------------- |  | ---- | ------ | ---- |  |  | - |  |  | - | ------- | 
|                                                                                                                              |  | Three months ended |   | Nine months ended
|                                                                                                                              |  | September 30,      |   | September 30,    
|                                                                                                                              |  |                    |   |                  
|                                                                                                                              |  | 2002               |   | 2001              |  | 2002 |        | 2001
|                                                                                                                              |  |                    |   |                   |  |      |        |     
|Overhead expenses reimbursed to the WCRA                                                                                      |  |                    |  |                   |  | $    | 6,000  |      |  |  |  |  |  | $ | 18,000  | 
|                                                                                                                              |  |                    |   |                   |  |      |        |      |  |  |   |  |  |   |         | 
|Property management fees earned by WCRM                                                                                       |  |                    |  |                   |  | $    | 45,758 |      |  |  |  |  |  | $ | 132,290 | 
|                                                                                                                              |  |                    |   |                   |  |      |        |      |  |  |   |  |  |   |         | 
|Advisory fees earned by WCRA, which
waived collection of these fees, which
are included in additional paid-in
capital in 2001 |  |                    |  |                   |  | $    | 68,075 |      |  |  |  |  |  | $ | 170,402 | 
|                                                                                                                              |  |                    |   |                   |  |      |        |      |  |  |   |  |  |   |         | 

15



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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, we had related party accounts payable as follows:

|                                   |  |                    |        |                   |  |   |        | 
|---------------------------------- |  | ------------------ | ------ | ----------------- |  | - | ------ | 
|                                   |  | September 30, 2002 |        | December 31, 2001
|                                   |  |                    |        |                  
|                                   |  | (Unaudited)        |        | (Audited)        
|                                   |  |                    |        |                  
|Associated Securities Corporation  |  | $                  | 24,577 |                   |  | $ | 22,000 | 
|West Coast Realty Management, Inc. |  |                    |       |                   |  |   | 13,477 | 
|West Coast Realty Advisors, Inc.   |  |                    |       |                   |  |   | 2,000  | 
|                                   |  |                    |        |                   |  |   |        | 
|                                   |  | $                  | 24,577 |                   |  | $ | 37,477 | 
|                                   |  |                    |        |                   |  |   |        | 

NOTE 6  NOTES PAYABLE

Notes payable consist of the following:

|                                                                                                                                                                                      |  |   |                                  |  |              |   |           |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------------------------------- |  | ------------ | - | --------- |  | 
|                                                                                                                                                                                      |  |   | Outstanding Principal Balance on
|                                                                                                                                                                                      |  |   |                                 
|                                                                                                                                                                                      |  |   | September 30,                    |  | December 31,
|                                                                                                                                                                                      |  |   | 2002                             |  | 2001        
|                                                                                                                                                                                      |  |   |                                  |  |             
|                                                                                                                                                                                      |  |   | (Unaudited)                      |  | (Audited)   
|8.250% promissory note secured by our
Huntington Beach property, monthly
principal and interest payments are
$4,934, due February 1, 2004. This
property was sold in April 2002       |  |   |                                 |  |              | $ | 493,605   | 
|8.250% promissory note secured by our
Fresno property, monthly principal and
interest payments are $5,244, due August
1, 2003 with a balloon payment of $537,256                      |  | $ | 552,577                          |  |              |   | 565,136   | 
|8.250% promissory note secured by our
Riverside property, monthly principal and
interest payments are $9,116, due
November 8, 2004 with a balloon payment
of $1,062,369               |  |   | 1,101,388                        |  |              |   | 1,113,865 | 
|6.970% 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                  |  |   | 4,625,000                        |  |              |   | 1,626,410 | 
|8.000% promissory note secured by our
Sacramento property (Java City 721 West
Del Paso Road), with fully amortizing
monthly principal and interest payments
of $3,126 to June 1, 2018 |  |   | 332,196                          |  |              |   | 340,187   | 
|6.970% 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                  |  |   | 3,785,000                        |  |              |   | 2,140,535 | 
|8.330% promissory note secured by our
Roseville property, monthly principal and
interest payments are $11,510, due July
1, 2008 with a balloon payment of $1,187,329                  |  |   | 1,366,022                        |  |              |   | 1,383,654 | 

16



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##### Table of Contents



WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6  NOTES
PAYABLE (continued)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |                                  |  |              |  |           |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------- |  | ------------ |  | --------- |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | Outstanding Principal Balance on
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | September 30,                    |  | December 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | 2002                             |  | 2001        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |                                  |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | (Unaudited)                      |  | (Audited)   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |                                  |  |             
|7.375% promissory note secured by our
Corona property, monthly principal and
interest payments are $7,309 due June 1,
2011, with a balloon payment of $700,039
The rate is adjustable on the fourth and
eighth anniversary years of the loan, to
the weekly average of the five-year
Treasury Note yield for the seventh week
prior to the Adjustment Date plus 195
basis points, but no less than the
existing rate. This property was sold in
September 2002 |  |  |                                 |  |              |  | 944,456   | 
|6.970% 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                                                                                                                                                                                                                                                                           |  |  | 1,700,000                        |  |              |  | 944,456   | 
|7.500% promissory note secured by our
Chino property, monthly principal and
interest payments are $6,836, due October
1, 2010, with a balloon payment of
$682,409 The rate is adjustable on the
fourth and eighth anniversary years of
the loan, to the weekly average of the
five-year Treasury Note yield for the
seventh week prior to the Adjustment Date
plus 200 basis points, but no less than
the existing rate                                        |  |  | 867,584                          |  |              |  | 879,918   | 
|7.500% promissory note secured by our
Vacaville property, monthly principal and
interest payments are $10,346, due
October 1, 2010, with a balloon payment
of $1,032,923. The rate is adjustable on
the fourth and eighth anniversary years
of the loan, to the weekly average of the
five-year Treasury Note yield for the
seventh week prior to the Adjustment Date
plus 200 basis points, but no less than
the existing rate                                |  |  | 1,313,121                        |  |              |  | 1,331,784 | 
|7.500% promissory note secured by our
Cerritos property, monthly principal and
interest payments are $9,238, due April
1, 2011, with a balloon payment of
$922,137. The rate is adjustable on the
fourth and eighth anniversary years of
the loan, to the weekly average of the
five year Treasury Note yield for the
seventh week prior to the Adjustment Date
plus 275 basis points, but no less than
the existing rate                                      |  |  | 1,183,618                        |  |              |  | 1,199,676 | 
|7.500% promissory
note secured by our
Ontario property,
monthly principal and
interest payments are
$22,390, due March 1,
2004, with a balloon
payment of $2,764,436                                                                                                                                                                                                                                                                                           |  |  | 2,842,268                        |  |              |  | 2,880,329 | 

17



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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6  NOTES
PAYABLE (continued)

|                                                                                                                                                                     |       |  |                                  |            |              |  |           |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- |  | -------------------------------- | ---------- | ------------ |  | --------- | ---------- | 
|                                                                                                                                                                     |       |  | Outstanding Principal Balance on
|                                                                                                                                                                     |       |  |                                 
|                                                                                                                                                                     |       |  | September 30,                    |            | December 31,
|                                                                                                                                                                     |       |  | 2002                             |            | 2001        
|                                                                                                                                                                     |       |  |                                  |            |             
|                                                                                                                                                                     |       |  | (Unaudited)                      |            | (Audited)   
|                                                                                                                                                                     |       |  |                                  |            |             
|6.970% 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 |       |  | 4,910,000                        |            |              |  | 3,952,499 |           
|                                                                                                                                                                     |       |  |                                  |            |              |  |           |           
|                                                                                                                                                                     | Total |  | $                                | 24,578,774 |              |  | $         | 19,796,510 | 
|                                                                                                                                                                     |       |  |                                  |            |              |  |           |           

