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

# FORM 10-QSB

(Mark One)

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

For the quarterly period ended June 30, 2004

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

For the transition period from ___________ to _____________

Commission file number
000-24594

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

|DELAWARE                         |  | 58-2403844         
|-------------------------------- |  | -------------------
|State or Other Jurisdiction of   |  | (I.R.S. Employer   
|of Incoproration or Organization |  | Identification No.)

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

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

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

Yes      NoX

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 5, 2004 there were 976,965 shares of the issuer's common stock outstanding

Transitional Small Business Disclosure
Format (check one)Yes    NoX

---

# MEREDITH ENTERPRISES,
INC.

# REPORT ON FORM 10-QSB 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

# TABLE OF CONTENTS

|                                                                      | 
|--------------------------------------------------------------------- | 
|Part I  Financial Information                                        | 
|Item 1.  Financial Statements                                         | 
|Consolidated Balance Sheets-                                          | 
|As of June 30, 2004 (unaudited)                                       | 
|and December 31, 2003 (audited)                                       | 
|Consolidated Statements of Income (unaudited)-                        | 
|Three and six months ended June 30, 2004 and 2003                     | 
|Consolidated Statements of Cash Flows (unaudited)-                    | 
|Six months ended June 30, 2004 and 2003                               | 
|Consolidated Statements of Stockholders Equity (unaudited)-          | 
|Six months ended June 30, 2004 and 2003                               | 
|Summary of Accounting Policies                                        | 
|Notes to Consolidated Financial Statements                            | 
|Item 2.  Managements Discussion and Analysis or Plan of Operation    | 
|Item 3.  Controls and Procedures                                      | 
|                                                                      | 
|Part II  Other Information                                           | 
|Item 1.  Legal Proceedings                                            | 
|Item 2.  Changes in Securities and Small Business Issuer Purchases of | 
|Equity Securities                                                     | 
|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                                                            | 

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

---

# PART I.  FINANCIAL
INFORMATION ITEM 1.  FINANCIAL STATEMENTS

# MEREDITH ENTERPRISES,
INC. CONSOLIDATED BALANCE SHEETS

|                                                                     | June 30, | December 31,
|-------------------------------------------------------------------- | -------- | ------------
|
|
|Assets                                                               |          |             
|Rental real estate, less accumulated depreciation (Notes 2,          |          |             
|4 and 6)                                                             |          |             
|Rental real estate held for sale, net (Notes 2 and 6)                |          |             
|Land held for development (Notes 2 and 6)                            |          |             
|Cash and cash equivalents                                            |          |             
|Deferred rent, net of allowance of $326,790 and $313,919 at          |          |             
|June 30, 2004 and December 31, 2003, respectively                    |          |             
|Accounts receivable                                                  |          |             
|Loan origination fees, net of accumulated amortization of            |          |             
|$174,066 and $130,001 at June 30, 2004 and                           |          |             
|December 31, 2003, respectively                                      |          |             
|Other assets                                                         |          |             
|Other assets related to rental real estate held for sale             |          |             
|                                                                     |         
|Total assets                                                         |          |             
|                                                                     |         
|Liabilities and Stockholders' Equity                                 |          |             
|                                                                     |          |             
|Liabilities                                                          |          |             
|                                                                     |          |             
|Notes payable secured by rental real estate (Note 6)                 |          |             
|Notes payable secured by rental real estate held for sale (Note 6)   |          |             
|Accounts payable and accrued liabilities                             |          |             
|Security deposits and prepaid rent                                   |          |             
|Other liabilities related to rental real estate held for sale        |          |             
|                                                                     |         
|Total liabilities                                                    |          |             
|                                                                     |         
|Commitments and contingencies (Note 9)                               |          |             
|                                                                     |          |             
|Stockholders' equity                                                 |          |             
|Common stock $.01 par value; 15,000,000 shares authorized; 976,965   |          |             
|shares issued and outstanding as of June 30, 2004 and 975,298 shares |          |             
|issued and outstanding as of December 31, 2003                       |          |             
|Additional paid-in capital                                           |          |             
|Dividends in excess of retained earnings                             |          |             
|                                                                     |         
|Total stockholders' equity                                           |          |             
|                                                                     |         
|Total liabilities and stockholders' equity                           |          |             
|                                                                     |         