The aggregate annual future maturities of our notes payable at September 30,
2002 are as follows:

|                           |            |        |   |            |            | 
|-------------------------- | ---------- | ------ | - | ---------- | ---------- | 
|Years ending September 30, |            | Amount
|                           |            |       
|                           | 2003       |        | $ | 882,057    |           
|                           | 2004       |        |   | 3,083,473  |           
|                           | 2005       |        |   | 1,361,455  |           
|                           | 2006       |        |   | 319,709    |           
|                           | 2007       |        |   | 343,825    |           
|                           | Thereafter |        |   | 18,588,255 |           
|                           |            |        |   |           
|                           |            | Total  |   | $          | 24,578,774 | 
|                           |            |        |   |           

NOTE 7  NET INCOME AND DIVIDENDS PER SHARE

Dividends are declared by our board of directors and are based on a variety of
factors, including the quarters net income from operations before depreciation
and amortization, cash requirements to meet REIT distribution tests, other cash
requirements and other factors as the board deems appropriate.

On October 18, 2002 our board of directors
approved the filing on November 15, 2002 of our amended and
restated certificate of incorporation with the Delaware Secretary of
State in the form approved by our stockholders at our annual meeting
on September 24, 2002. Among other things, the amended and
restated certificate of incorporation will make effective a reverse
1:3 split of our common stock, to be effective November 15, 2002. Stockholders entitled to
fractional shares resulting from the stock split will receive cash in lieu of
such fractional share based on the last trade on an exchange of our common
stock prior to the reverse split. Accordingly, all weighted average share and
per share amounts in the accompanying financial statements and notes have been
restated to reflect the stock split.

Net Income Per Share was computed using the split adjusted weighted average
number of outstanding shares of 975,989 and 975,989 for the three and
nine-month periods ended September 30, 2002 and 2001. We are obligated to
issue options to purchase 66,667 split adjusted shares of common stock to our President and
Chief Executive Officer. As of September 30, 2002, no options have been issued
to Mr. Meredith and there is therefore no dilutive impact for these options.
We did not issue any other potentially dilutive securities in the three and
nine-month periods ended September 30, 2002 or 2001.

NOTE 8  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 (the Code). As a result, we will not be
subject to federal taxation at the corporate level

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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

to the extent we distribute,
annually, at least 90% of our REIT taxable income, as defined by the Code, to
our stockholders and satisfy certain other requirements. In addition,
California, the state in which in which
we owned and operated real estate properties through September 30, 2002, has
provisions equivalent to the federal REIT provisions. Accordingly, we have not
provided for federal or state income taxes in the accompanying financial
statements.

NOTE 9  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash flow information follows:

|                                                          |                                                                                  |      |           |      |  |   |           |         | 
|--------------------------------------------------------- | -------------------------------------------------------------------------------- | ---- | --------- | ---- |  | - | --------- | ------- | 
|Nine month periods ended September 30,                    |                                                                                  | 2002 |           | 2001
|                                                          |                                                                                  |      |           |     
|Cash paid during the period for interest                  |                                                                                  | $    | 1,067,504 |      |  | $ | 1,164,118 |        
|                                                          |                                                                                  |      |           |      |  |   |           |        
|Supplemental disclosure of non-cash financing
Activities: |                                                                                  |      |           |      |  |   |           |        
|                                                          | Dividends declared net of dividends paid                                         |      |           |     |  |   | $         | 439,141 | 
|                                                          |                                                                                  |      |           |      |  |   |           |        
|                                                          | Equity contributed by an affiliate through
expense reimbursement                 |      |           |     |  |   | $         | 170,402 | 
|                                                          |                                                                                  |      |           |      |  |   |           |        
|Supplemental disclosure of non-cash investing
activities: |                                                                                  |      |           |      |  |   |           |        
|                                                          | Transfer of lessees assets to the company in
satisfaction of account receivable |      |           |     |  |   | $         | 287,036 | 
|                                                          |                                                                                  |      |           |      |  |   |           |        

NOTE 10  INSURANCE RECOVERY

In March 2001, we received $165,053 from Bankers Standard Insurance Company
(Bankers Standard) in partial settlement of a lawsuit regarding Bankers
Standards responsibility to defend us in a lawsuit related to the Riverside
property. See Note 11, below. Bankers Standard is also required to pay the
subsequent costs of this action. We had previously expensed these legal costs,
and as a result, we took the proceeds of the settlement into income in March
2001 as part of discontinued operations.

NOTE 11  COMMITMENTS AND CONTINGENCIES

In March 2002, we entered into an employment agreement with Mr. Allen K.
Meredith, our President and Chief Executive Officer, under which he is entitled
to options to purchase 66,667 split adjusted shares of our common stock at an exercise price
per share equal to the fair market value of our common stock at the date of
grant. These options would vest over a period of two years. As of September
30, 2002, no options have been issued to Mr. Meredith and there is therefore no
dilutive impact for these options. Further, we would be obligated to make
severance payments to Mr. Meredith, upon the termination of his employment or
his resignation for certain reasons, of one years salary plus bonus, if any.

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 property located in Riverside. We own the theater and have leased
it to Sanborn Theaters, Inc., who operates 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

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WEST COAST REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

multiplier, attorneys fees and punitive
damages. Although the plaintiffs have not quantified their damages, we expect
that the plaintiffs claims will exceed $300,000. The United States Department
of Justice has intervened in this suit against Sanborn Theaters. 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 or overall financial
condition.

On July 31, 2002, James E. Prock filed an action against Allen Meredith, our
Chief Executive Officer and us, in Los Angeles County Superior Court. Mr.
Prock was an employee of the Advisor and not an employee of West Coast Realty
Investors, Inc. He provided services as our Chief Operating Officer from 1992
to August 2001 and as Acting Chief Operating Officer from August 2001 to March
2002. The lawsuit alleges that during the fall of 2001 and winter of 2002, we
made purported promises to Mr. Prock that we would hire him as a full time
managerial employee after we became a self managed REIT. The lawsuit seeks
damages for unspecified purported lost compensation and punitive damages, and
the discovery process has commenced. We cannot determine the likelihood of an
unfavorable outcome or range of potential loss, if any. We believe the suit is
without merit 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 or overall financial condition.

NOTE 12  SUBSEQUENT EVENTS

On October 3, 2002, our board of directors declared a dividend of $0.30 per
split adjusted common share to holders of record on October 11, 2002, payable
on October 25, 2002.

On October 15, 2002, we completed the purchase of the Northlake Tower Festival
Shopping Center.
Northlake Tower Festival is a 321,000 square foot shopping center on
approximately 38 acres of land in Tucker, DeKalb County, in northeastern
metropolitan Atlanta. It is currently approximately 97% leased to 47 tenants
including ToysRUs, OfficeMax, PETsMART, Havertys, AMC Theaters and Bally
Total Fitness. The land is owned by an unrelated third party and is subject to
a separate ground lease that extends through 2057. We paid a total of
approximately $3.8 million in cash and assumed the first mortgage debt payable
to GECC that encumbers the property, which has a principal balance of
approximately $16.7 million, has an interest rate of 7.64% and has a 30-year
amortization.

On September 24, 2002, we held our annual meeting of stockholders.
Stockholders were asked to vote (1) to approve the amendment and restatement of
our certificate of incorporation, (2) to approve the amendment and restatement
of our bylaws, (3) to elect the board of directors and (4) to approve the West
Coast Realty Investors, Inc. 2002 Stock Incentive Plan. Our stockholders
approved each of these proposals. The effectiveness of the amended and
restated certificate of incorporation and the amended and restated bylaws was
contingent on our shares being listed for trading on the American Stock
Exchange (the Amex). In October, the Amex informed our management of its
informal approval of our shares for listing, and on October 18, 2002, our board
of directors approved the filing of our amended and restated certificate of
incorporation with the Delaware Secretary of State on November 15, 2002. On
October 31, 2002, our common stock was listed and became available for trading
on the American Stock Exchange, thus satisfying the contingency for filing the
amended and restated certificate of incorporation. Among other things, as
described in our August 16, 2002 proxy materials for the annual meeting, this
filing will effectuate a one-for-three reverse split of our outstanding common
stock on November 15, 2002.

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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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;                                                                                                                                                     
|
| |  |  | 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;                                                                                                                                                              
|
| |  |  | our future depreciation expenses;                                                                                                                                                 
|
| |  |  | litigation matters and legal proceedings, our defenses to
such matters and our contesting of
such matters;                                                                        
|
| |  |  | our ability to meet our debt obligations;                                                                                                                                         
|
| |  |  | the proposed sales of certain properties;                                                                                                                                         
|
| |  |  | our ability to obtain outside financing;                                                                                                                                          
|
| |  |  | identifying, acquiring and successfully integrating new
properties, including the Atlanta shopping center we purchased in
October 2002;                                           
|
| |  |  | the type and locations of real estate investments we may make;                                                                                                                    
|
| |  |  | our ability to qualify as a real estate investment trust under the Internal Revenue Code of
1986, as amended;                                                                     
|
| |  |  | environmental risks;                                                                                                                                                              
|
| |  |  | natural disasters and other threats to our properties;                                                                                                                            
|
| |  |  | 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 Operating Results. We undertake no obligation to
update forward-looking statements to reflect events or circumstances occurring
after the date of this Report on Form 10-Q.

21



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##### Table of Contents



RESULTS OF OPERATIONS

Overview

West Coast Realty Investors, Inc. was 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.
Through March 31, 2002, we were advised by West Coast Realty Advisors, Inc.
(WCRA) and our properties were managed by West Coast Realty Management, Inc.
(WCRM) (collectively, the Advisor), each of which is a wholly-owned
subsidiary of Associated Financial Group, Inc. The Advisor managed and oversaw
our investments, subject to the direction of the board of directors. Our
management and advisory relationships with the Advisor were terminated
effective March 31, 2002, and since that date we have been self-managed and
self-administered.

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 and may pursue
other real estate opportunities. Most of our leases are triple-net leases
where the tenant is responsible for maintenance, taxes and insurance.

Other than our becoming self-managed and self-advised as noted above, the most
significant factors affecting our historical financial results are as follows:



| |  |  | Early termination of Vacaville lease. In August 2001, our tenant
in our Vacaville property exercised its early termination option in the
lease. This property generated approximately 8% of our total gross
rental income (including revenue from discontinued operations) before
its lease terminated. To date, we have not secured a replacement
tenant for this property.                                                                                                                                                                            
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Sale of Huntington Beach Property. On April 26, 2002, we sold our
Huntington Beach property to an unaffiliated buyer for $1,500,000,
resulting in a gain of approximately $230,000. This property generated
approximately 3% our total gross rental income (including revenue from
discontinued operations) before its sale.                                                                                                                                                                                                                            
|
| |  |  | Sale of Corona property. On May 31, 2002, the lease expired on our
Corona property, and to date, we have not secured a replacement tenant
for this property. This property generated approximately 5% our total
gross rental income (including revenue from discontinued operations)
before its lease expired. We sold this property in September 2002 to
an unaffiliated buyer for $2,300,000, resulting in a gain of
approximately $500,000.                                                                                                          
|
| |  |  | Refinancing of four properties in August 2002. On August 5, 2002,
we refinanced the four loans secured by our Folsom, Irvine, Sacramento
(Horn Road), and Tustin properties. The refinancing replaced
approximately $8,500,000 of existing debt on four properties with
approximately $15,020,000 of new debt, thus increasing the aggregate
loan balance of these loans by approximately $6,500,000. The loans
bear interest at a fixed rate of 6.97% per annum. This refinancing
increased our fixed debt payments by approximately $35,000 per month.

In the future, we believe our financial results will also be affected by the
following:



| |  |  | The August 2002 refinancing of the four loans described above.
| | - |  | --------------------------------------------------------------

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##### Table of Contents





| |  |  | On October 15, 2002, we acquired Northlake Tower Festival, a 321,000
square foot shopping center on approximately 38 acres of land in Tucker,
DeKalb County, in northeastern metropolitan Atlanta. Northlake is
currently approximately 97% leased to 47 tenants including ToysRUs,
OfficeMax,
PETsMART, Havertys, AMC Theaters and Bally Total Fitness. We paid a total
of approximately $3.8 million in cash and assumed the $16.7 million mortgage
on the property.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the August 2002 refinancing, as of September 30, 2002, we had
total assets of $41,983,874, secured indebtedness of $24,578,774, total
liabilities of $25,164,804 and a debt-to-total assets ratio of 60%. After
giving effect to the purchase of the Northlake Tower Festival, we estimate we
will increase our debt-to-total assets ratio to approximately 72% (when
calculated on the basis of generally accepted accounting principles, which
reflects depreciation and thus may result in assets being valued at less than
their value as determined by the board). In addition, our aggregate monthly
debt service has increased from approximately $150,000 to $300,000 or 100%,
from June 2002 to November 2002, which reflects the sale of our Corona property
and the assumption of debt with the purchase of the Northlake Tower Festival.
We plan to use revenues in excess of operating costs from the Northlake Tower
Festival property to pay the increased debt service.

The tenant in our Ontario property is a subsidiary of Adelphia Communications,
Inc, which has filed for protection under the federal bankruptcy laws. The
tenant has paid its rent through November 30, 2002. We do not yet know whether
we will be adversely affected by this bankruptcy filing. This property generated
approximately 10% of our total gross rental income (including revenue from
discontinued operations) for the quarter ended September 30, 2002.

Quarter ended September 30, 2002 compared to the quarter ended September 30,
2001

Operations for the quarterly periods ended September 30, 2002 and 2001
represented full periods of rental operations for all of our properties, other
than properties included in discontinued operations. The following properties
are included in discontinued operations: Fresno, Roseville, Riverside
Sacramento (717 W. Del Paso Road), Sacramento (721 W. Del Paso Road),
Vacaville, Huntington Beach (sold April 2002) and Corona (sold September 2002).

Rental revenue increased by $8,147 (1%) for the quarter ended September 30,
2002 compared to the quarter ended September 30, 2001.