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

3

---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED
STATEMENTS OF INCOME

|                                       | Three months ended | Six months ended
|-------------------------------------- | ------------------ | ----------------
|
|
|
|Revenues                               |                    |                 
|Rental (Notes 2 and 4)                 |                    |                 
|Interest                               |                    |                 
|                                       |                   
|                                       |                    |                 
|                                       |                   
|Cost and expenses                      |                    |                 
|Interest                               |                    |                 
|General and administrative             |                    |                 
|Depreciation                           |                    |                 
|Ground rent (Note 9)                   |                    |                 
|Operating                              |                    |                 
|Property tax                           |                    |                 
|                                       |                   
|                                       |                    |                 
|                                       |                   
|Income from continuing operations      |                    |                 
|Income (loss) from discontinued        |                    |                 
|operations (Note 3)                    |                    |                 
|                                       |                   
|Net income                             |                    |                 
|                                       |                   
|Net (loss) income per share-basic      |                    |                 
|(Note 1):                              |                    |                 
|Income from continuing operations      |                    |                 
|Income (loss) from discontinued        |                    |                 
|operations                             |                    |                 
|                                       |                   
|Net income per share-basic             |                    |                 
|                                       |                   
|Net income per share-assuming dilution |                    |                 
|(Note 1):                              |                    |                 
|Income from continuing operations      |                    |                 
|Income (loss) from discontinued        |                    |                 
|operations                             |                    |                 
|                                       |                   
|Net income per share-assuming dilution |                    |                 
|                                       |                   

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

4

---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

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

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

5

---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED STATEMENT
OF STOCKHOLDERS EQUITY

|                                     |  |  |  | Dividends | 
|------------------------------------ |  |  |  | --------- | 
|
|
|
|(Unaudited)                          |  |  |  |           | 
|Balance, January 1, 2004             |  |  |  | 975,298   | 
|Exercise of stock options            |  |  |  | 1,667     | 
|Net income for the period            |  |  |  |           | 
|Dividends declared ($0.50 per share) |  |  |  |           | 
|(Note 1)                             |  |  |  |           | 
|                                     | 
|Balance,June 30, 2004                |  |  |  | 976,965   | 
|                                     | 

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

6

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Business

Meredith Enterprises, Inc. was
originally organized in October 1989 under the laws of the State of Delaware. We have
elected tax status as a Real Estate Investment Trust (REIT) for federal and
state income tax purposes since 1991. As of June 30, 2004, all of our properties were
located in California and Georgia, and we did not own any residential properties. Most of
our leases are triple-net leases where the tenant is responsible for
maintenance, taxes and insurance, either by directly paying such costs or reimbursing us
for those costs through additional rental payments.

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

Assets are stated at lower of cost or
net realizable value. Depreciation is computed using the straight-line method over the
assets estimated useful lives of 31.5 to 39 years, or the term of the lease for
tenant improvements, if shorter, for financial reporting purposes.

In the event that facts and
circumstances indicate that the carrying cost of an asset may be impaired, an evaluation
of recoverability would be performed. If an evaluation is 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 fair value is required. We consider fair value
the value that a willing buyer and a willing seller would agree to in an arms length
transaction.

We classify real estate as held
for sale if and when the following criteria are met:

| | - | Management has authority to sell and commits to a plan to sell;
| | - | ---------------------------------------------------------------

| | - | The asset is available for immediate sale in its present condition, subject to usual and
customary terms;
| | - | ---------------------------------------------------------------------------------------------------------

| | - | An active program to locate a buyer and other actions to complete
the plan have been initiated;
| | - | -----------------------------------------------------------------------------------------------

| | - | The sale is probable (likely to occur)
and the transaction will be recognized as a sale within one year
| | - | ---------------------------------------------------------------------------------------------------------

| | - | The property is actively marketed for sale at a price that is reasonable in relation to
its current fair value; and
| | - | -------------------------------------------------------------------------------------------------------------------

| | - | The actions required to complete the plan indicate it is unlikely that significant changes
to the plan will be made or the plan will be abandoned.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

Based on our experience with attempts
to sell our properties, we believe it is difficult to conclude that it is probable we will
sell a property and recognize a sale within a year from when we first initiate efforts to
sell a property. Therefore, starting in the second quarter of 2004, we assess the sale of
a property as probable at the point when we have received what we consider a bona fide
offer that is reasonable in relation to the properties estimated current value.