Interest income increased by $2,859 (24%)for the quarter ended September 30,
2002 compared to the quarter ended September 30, 2001 primarily due to higher
average balances maintained in interest-earning assets from our refinancing on
August 5, 2002 and offset in part lower interest rates.

Interest expense increased by $152,172 (65%) for the quarter ended September
30, 2002 compared to the quarter ended September 30, 2001 primarily due to the
refinancing of four existing loans on August 5, 2002. The refinancing of the
loans increased the loan balance by approximately $6,500,000 and replaced
variable rate debt at our Folsom and Irvine properties with fixed rate debt
with a higher interest rate. In addition, we incurred approximately $77,000 in
a prepayment penalty and the expense of unamortized loan origination fees of
the loans we refinanced.

Impairment loss was $371,772 for the quarter ended September 30, 2001; there
was no impairment loss during the same period in 2002.

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General and administrative costs increased by $187,357 (102%) principally due
to our conversion to a self-advised and self-managed REIT, including expenses
related to hiring of employees, travel expenses, insurance and legal and
related fees for our proxy for the annual meeting of stockholders. This
increase was offset in part by our having to pay no advisory fee in 2002
because our agreement with the Advisor was terminated on March 31, 2002.

Depreciation expense decreased by $9,542 (8%) for the quarter ended September
30, 2002 compared to the quarter ended September 30, 2001, primarily due to
lower depreciable basis on one property due to the write down from the
impairment loss in 2002.

Operating expenses increased by $26,030 (26%) primarily due to painting in our
Irvine and Sacramento (Horn Road) properties and offset in part by the
elimination of the management fee to the Advisor on the termination of the
agreement on March 31, 2002.

Discontinued operations and gain on sale of rental real estate and rental real
estate held for sale was $557,484 in the quarter ended September 30, 2002
compared to a loss of $3,214,194 in the quarter ended September 30, 2001. The
change in 2002 includes a gain of approximately $500,000 from the sale of the
Corona property. We sold no properties in the same period in 2001. In
addition, in 2001, we recorded an impairment loss of approximately $3,400,000.
The impairment loss was offset in part by revenue for the entire quarter ended
September 30, 2001 for the Huntington Beach and Corona properties. We sold
these properties in 2002 and received no revenues from these properties in the
quarter ended September 30, 2002. Further, we received a lease termination
fee of approximately $150,000 from the early termination of the lease at the
Vacaville property in the quarter ended September 30, 2001.

Net income for the quarter ended September 30, 2002 was $343,464, compared to
net loss of $3,454,975 for the quarter ended September 30, 2001. This
increase was largely attributed to the gain on sale of our Corona property in
2002 and the impairment loss in 2001.

The weighted average number of shares outstanding for the quarter ended
September 30, 2002 was 975,989 (split adjusted), the same as the comparable period in prior
year. The net (loss) income per share before discontinued operations and gain
on sale of rental real estate and rental real estate held for sale
was ($0.22)
in 2002 compared to a net loss per share of ($0.25) in 2001 largely due the
impairment loss and offset in part by higher interest and general and
administrative expense in 2002.

Nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001

Operations for the nine months ended September 30, 2002 and 2001 represented
full periods of rental operations for all of our properties, other than
properties included in discontinued operations. The following properties are
included in discontinued operations: Fresno, Roseville, Riverside Sacramento
(717 W. Del Paso Road), Sacramento (721 W. Del Paso Road), Vacaville,
Huntington Beach (sold April 2002) and Corona (sold September 2002).

Rental revenue increased by $76,454 (3%) for the nine months ended September
30, 2002 compared to the nine months ended September 30, 2001 primarily due to
a new lease with higher rent in our Cerritos property

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Interest income decreased by $21,322 (48%) for the nine months ended September
30, 2002 compared to the nine months ended September 30, 2001 primarily due to
lower average balances maintained in interest-earning assets and lower interest
rates in 2002.

Interest expense increased by $60,964 (8%) for the nine months ended September
30, 2002 compared to the nine months ended September 30, 2001 primarily due to
the refinancing of four existing loans on August 5, 2002. The refinancing of
the loans increased the loan balance by approximately $6,500,000 and replaced
variable rate debt at our Folsom and Irvine properties with fixed rate debt
with a higher interest rate. In addition, we incurred approximately $77,000 in
a prepayment penalty and the expense of unamortized loan origination fees of
the loans we refinanced. In addition, in 2002, two variable rate loans
had significantly lower interest rates than in the same period in 2001; these
loans were refinanced on August 5, 2002 into fixed rate loans.

General and administrative costs increased by $461,897 (126%) for the nine
months ended September 30, 2002 compared to the nine months ended September 30,
2001 principally due to our conversion to a self-advised and self-managed REIT,
including expenses related to hiring of employees, travel expenses, insurance
and legal and related fees for our proxy materials for the annual meeting of
stockholders. This increase was offset in part by our having to pay no
advisory fee in 2002 because our agreement with the Advisor was terminated on
March 31, 2002.

Impairment loss was $371,772 for the nine months ended September 30, 2001;
there was no impairment loss during the same period in 2002.

Depreciation expense decreased by $30,350 (8%) for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001,
primarily due to lower depreciable basis on one property due to the write down
from the impairment loss.

Operating expenses decreased by $41,709 (14%) for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001
primarily due the elimination of the management fee in 2002 to the Advisor on
the termination of the agreement on March 31, 2002 and offset in part by
painting in our Irvine and Sacramento (Horn Road) properties in 2002.

Discontinued operations and gain on sale of rental real estate and rental real
estate held for sale was $955,096 in the nine months ended September 30, 2002
compared to a loss of $2,797,847 in the nine months ended September 30, 2001.
The change in 2002 includes a gain of approximately $730,000 from the sale of
the Huntington Beach and Corona properties. We sold no properties in the same
period in 2001. In addition, in 2001, we recorded an impairment loss of
approximately $3,400,000. The impairment loss was offset in part by revenue
for the entire nine months ended September 30, 2001 for the Huntington Beach
and Corona properties, which were sold in 2002. Further, we received a lease
termination fee of approximately $150,000 from the early termination of the
lease at the Vacaville property and approximately $165,000 from an insurance
recovery from a lawsuit in the nine months ended September 30, 2001.

Net income for the nine months ended September 30, 2002 was $1,064,514,
compared to net loss of $2,664,531 for the nine months ended September 30,
2001. This increase was largely attributed to the gain on sale the Huntington
Beach and Corona properties in 2002 and the impairment loss in 2001.

The weighted average number of shares outstanding for the nine months ended
September 30, 2002 was 975,989 (split adjusted), the same as the comparable period in the
prior year. The net income per share before

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discontinued operations and gain
on sale of rental real estate and rental real estate held for sale
was $0.11 in
2002 compared to $0.14 in 2001 largely due higher general and administrative in
2002 and offset in part by the impairment loss in 2001.

Inflation

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

CRITICAL ACCOUNTING POLICIES

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 believe the critical accounting
policies that most affect our consolidated financial statements are described
below.

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 the leases also provide for additional
revenue based on contingent percentage income, which is recorded on an accrual
basis once the specified target that triggers this type of income is achieved.
The leases also typically require our tenants to pay us for common area
maintenance, real estate taxes and other operating expenses. We recognize
these payments as revenue in the period the applicable costs are incurred.