Real estate classified as held
for sale is stated at the lower of its carrying amount or estimated fair value less
disposal costs. Depreciation is not recorded on assets classified as held for sale. If we
determine that we should no longer classify an asset as held for sale, we
recompute depreciation such that the

7

---

MEREDITH ENTERPRISES,
INC.

SUMMARY OF ACCOUNTING POLICIES

accumulated depreciation on the asset
at the time of the reclassification is the same as if it had never been classified as held
for sale and charge the additional expense to depreciation in the period of such
determination. Operating results of properties we consider held for sale, as well as those
sold, are included in discontinued operations in our consolidated statements of income.

In the normal course of business, we
may receive offers for sale of our properties, either solicited or unsolicited. For those
offers that we accept, the prospective buyer will usually require a due diligence period
before consummation of the transaction. It is not unusual for matters to arise that result
in the withdrawal or rejection of the offer during this process. As a result, real estate
is not classified as held for sale until it is likely, in the opinion of
management, that a property will be disposed of in the near term, even if sales
negotiations for such property are currently under way. Properties classified as held for
sale are segregated from rental real estate in our financial statement presentation. As of
June 30, 2004, we classified one property as held for sale, as it was listed
for sale with real estate brokers at a price we consider reasonable, we had received bona
fide purchase offers, we believed the property was saleable in its present condition and
we believed a sale was probable within one year. There can be no assurance that the
property we classify as held for sale will be sold in the near term, at prices we consider
acceptable, or at all.

# 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 six month periods ended June 30, 2004 and 2003 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
in accordance with Emerging Issues Task Force (EITF) 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 charged to 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 are creditworthy and high quality. Cash and cash equivalent
balances are held with various financial institutions and at times exceed the Federal
Deposit Insurance Corporation limit of $100,000.

8

---

# MEREDITH ENTERPRISES,
INC. SUMMARY OF ACCOUNTING POLICIES

# Consolidation

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

# Use of Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities 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 sum of net income by the weighted average number of shares outstanding for
the period and the dilutive effect of stock options. Stock options are excluded whenever
their effect would be anti-dilutive in loss periods or when their strike prices are out of
the money.

# Comprehensive Income

Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, as
promulgated by the Financial Accounting Standards Board (FASB), establishes
standards for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is comprised of net
income and all changes to stockholders equity except those due to investments by
owners and distributions to owners. We do not have any components of comprehensive income
in the three and six month periods ended June 30, 2004 and 2003, other than net income.

# Reclassifications

Certain reclassifications have been
made to the prior periods financial statements to conform to the presentation of the
current periods financial statements.

9

---

# MEREDITH ENTERPRISES,
INC. SUMMARY OF ACCOUNTING POLICIES

# Descriptive Information
about Reportable Segments

SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information requires certain descriptive
information to be provided about an enterprises reportable segments. We have
determined that we have one operating and reportable segment, rental real estate and
rental real estate held for sale, which comprised 93% and 88% of our total assets at June
30, 2004 and December 31, 2003, respectively and over 99% of our total revenues (including
discontinued operations) for the three month periods ended June 30, 2004 and 2003. All the
rental real estate we own is located in California and Georgia. We do not use reporting by
geographic region.

All revenues are from external
customers, and there are no revenues from transactions with other segments. See Note 2 for
tenants that contributed 10% or more of our total revenues for the three months ended June
30, 2004 and 2003. Interest expense on debt is not allocated to individual properties,
even if such debt is secured by a specific property. There is no provision for federal or
state income taxes as we are organized as a REIT and as such, there is no tax due; see
Note 7.