Real Estate  We record real estate assets at the lower of cost or fair value
if impaired. Costs incurred to unaffiliated third parties for the acquisition
of properties are capitalized.

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.

In the normal course of business, we may receive offers to purchase our
properties, either solicited or unsolicited. For the offers we accept, the
prospective buyer will usually require a due diligence period before closing
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 the property are currently under way. Properties
classified as held for sale are segregated from rental real estate in our
financial statement presentation and we stop recording depreciation on a
property once we classify it as held for sale. There can be no assurance that
the properties held for sale will be sold in the near term, at prices we
consider acceptable, or at all.

Properties classified as held for sale are segregated from rental real estate
in our financial statement presentation. We stop recording depreciation on a
property once we classify it as held for sale.

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 and
disclosure of contingent assets and liabilities at the date of the

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financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.

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, 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. 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 include (a) net
proceeds of refinancing selected existing notes payable, and (b) selling
assets. Further, we may attempt to obtain funding by issuing additional equity
either in the form of common stock or through joint ventures.

The following table presents our contractual cash obligations as of September
30, 2002:

|                                   |  |                        |            |          |  |             |         |            |  |          |           |           |  |  |         |  |  |  |            | 
|---------------------------------- |  | ---------------------- | ---------- | -------- |  | ----------- | ------- | ---------- |  | -------- | --------- | --------- |  |  | ------- |  |  |  | ---------- | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |            |          |  | Less Than   |         | One to     |  | Three to |           | Over Five
|Contractual Obligations            |  | Total                  |            | One year |  | Three Years |         | Five Years |  | Years   
|                                   |  |                        |            |          |  |             |         |            |  |         
|Long-Term Debt                     |  |                        | 24,578,774 |          |  |             | 882,057 |            |  |          | 4,444,928 |           |  |  | 663,534 |  |  |  | 18,588,255 | 
|                                   |  |                        |            |          |  |             |         |            |  |          |           |           |  |  |         |  |  |  |            | 
|Total Contractual Cash
Obligations |  |                        | 24,578,774 |          |  |             | 882,057 |            |  |          | 4,444,928 |           |  |  | 663,534 |  |  |  | 18,588,255 | 
|                                   |  |                        |            |          |  |             |         |            |  |          |           |           |  |  |         |  |  |  |            | 

At September 30, 2002, our net real estate investments totaled approximately
$31,760,976 for the 13 properties we own, including discontinued operations.
Depending upon the availability and cost of external capital, we anticipate
making additional investments in light industrial and suburban office
properties, and in other types of real property. In particular, in October
2002 we acquired an Atlanta, Georgia shopping center for a gross purchase price
of approximately $20,400,000, plus additional expenses associated with the
inspection and closing. This acquisition represents a change in our business
focus, which had previously been to acquire, own and manage light industrial
and suburban office properties in California.

The tenant in our Ontario property is a subsidiary of Adelphia Communications,
Inc, which has filed for protection under the federal bankruptcy laws. The
tenant has paid its rent through November 30, 2002. We do not yet know whether
we will be adversely affected this bankruptcy filing.

On August 5, 2002 we completed the refinancing of approximately $8,500,000 of
mortgages on four properties, increasing the mortgage balance to approximately
$15,000,000. We intend to use the approximately $6,500,000 in net proceeds for
general corporate purposes, including funding the $4,000,000 cash portion of
the purchase price of the Atlanta shopping center described above. We intend
to fund new investments from existing cash balances (subject to maintaining
reasonable cash reserves) and from the net proceeds of asset sales.

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For additional information regarding our liquidity and capital resources, see
Overview above.

We may consider other sources of possible funding, including joint ventures.
To increase our financial flexibility, we may obtain a revolving line of
credit, although there can be no assurance we will be successful.

We believe our liquidity and various sources of capital are sufficient to fund
operations including capital expenditures and leasing commissions, to meet debt
service and dividend requirements under the Code for REIT status and to finance
future investments. We believe our properties are in good condition without
significant deferred maintenance obligations. Many of our properties are
leased under triple-net leases, which we believe reduces our risk pertaining
to excessive maintenance and operating costs. However, we anticipate we will
continue to require outside sources of financing to meet our long-term
liquidity needs beyond 2002, such as scheduled debt repayments (including
balloon payments on our debt) and property acquisitions.

Cash flows in 2002

Our cash resources increased $3,318,356 during the nine months ended September
30, 2002. During the nine months ended September 30, 2002, cash provided by
operating activities was $498,635, primarily from net income adjusted for
non-cash items as depreciation and amortization. Further, investing activities
used $1,073,434 largely due to deposits and acquisition costs of the shopping
center in Atlanta, Georgia and was offset in part by the sales of the
Huntington Beach and Corona properties. Financing activities provided
$3,893,155, primarily from the refinancing of four loans on August 5, 2002 and
offset in part by dividends and loan origination fees.

Cash flows in 2001

Our cash resources increased $596,272 during the nine months ended September
30, 2001. During the nine months ended September 30, 2001, cash provided by
operating activities was $1,945,507, primarily from net income adjusted for
non-cash items as depreciation and amortization and changes in balance sheet
accounts. Further, financing activities used $1,232,046, due to dividends, and
to a lesser extent, principal payments on notes payable.

RISK FACTORS THAT MAY AFFECT FUTURE OPERATING 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 our ability to make expected distributions to our
stockholders.

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.

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 make distributions to
stockholders and to pay

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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. These factors
consequently 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 revenues would also be adversely affected if tenants were unable to pay
rent or we were unable to rent vacant property on favorable terms.

Our tenants may go bankrupt.

Our tenants may file for bankruptcy protection or become insolvent in the
future. Currently, the parent company of one tenant 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. In
that case, our claim against the bankrupt tenant for unpaid, future rent would
be subject to a statutory cap that might be substantially less than the
remaining rent actually owed under the lease, and, even so, our claim for
unpaid rent would likely not be paid in full.

Our tenants may not renew their leases.

We cannot predict that current tenants will renew their leases upon the
expiration of their terms or that current tenants will not attempt to terminate
their leases before they expire. We are aware that tenants in our Irvine and
Tustin properties are not fully using the properties for their operations, and
thus may be less likely to re-lease the property when the lease expires or may
re-lease a smaller space. Further, the leases for our Sacramento (Horn Road)
and Chino properties expire in the first half of 2003. The tenant of the Chino
property has advised us that it will not renew its lease. If we are unable to
promptly re-lease or renew the leases for significant vacant properties, or if
the rental rates upon such renewal or re-leasing are significantly lower than
expected rates, then our ability to make expected distributions 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 that property until the property is
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, as many of our leases are triple-net, that
make the tenant responsible for property taxes, insurance and maintenance, we,
and not the tenant would bear such costs, once the tenant no longer leases the
property for any reason. We could sustain a loss as a result of foreclosure on
the property if a property is mortgaged to secure

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payment of indebtedness and
we were unable to meet our mortgage payments. As a result, our ability to make
distributions 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 make distributions to stockholders and pay amounts due on
our debt.

The value of our property interests depends 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. For example,
the U.S. economy is currently experiencing a slowdown, which may negatively
impact property values. In particular, general and local economic conditions
may be adversely affected by the terrorist incidents in New York and Washington
D.C. of September 11, 2001. Some analysts have predicted that a further decline
in the economy will result as a result of these or any future terrorist
incidents. Although we do not have properties in these areas, we are unable to
determine the long-term impact, if any, of these incidents or of any acts of
war or terrorism in the United States or worldwide on the U.S. economy, on us
or on the value of our common stock.

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

Real estate investments are relatively illiquid and, therefore, tend to limit
our ability to adjust our portfolio in response to changes in economic or other
conditions. 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 net leased industrial and suburban office properties, although such
funds may be employed in other uses. We purchased a shopping center in the
Atlanta, Georgia area in October 2002.

The risks that we may be unable to reinvest in attractive properties may affect
our returns to stockholders.

In the markets we have targeted for future acquisition of properties, there is
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

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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 disposed of,
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, certain technical requirements
must be met. 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 who 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 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 make distributions 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 make distributions
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.

Many of our properties are leased to a single tenant, and some of these single
tenant properties are individually significant to our total revenue. In the
nine months ended September 30, 2002, each of four tenants accounted for 21%,
16%, 13% and 11%, respectively, of our total rental revenue, including
discontinued operations, respectively. The tenant may attempt to terminate the
lease before its scheduled term, or we may be unable to renew the lease with
the current tenant. In that event, we may be unable to re-lease the space to
another anchor tenant of similar or better quality upon expiration

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of the current lease on similar or better terms, and we could experience material
adverse consequences such as higher vacancy, re-leasing on less favorable
economic terms, reduced net income and reduced funds from operations.
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.

Construction 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. We may incur renovation 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 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 frame required to recoup our renovation and
construction costs and to realize a return on such costs can often be
significant.

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

Our future growth will be dependent upon 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 affect on us
and our ability to make distributions 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) 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 terrorism) are not generally
insured (or fully insured against) because they are either uninsurable or not
economically insurable. Following the terrorist activity of September 11,
2001, and in light of the resulting uncertainty in the insurance market, many
insurance companies have indicated that they will exclude insurance against
acts of terrorism from their policies in the future. In addition, 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 make distributions to stockholders and
pay amounts due on our debt.

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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 make distributions 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 make distributions 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 exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved access
to such buildings by disabled persons and may require 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 make distributions to stockholders and to pay amounts due on our debt.

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 make
distributions 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

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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.

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 have caused site contamination.

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, but do not involve invasive techniques
such as soil and ground water sampling. Where appropriate, on a
property-by-property basis, our practice is to 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. Even though these
environmental assessments are conducted, there is still the risk that:



| |  |  | 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                                 

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| |  |  | 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.

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

Some of our operating and financial policies, including our policies with
respect to acquisitions, growth, operations, capitalization and dividends, are
determined by our board of directors. Accordingly, stockholders will have
little direct control over these policies.

Risks Due to Real Estate Financing

We have a significant amount of indebtedness. As of September 30, 2002, we had
total assets of $41,983,874, secured indebtedness of $24,578,774, total
liabilities of $25,164,804 and a debt-to-total assets ratio of 60%. After
giving effect to the purchase of the shopping center in the Atlanta, Georgia
area, we estimate we will increase our debt-to-total assets ratio to
approximately 72% (when calculated on the basis of generally accepted
accounting principles, which reflects depreciation and thus may result in
assets being valued at less than their value as determined by the board).

We anticipate that future acquisitions will be financed, to the extent allowed
by our bylaws, under a line of credit, 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. Equity, rather than debt, financing of future
acquisitions could have a dilutive effect on the interests of our existing
stockholders.

We may incur substantial additional indebtedness in the future.

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, among other things, our ability to
borrow additional funds.                                                  

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

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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. In
most 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 is due.
If we were 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 make distributions 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 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. Accordingly, increases in interest rates would increase our
interest costs, which could have a material adverse effect on us and our
ability to make distributions to stockholders. In addition, an increase in
market interest rates may lead holders of our common shares to demand a higher
yield on their shares from distributions by us, 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. As explained in Note 12 to the financial statements
included in Item 1 above, we plan to implement an amended and restated
certificate of incorporation and amended and restated bylaws on November 15,
2002. Unlike our current certificate and bylaws, these
new organizational documents will not limit the amount of debt that we may
incur. (We have adopted a policy that we will not incur debt in excess of 65%
of what the board of directors believes is the fair market value of our total
portfolio at any given time. If we decide to change this policy to increase
the percentage of debt we incur above 65% of our overall portfolio 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.)

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,     

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| |  |  | 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 5, 2002 refinancing contain
cross-collateral provisions. If one of the loans is in default and 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 properties to recover the loan.
Previously, we had no such cross collateral provisions in our loans.

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.

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

Although our stock was listed on the Nasdaq Over-the-Counter Bulletin Board
and, as of October 31, 2002, our stock was listed on the American Stock
Exchange, there have very few trades to date. Moreover, sales of our common
stock occur only occasionally, and usually in very small volumes. For example,
in 2001, the American Partnership Board reported a total of ten sale
transactions involving our common stock, for an aggregate of approximately
24,000 shares. Accordingly, it is difficult to estimate the price 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 an active market. There can be no assurance the price of our common
shares will not be lower than our previous estimates. 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 is also 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 cannot assure stockholders that we will be able to make future dividends
payments at any particular rate, or at all.

Although our board of directors currently intends to continue to declare
quarterly dividends on our common stock, 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 things, general economic and business
conditions, our strategic plans, our financial results and condition, and
contractual, legal and regulatory restrictions on our ability to pay dividends.
In the fourth quarter of 2001, the board of directors decreased our quarterly
dividend due to a variety of factors, including the vacancy at our Vacaville
property. We cannot assure stockholders

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that the current quarterly dividend
level will be maintained or that we will pay dividends in any future period.

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. 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.

Risks Due to Becoming and Self-administered and Self-managed

Historically, the Advisor had managed our properties, administrated our
business affairs and sold, purchased and refinanced properties, under the
direction of the board of directors. The Advisor has terminated effective
March 31, 2002 and subsequently, we have become self-administrated and
self-managed.

We will be exposed to new risks previously assumed by the Advisor.

Becoming a self-administered and self-advised REIT exposes us to risks to which
we have not historically been exposed, such as the risks associated with our
own management. In particular, we will be exposed to the risk of
inefficiencies and the need to implement strict cost controls in managing our
day-to-day activities and the risks and costs associated with the attraction
and retention of qualified operating management. Becoming a self-advised and
self-administered REIT has resulted in higher expenses of administration than
those previously charged by the Advisor. We now bear the following risks
previously associated with the activities of the Advisor:



| |  |  | Increased fixed overhead expenses resulting from engagement of
additional personnel and other costs in excess of the fee charged by
the Advisor. Our ability to cover expanded overhead may be impaired if
we do not grow as we anticipate.                                                                                                                                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | If our employees fail to perform duties properly, our recourse is
limited to these employees, whose liability may be limited by
indemnifications from us. Previously, the Advisor could have been
liable for such failure.                                                                                                                                                                                                                  
|
| |  |  | We compete for real estate investments with all types of investors,
including domestic and foreign corporations, financial institutions,
other real estate investment trusts and individuals. Many of these
competitors have greater resources than we do. In addition, the U.S.
economy is currently experiencing a slowdown. We will no longer have available the
resources and experience of the Advisor and its affiliates to assist us.

We will incur additional expenses and may have difficulties in recruiting and
retaining additional management.