# Stock-Based Compensation

We account for our stock based
compensation arrangements for employees and directors using the intrinsic value method
pursuant to Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees, as clarified by FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation. As such, compensation expense is recorded
when, on the date of the grant, the fair value of the underlying common stock exceeds the
exercise price for stock options or the purchase price for issuances or sales of common
stock. Pursuant to SFAS No. 123 Accounting for Stock-Based Compensation, we
disclose the proforma effects of using the fair value method of accounting for stock-based
compensation arrangements.

Proforma information regarding net
income and earnings per share required by SFAS No. 148 was determined as if we had
accounted for the employee and non-employee director stock options granted in the periods
indicated under the fair value method of that Statement. The fair value for these options
was estimated as of the date of grant using a Black-Scholes option pricing model, with the
following weighted average assumptions for the three and six month periods ended June 30,
2004:

| |  |  |                             
| |  |  | ----------------------------
| |  |  | Risk-free interest rate     
| |  |  | Dividend yield              
| |  |  | Volatility                  
| |  |  | Weighted average option life

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

10

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

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

| |  | Three months ended June 30, | Six months ended June 30,            
| |  | --------------------------- | -------------------------------------
|
| |  |                             | Numerator:                           
| |  |                             | Net income, as reported              
| |  |                             | Less - total stock-based compensation
| |  |                             | expense determined under the fair    
| |  |                             | value based method                   
| |  |                             |                                      
| |  |                             | Proforma net income                  
| |  |                             |                                      
| |  |                             | Basic-as reported                    
| |  |                             |                                      
| |  |                             | Basic-proforma                       
| |  |                             |                                      
| |  |                             | Diluted-as reported                  
| |  |                             |                                      
| |  |                             | Diluted-proforma                     
| |  |                             |                                      

# New Accounting
Pronouncements

In November 2002, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The disclosure provisions are effective for financial
statements for annual or interim periods ending after December 15, 2002. We have not
entered into any new guarantees or modified any existing guarantees subsequent to December
31, 2002; therefore, adoption of this statement has had no effect on our financial
position, operating results or cash flows.

In December 2003, the FASB issued FIN
46R, Consolidation of Variable Interest Entities, a revision to FIN 46, which
was issued in January 2003. Under FIN 46R, a variable interest entity must be consolidated
by a company if that company is subject to a majority of the entitys expected losses
or entitled to receive a majority of the entitys expected residual returns or both.
FIN 46R requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable interest. The
consolidation requirements apply to existing entities in the first reporting period that
ends after March 15, 2004. The adoption of FIN 46R did not affect our financial position
of results of operations.

11

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

In December 2002, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 148, Accounting
for Stock-Based Compensation Transition and Disclosure, which amended SFAS No.
123 Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of accounting
for stock-based compensation and amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method
used on reported results. We adopted the disclosure provisions of SFAS No. 148 and
continues to account for stock-based compensation under Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees. Therefore, the
adoption of SFAS No. 148 did not have any effect on our financial position, operating
results or cash flows.

In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). SFAS No. 150 was
effective beginning in the third quarter of 2003. The FASB deferred the implementation of
SFAS No. 150 as applied to certain minority interests in finite life entities, however. We
adopted the requirements of SFAS No. 150 on June 1, 2003. The adoption of this statement
did not have a material effect on our financial position, results of operations or cash
flows.

12

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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

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

Our stockholders approved and adopted
the 2002 Stock Incentive Plan in September 2002, and it provides for the issuance of
incentive stock options, non-qualified stock options, restricted shares and other grants.
The maximum number of shares that may be issued under the plan is 150,000. The option
price may not be less than the fair market value of a share on the date that the option is
granted, and the options generally vest either immediately or over two years. Changes in
options outstanding during the six months ended June 30, 2004 were as follows:

| |  |  | Weighted                   
| |  |  | ---------------------------
|
|
|
| |  |  | Balance at the beginning of
| |  |  | the period                 
| |  |  | Granted                    
| |  |  | Exercised                  
| |  |  | Cancelled                  
| |  |  | Balance at end of period   
| |  |  |                            
| |  |  | Exercisable                
| |  |  |                            
| |  |  | Shares available for future
| |  |  | grants at June 30, 2004    
| |  |  |                            
| |  |  | Estimated fair value of    
| |  |  | options granted during the 
| |  |  | period per share           
| |  |  |                            

The exercise price of all options
granted was equal to the market price on the date of grant. The options expire in 2013 and
2014, and the weighted average remaining contractual life of these options is
approximately 9 years.