Our success is, in part, dependent on the support, services and contributions
of Mr. Meredith and Mr. Wingard. The loss of the services of the existing
management team through death, disability or otherwise could seriously harm our
prospects. In August 2001 and amended March 2002, we entered into an agreement
with Mr. Meredith to serve as our President and Chief Executive Officer. Mr.
Wingard, our Chief Financial Officer, is also an employee. If Mr. Meredith or
Mr. Wingard ceases to

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perform management services for us, or we consider their
performance unsatisfactory, we will be required to secure management services
from other personnel. There can be no assurance in such instance that we would
be able to obtain qualified management or advisory services or that such
services could be obtained on favorable terms. In addition, our agreement with
the Advisor provided for limitations of the costs in connection with our
management. Under self-management, there are no such limitations. As a
result, the costs of being a self-advised and self-managed REIT could
significantly exceed the fees payable to the Advisor or to a successor advisor.

Becoming a self-advised and self-administered REIT will increase the influence
of our current management over our affairs

Under Mr. Merediths employment agreement, we have agreed to grant Mr. Meredith
options to purchase 66,667 split adjusted shares of our common stock at a strike price equal
to fair market value at grant. These options would vest over a period of two
years. To date, we have granted no options to Mr. Meredith. Once the options
are granted and become vested, however, Mr. Meredith will beneficially own
approximately 6.4% of our issued and outstanding common stock assuming exercise
of these options (and not including any shares Mr. Meredith may have purchased
other than by exercising options). Mr. Merediths employment agreement
provides for severance benefits to Mr. Meredith following a change of control,
which would include certain changes in the composition of the board. If enough
current board members resign for any reason, or if the conversion to a
self-advised and self-administered REIT were otherwise construed to be a change
of control, we may be obligated to pay these benefits to Mr. Meredith. Mr.
Meredith has in the past expressed his interest in purchasing an additional
ownership interest. Under our new amended and restated bylaws and amended and
restated certificate of incorporation which we expect to implement on November
15, 2002, Mr. Meredith will be permitted to purchase up to 29% of our
outstanding shares, and accordingly, no other stockholder may purchase over 5%
of our outstanding shares. By assuming the services previously performed by
the Advisor, and particularly if Mr. Meredith acquires an ownership interest in
us, Mr. Meredith and our management will be in a position to exercise greater
control or significant influence over our affairs.

Provisions that Could Limit a Change in Control or Deter a Takeover

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

To maintain our qualification as a REIT, not more than 50% in value of our
outstanding capital stock may be owned, actually or constructively, by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities). To protect us against risk of losing our status as a REIT due to a
concentration of ownership among our stockholders, our bylaws provide, among
other things, that if the board of directors determines, in good faith, that
direct or indirect ownership of our common stock has or may become concentrated
to an extent that would prevent us from qualifying as a REIT, the board of
directors may prevent the transfer of our common stock. These limitations may
have the effect of precluding acquisition of control of us by a third-party
without consent of the board of directors. In addition, other provisions
contained in our certificate of incorporation and bylaws may have the effect of
discouraging a third-party from making an acquisition proposal for us and may
thereby inhibit a change in control. For example, those provisions may deter
tender offers for our common stock that may be attractive to the stockholders,
or deter purchases of large blocks of our common stock, thereby limiting the
opportunity for stockholders to receive a premium for their shares of our
common stock over then-prevailing market prices. Further, as noted above, Mr.
Meredith will

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be allowed to own up to 29% of our outstanding shares, and others
will be limited to 5% of our outstanding shares, further limiting the purchase
of large blocks of shares by others.

Change of control agreements could deter a change of control.

We have entered into a change of control agreement with Allen K. Meredith, our
President and Chief Executive Officer, providing for the payment of money to
him upon the occurrence of a change of control, as defined in these agreements.
If, within one year following a change of control, Mr. Meredith resigns or is
terminated, 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 his current salary and benefit levels, this
provision would result in payments totaling at least $200,000 to Mr. Meredith.
The agreement with Mr. Meredith 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.

Tax Risks

Although we believe we are organized and are operating so as 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 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 in 2002, at least 95% of our taxable gross income
in any year must be derived from qualifying sources and we must make
distributions 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 represents 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, and, even if those relief
provisions apply, a tax would be imposed with respect to excess net income, any
of which could have a material adverse effect on us and our ability to make
distributions 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 make distributions 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.

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

We currently are attempting to sell six of our 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.

NEW ACCOUNTING PRONOUNCEMENTS

Information on new accounting pronouncements is contained in the notes to our
financial statements under Item 1 in this Quarterly Report on Form 10-Q.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All of our debt instruments have fixed rates, and we do not have exposure to
market risk for changes in interest rates. Therefore, subsequent changes in
market interest rates do not affect the rate of our debt. We have in the past
and may in the future, however, enter into debt instruments that bear interest
at a variable rate. We generally enter into fixed and variable rate debt
obligations to support general corporate purposes, including acquisitions,
capital expenditures and working capital needs. We periodically evaluate the
level of variable rate debt with respect to total debt and other factors,
including our assessment of the current and future economic environment. We
did not have any derivative financial instruments at September 30, 2002 or
December 31, 2001.

The fair values of our financial instruments (including such items in the
financial statement captions as cash, other assets and liabilities other than
notes payable) approximate their carrying or contract values based on their
nature, terms and interest rates that approximate current market rates. The
fair value of notes payable is estimated based on a discounted cash flow
analysis with interest rates similar to that of current market borrowing
arrangements. Under this analysis, the fair value of our notes payable
exceeded their carrying value by approximately $1,800,000 at December 31, 2001.

We had $0 and $6,126,595 in variable rate debt outstanding at September 30,
2002 and 2001, respectively. On August 5, 2002, we refinanced our two variable
rate loans into fixed rate loans. A hypothetical 10% adverse change in
interest rates would have had an unfavorable impact of approximately $0 and
$23,000, respectively, on the nine-month periods ended September 30, 2002 and
2001 on our earnings and cash flows based on these debt levels. Further, many
of our fixed rate loans have significant balloon payments that would need to be
refinanced at maturity, possibly at unfavorable rates. We cannot predict the
effect of adverse changes in interest rates on its variable rate debt and,
therefore, our exposure to market risk, nor can
there be any assurance that fixed rate, long-term debt will be available to us
at advantageous pricing. Consequently, our future results may differ
materially from the estimated adverse changes discussed above.

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ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this Quarterly Report on Form 10-Q,
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-14.
Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our current disclosure controls and procedures are
effective. There have been no significant changes in our internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of the evaluation by our Chief Executive Officer and Chief
Financial Officer.

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.

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PART II  OTHER INFORMATION




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.

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 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.