13

---

MEREDITH ENTERPRISES,
INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

The following table sets forth the
computation of basic and diluted earnings per share with respect to net income:

|                                           | Three months ended June 30, | Six months ended June 30,
|------------------------------------------ | --------------------------- | -------------------------
|
|Numerator:                                 |                             |                          
|Income from continuing operations          |                             |                          
|Income (loss) from discontinued operations |                             |                          
|                                           |                             |                          
|Net income                                 |                             |                          
|                                           |                             |                          
|Denominator for basic earnings per         |                             |                          
|share - weighted average shares            |                             |                          
|Effect of dilutive securities - stock      |                             |                          
|options                                    |                             |                          
|                                           |                             |                          
|Denominator for diluted earnings per share |                             |                          
|adjusted for weighted average              |                             |                          
|Shares                                     |                             |                          
|                                           |                             |                          
|Basic earnings per share:                  |                             |                          
|Income from continuing operations          |                             |                          
|Income (loss) per share from discontinued  |                             |                          
|operations                                 |                             |                          
|                                           |                             |                          
|Net income per share- basic                |                             |                          
|                                           |                             |                          
|Diluted earnings per share:                |                             |                          
|Income from continuing operations          |                             |                          
|Income (loss) per share from discontinued  |                             |                          
|operations                                 |                             |                          
|                                           |                             |                          
|Net income per share- assuming dilution    |                             |                          
|                                           |                             |                          

Anti-dilutive items are excluded from
this calculation.

14

---

MEREDITH ENTERPRISES,
INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 2RENTAL REAL
ESTATE

Our major categories of rental real
estate are:

| |  | June 30, | December 31,                 
| |  | -------- | -----------------------------
|
| |  |          | Land                         
| |  |          | Buildings and improvements   
| |  |         
| |  |          |                              
| |  |          | Less accumulated depreciation
| |  |         
| |  |          | Net rental real estate       
| |  |         

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

| |  | June 30, | December 31,                        
| |  | -------- | ------------------------------------
|
| |  |          | Land                                
| |  |          | Buildings and improvements          
| |  |         
| |  |          |                                     
| |  |          | Less accumulated depreciation       
| |  |         
| |  |          | Net rental real estate held for sale
| |  |         

In addition, we own land we are
holding for future development, valued at its cost plus development expenditures at June
30, 2004 of $2,948,776.

During the three months ended June
30, 2004, no one tenant represented 10% or more of our total rental revenue including
discontinued operations. In that period, two tenants represented approximately 8% and 7%
each. In 2003, one tenant represented 11% of our total rental revenue including
discontinued operations and another tenant represented 8%.

# NOTE 3DISCONTINUED
OPERATONS

In the second quarter of 2004, we
determined that the 717 and 721 West Del Paso Road properties and the Fresno property no
longer met the required criteria for classification as held for sale and we accordingly
removed them from that category in our financial statements. As of June 30, 2004, we have
designated one property, Riverside, as held for sale. In accordance with SFAS No.144, we
have restated the prior results of the properties designated as held for sale and the
properties we sold as discontinued operations for all periods presented. The results

15

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

of properties included in
discontinued operations for the three and six months ended June 30, 2004 and 2003 are as
follows:

|                                | Three months ended | Six months ended
|------------------------------- | ------------------ | ----------------
|
|
|Revenues                        |                    |                 
|Rental                          |                    |                 
|Interest                        |                    |                 
|                                |                   
|                                |                    |                 
|                                |                   
|Cost and expenses               |                    |                 
|Interest                        |                    |                 
|General and administrative      |                    |                 
|Depreciation                    |                    |                 
|Ground rent                     |                    |                 
|Operating                       |                    |                 
|Property tax                    |                    |                 
|Fair value adjustment to        |                    |                 
|property carrying value         |                    |                 
|                                |                   
|                                |                    |                 
|                                |                   
|Income (loss) from discontinued |                    |                 
|operations                      |                    |                 
|                                |                   

Net income (loss) and gain on sale of
real estate for properties sold or considered held for sale are reflected in our
consolidated statements of income as discontinued operations for all periods
presented. In addition, we have determined to separately reflect the assets and
liabilities of properties held for sale or sold in the current period as Rental real
estate held for sale, Other assets-rental real estate held for sale,
Notes payable secured by rental real estate held for sale and Other
liabilities-rental real estate held for sale in the balance sheets based on the
classification of the property at the time of the period presented.

Starting January 1, 2004, we have
recorded a fair value adjustment which has reduced the operating income from our Riverside
property to zero and reduced the carrying value of the property by a corresponding amount
each period, as a portion of its fair value was previously determined to equal the present
value of its expected future cash flows.

16

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 4FUTURE
MINIMUM RENTAL INCOME

As of June 30, 2004, future minimum rental
income under the existing leases for rental real estate and rental real estate held for
sale that have remaining noncancelable terms in excess of one year are as follows:

| | Years ending June 30, | Amount
| | --------------------- | ------
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       

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

# NOTE 5RELATED
PARTY TRANSACTIONS

We acquired 2.5 acres of land in
March 2003 and intend to build an approximate 30,000 square foot shopping center on the
land. A firm owned by Mr. Gary Coursey, one of our directors, provides architectural
services for this project. During the six month periods ended June 30, 2004 and 2003, we
paid $61,277 and $52,157, respectively, to Mr. Courseys firm.

We have retained Isakson-Barnhart
Properties, Inc. as the property manager of our Northlake Festival Shopping Center in
Atlanta, Georgia. Isakson-Barnhart Properties manages over 1.0 million square feet of
retail and office space in Georgia, North Carolina and Tennessee. Mr. E. Andrew Isakson,
one of our directors, is president of Isakson-Barnhart Properties, Inc. Under the property
management agreement, Isakson-Barnhart Properties manages, maintains and operates the
shopping center for us. In return for its services, we pay a monthly property management
fee to Isakson-Barnhart Properties equal to the greater of (a) 3% of the gross income of
the property actually collected for that month or (b) $2,500. In addition, we pay
Isakson-Barnhart Properties a leasing commission, in the range of $2.00 to $4.50 per
square foot depending on the size of the space and whether there is a co-broker, on new
leases or expansion of current leases. We also pay a construction maintenance fee of 5% of
the total cost of tenant improvements or other construction where Isakson-Barnhart
Properties supervises the project. Under this agreement, we paid a total of $71,762 and
$71,163, respectively, to Isakson-Barnhart Properties in the six month periods ended June
30, 2004 and 2003. The agreement is renewable annually, and either party is allowed to
terminate the agreement upon 30 days prior written notice to the other. In addition,
Mr. Isakson owns a 50% interest in a retail shopping center that is located adjacent to
the retail shopping center.

17

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 6NOTES PAYABLE

Notes payable consist of the
following:

|                                                                        | June 30, | December 31,
|----------------------------------------------------------------------- | -------- | ------------
|
|Notes payable secured by rental real estate:                            |          |             
|                                                                        |          |             
|6.97% promissory note secured by our Folsom property, monthly principal |          |             
|and interest payments of $32,567; due September 1, 2009 with a balloon  |          |             
|payment of $4,479,793                                                   |          |             
|8.25% promissory note secured by our Fresno property, monthly principal |          |             
|and interest payments are $5,244; due August 1, 2005.  We classified    |          |             
|this property as held for sale at December 31, 2003                     |          |             
|Variable rate interest only promissory note secured by our Garden Grove |          |             
|property (Banco Popular) and land we hold for development in Garden     |          |             
|Grove (Garden Grove Festival).  The note bears interest rate at prime   |          |             
|plus 1.25% (5.25% at June 30, 2004) and is due on September 18, 2004    |          |             
|6.97% promissory note secured by our Irvine property, monthly principal |          |             
|and interest payments of $25,105; due September 1, 2009 with a balloon  |          |             
|payment of $3,453,364                                                   |          |             
|7.64% promissory note secured by our Atlanta, GA property (Northlake    |          |             
|Festival Shopping Center), monthly principal and interest payments of   |          |             
|$124,753 fully amortizing with the final payment due December 1,        |          |             
|2027.  Starting December 2010, year 13 of the note, the interest rate   |          |             
|increases to a minimum of 9.64%                                         |          |             
|8.33% promissory note secured by our Roseville property, monthly        |          |             
|principal and interest payments of $11,510; due July 1, 2008            |          |             
|6.97% promissory note secured by our Sacramento property (Horn Road),   |          |             
|monthly principal and interest payments of $11,276; due September 1,    |          |             
|2009 with a balloon payment of $1,551,049                               |          |             
|6.97% promissory note secured by our Tustin property, monthly principal |          |             
|and interest payments of $30,677; due September 1, 2009 with a balloon  |          |             
|payment of $4,219,765                                                   |          |             
|7.50% promissory note secured by our Ontario property, monthly          |          |             
|principal and interest payments are $22,390; due March 1, 2004.  We     |          |             
|paid this loan off in March 2004                                        |          |             
|                                                                        |         
|Subtotal - notes payable secured by rental real estate                  |          |             
|                                                                        |         