On July 31, 2002, James E. Prock filed an action against Allen Meredith, our
Chief Executive Officer and us, in Los Angeles County Superior Court. Mr.
Prock was an employee of the Advisor and not an employee of West Coast Realty
Investors, Inc. He provided services as our Chief Operating Officer from 1992
to August 2001 and as Acting Chief Operating Officer from August 2001 to March
2002. The lawsuit alleges that during the fall of 2001 and winter of 2002, we
made purported promises to Mr. Prock that we would hire him as a full time
managerial employee after we became a self managed REIT. The lawsuit seeks
damages for unspecified purported lost compensation and punitive damages, and
the discovery process has commenced. We cannot determine the likelihood of an
unfavorable outcome or range of potential loss, if any. We believe the suit is
without merit 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 or overall financial condition.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

On September 24, 2002, West Coast held its annual meeting of stockholders.
Stockholders were asked to vote (1) to approve the amendment and restatement of
West Coasts certificate of incorporation, (2) to approve the amendment and
restatement of West Coasts bylaws, (3) to elect the board of directors and (4)
to approve the West Coast Realty Investors, Inc. 2002 Stock Incentive Plan.
The results of the stockholders vote are as follows:

|                                                                          |                        |  |           |           |              |  |               |      |           |  |        |      |        |  |                 |         |  |  |         |   |        |  |        |   | 
|------------------------------------------------------------------------- | ---------------------- |  | --------- | --------- | ------------ |  | ------------- | ---- | --------- |  | ------ | ---- | ------ |  | --------------- | ------- |  |  | ------- | - | ------ |  | ------ | - | 
|                                                                          |                        |  |           |           |              |  |               |      |           |  |        |      |        |  | Against         |         |  |  |         |   |        |  |       
|                                                                          |                        |  |           |           |              |  |               |      |           |  |        |      |        |  | (Proposals 1,2, |         |  |  |         |   |        |  |       
|                                                                          |                        |  |           |           |              |  |               |      |           |  |        |      |        |  | and 4)          |         |  |  |         |   |        |  |       
|                                                                          |                        |  |           |           |              |  |               |      |           |  |        |      |        |  | Withheld        |         |  |  |         |   | Broker
|                                                                          |                        |  | For       |           | (Proposal 3) |  | Abstentions   |      | non-votes
|                                                                          |                        |  |           |           |              |  |               |      |          
|                                                                          |                        |  |           |           |              |  | % of          |      |           |  |        |      |        |  |                 |         |  |  |         |   |        |  |       
|                                                                          |                        |  |           |           |              |  | voting shares |      | % of      |  |        |      |        |  |                 |         |  |  |         |   |       
|                                                                          |                        |  | No. of    |           | voted for    |  | outstanding   |      | No. of    |  | No. of |      | No. of
|                                                                          |                        |  | shares    |           | this item    |  | Shares        |      | shares    |  | shares |      | shares
|                                                                          |                        |  |           |           |              |  |               |      |           |  |        |      |       
|Proposal No. 1- Amendment
and restatement of
certificate of
incorporation |                        |  | 1,544,364 |           |              |  | 88.8          | %    |           |  | 52.7   | %    |        |  | 65,083          |         |  |  | 118,740 |   |        |  | 10,000 |  
|Proposal No. 2- Amendment
and restatement of bylaws                       |                        |  | 1,547,114 |           |              |  | 89.0          | %    |           |  | 52.8   | %    |        |  | 65,633          |         |  |  | 115,440 |   |        |  | 10,000 |  
|Proposal No. 3- Election
of directors:                                    |                        |  |           |           |              |  |               |      |           |  |        |      |        |  |                 |         |  |  |         |   |        |  |        |  
|                                                                          | Allen K. Meredith      |  |           | 1,589,601 |              |  |               | 91.5 | %         |  |        | 54.3 | %      |  |                 | 148,586 |  |  |         |  |        |  |        |  | 
|                                                                          | E. Andrew Isakson      |  |           | 1,590,221 |              |  |               | 91.5 | %         |  |        | 54.3 | %      |  |                 | 147,966 |  |  |         |  |        |  |        |  | 
|                                                                          | Patricia F. Meidell    |  |           | 1,589,221 |              |  |               | 91.4 | %         |  |        | 54.3 | %      |  |                 | 148,966 |  |  |         |  |        |  |        |  | 
|                                                                          | James P. Moore         |  |           | 1,590,221 |              |  |               | 91.5 | %         |  |        | 54.3 | %      |  |                 | 147,966 |  |  |         |  |        |  |        |  | 
|                                                                          | Neal E. Nakagiri       |  |           | 1,590,221 |              |  |               | 91.5 | %         |  |        | 54.3 | %      |  |                 | 147,966 |  |  |         |  |        |  |        |  | 
|                                                                          | John H. Redmond        |  |           | 1,589,221 |              |  |               | 91.4 | %         |  |        | 54.3 | %      |  |                 | 148,966 |  |  |         |  |        |  |        |  | 
|                                                                          | Eric P. Von der Porten |  |           | 1,590,221 |              |  |               | 91.5 | %         |  |        | 54.3 | %      |  |                 | 147,966 |  |  |         |  |        |  |        |  | 
|Proposal No. 4 - Approval
of 2002 Stock Incentive
Plan                    |                        |  | 1,372,467 |           |              |  | 79.0          | %    |           |  | 46.9   | %    |        |  | 183,333         |         |  |  | 172,387 |   |        |  | 10,000 |  




ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits
|--- |  | --------

|    |      |             |  |                                                                                                                                              
|--- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|No. |      | Description
|    |      |            
|    | 3.2  |             |  | Amended and Restated Bylaws *                                                                                                                
|    | 10.1 |             |  | Deed of Trust, Assignment of Leases and Rents, Security Agreement
and Fixture Filing for the Folsom Property*                                
|    | 10.2 |             |  | Deed of Trust Note for the Folsom Property *                                                                                                 
|    | 10.3 |             |  | Schedule of material terms of Loans secured by the Irvine,
Sacramento (Horn Road) and Tustin properties in the Form of
Exhibits 10.1 and 10.2



---

|* |  | Pursuant to Item 601(b)(2) of Regulation S-K, West Coast agrees to
furnish supplementally a copy of any omitted schedule or exhibit to the
Commission upon request.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On July 12, 2002, we filed a report on from 8-K under Item 9 Regulation
FD Disclosure. There were no financial statements filed.  
|   
|    |  | On August 14, 2002, we filed a report on from 8-K under Item 9
Regulation FD Disclosure. There were no financial statements filed.

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##### Table of Contents






S I G N A T U R E S

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

|                         |  |                                                                                         
|------------------------ |  | ----------------------------------------------------------------------------------------
|                         |  | WEST COAST REALTY INVESTORS, INC.(Registrant)                                           
|                        
|                        
|Dated: November 13, 2002 |  | /s/   Charles P. Wingard                                                                
|                         |  |                                                                                         
|                         |  | CHARLES P. WINGARD
(Vice President/Treasurer
principal financial and accounting officer)

46



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##### Table of Contents






Certification

I, Allen K. Meredith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of West Coast Realty
Investors, Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                  |  |  |                                                                                       | 
|----------------- |  |  | ------------------------------------------------------------------------------------- | 
|November 13, 2002 |  |  | /s/ Allen K. Meredith                                                                 | 
|                  |  |  |                                                                                       | 
|Date              |  |  | ALLEN K. MEREDITH
President and Chief Executive Officer
(principal executive officer) | 

47



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##### Table of Contents



Certification

I, Charles P. Wingard, certify that:

2. I have reviewed this quarterly report on Form 10-Q of West Coast Realty
Investors, Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                  |  |  |                                                                                          | 
|----------------- |  |  | ---------------------------------------------------------------------------------------- | 
|November 13, 2002 |  |  | /s/ Charles P. Wingard                                                                   | 
|                  |  |  |                                                                                          | 
|Date              |  |  | CHARLES P. WINGARD
Vice President/Treasurer
(principal financial and accounting officer) | 

48