18

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                     | June 30, | December 31,
|-------------------------------------------------------------------- | -------- | ------------
|
|Notes payable secured by rental real estate held for sale:           |          |             
|                                                                     |          |             
|8.25% promissory note secured by our Fresno property.  We classified |          |             
|this property as part of continuing operations at June 30, 2004      |          |             
|8.25% promissory note secured by our Riverside property, monthly     |          |             
|principal and interest payments are $9,116; due November 8, 2004     |          |             
|                                                                     |         
|Subtotal - notes payable secured by rental real estate held for sale |          |             
|                                                                     |         
|Total notes payable                                                  |          |             
|                                                                     |         

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

The aggregate annual future
maturities at June 30, 2004 of notes payable secured by rental real estate and notes
payable secured by rental real estate held for sale are as follows:

| | Years ending June 30, | Amount
| | --------------------- | ------
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       
| |                       |       

# NOTE 7TAXES ON
INCOME

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

19

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 8SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash
flow information follows:

|Six months ended June 30,                      | 2004 | 2003
|---------------------------------------------- | ---- | ----
|Cash paid during the period for interest       |      |     
|                                               |     
|Capitalized interest during the period         |      |     
|                                               |     
|Supplemental disclosure of non-cash financing  |      |     
|activities:                                    |      |     
|Transfer of assets from rental real estate     |      |     
|held for sale to rental real estate            |      |     
|                                               |     
|Transfer of liabilities from other             |      |     
|liabilities- rental real estate held for sale  |      |     
|to other liabilities                           |      |     
|                                               |     
|Transfer of liabilities from other             |      |     
|liabilities- rental real estate held for sale  |      |     
|to security deposits and prepaid rent          |      |     
|                                               |     
|Transfer of liabilities from notes payable     |      |     
|secured by rental real estate held for sale to |      |     
|notes payable                                  |      |     
|                                               |     

# NOTE 9COMMITMENTS
AND CONTINGENCIES

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

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

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

20

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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., which operates it. Plaintiffs allege certain features of the theater discriminated
against them and violated state and federal disabled access laws. Plaintiffs demand
statutory damages, damages for emotional distress, a lodestar multiplier,
attorneys fees and punitive damages. Although Plaintiffs have not quantified their
damages, we expect that Plaintiffs claims will exceed $300,000. The United States
Department of Justice has intervened in this suit. This case has now been stayed pending
the outcome of a similar case filed against AMC Theaters. We cannot determine the
likelihood of an unfavorable outcome or range of potential loss, if any. We believe we
have complied with all applicable provisions of law and intend to vigorously defend the
allegations contained in the lawsuit. We believe that the lawsuit will not have a material
impact on our continuing operations or overall financial condition.

The tenant in our Ontario property,
Adelphia Communications, Inc., has filed for bankruptcy protection. Presently, the rent is
current, however, we have reserved for the full amount of deferred rent receivable that
had accumulated from the straight-line adjustment. Certain companies have claimed amounts
due for remodeling work and other work ordered by Adelphia on our property. These
companies have filed mechanics liens on our property. We have not yet determined the
validity of these liens, and there may be defenses to these claims. If our lease with
Adelphia is affirmed in the bankruptcy proceeding, then Adelphia would be responsible for
the discharge of these claims. If our lease with Adelphia is not affirmed in the
bankruptcy proceeding, and the bankruptcy proceedings do not fully pay these creditors,
then we would be responsible for these claims to the extent they are valid, if at all. We
believe that these liens will not have a material impact on our continuing operations or
overall financial condition.

# NOTE 10 
SUBSEQUENT EVENTS

On July 16, 2004 we extended the
maturity date of the loan secured by our Fresno property from August 1, 2004 to August 1,
2005 under the same terms.

On July 22, 2004, the board of
directors declared a dividend of $0.25 per common share to holders of record on August 6,
2004, payable on August 20, 2004.

21

---

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

# Special Note Regarding
Forward-Looking Statements

This quarterly report contains
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements are identified by words such as believes,
expects, may, will, should,
seeks, approximately, intends, plans,
proforma, 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:

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

| | o | our future revenues;
| | - | --------------------

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

| | o | our future cash requirements;
| | - | -----------------------------

| | o | our critical accounting estimates;
| | - | ----------------------------------

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

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

| | o | property values;
| | - | ----------------

| | o | 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | vacancies;
| | - | ----------

| | o | interest rates;
| | - | ---------------

| | o | our operating costs;
| | - | --------------------

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

| | o | our ability to meet our debt obligations, including loans that mature in 2004 that are
secured by our Garden Grove (Banco Popular) and Riverside properties;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | o | identifying, acquiring and successfully integrating new properties:
| | - | -------------------------------------------------------------------

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

| | o | our ability to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as
amended;
| | - | -------------------------------------------------------------------------------------------------------------

| | o | our ability to successfully construct the planned shopping center on 2.5 acres in Garden
Grove, California (sometimes referred to as our Garden Grove Festival development or
property);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | environmental risks;
| | - | --------------------

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

| | o | 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. We undertake no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date of this Report on
Form 10-QSB.

22

---

# Overview

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

At June 30, 2004, we had a real
estate portfolio of 12 properties, including:

| | o | five light industrial properties totaling 171,025 square feet;       
| | - | ---------------------------------------------------------------------
| | o | one shopping center of 321,621 square feet;                          
| | o | two retail properties of 14,048 square feet;                         
| | o | three suburban office properties representing 94,806 square feet; and
| | o | one property held for sale comprising 25,000 square feet.            

In addition to the above, we own a
2.5 acre parcel of undeveloped land in Garden Grove, California. We intend to construct on
this parcel a multi-tenant shopping center, Garden Grove Festival, comprising
approximately 30,000 square feet. All of our properties are located in California except
for one shopping center in Georgia. 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 outside of California. Many of our leases are triple-net
leases where the tenant is responsible for maintenance, taxes and insurance.

The most significant factors
affecting our historical financial results are as follows:

|o | Sale of Cerritos Property. On December 19, 2003, we sold our property in Cerritos
for a gross sales price of $3,740,000 and a gain of $1,264,614. Included in the caption in
our income statement discontinued operations during the three and six month
periods ended June 30, 2003, were the following amounts directly related to the Cerritos
property:
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Three months | Six months          
| |  | ------------ | --------------------
|
|
|
| |  |              | Rental revenue      
| |  |              | Interest expense    
| |  |              | Depreciation expense
| |  |              | Operating expense   

|o | Sale of Chino Property. On November 25, 2003, we sold our vacant property in Chino
for a gross sales price of $2,300,000 and a gain of $452,157. Included in the caption in
our income statement discontinued operations during three and six month
periods ended June 30, 2003, were the following amounts directly related to the Chino
property:
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

| |  | Three months | Six months          
| |  | ------------ | --------------------
|
|
|
| |  |              | Rental revenue      
| |  |              | Interest expense    
| |  |              | Depreciation expense
| |  |              | Operating expense   

|o | Sale of Vacaville Property. On August 13, 2003, we sold our vacant Vacaville
property for a gross sales price of $2,100,000 and a gain of $406,728. This gain
incorporates a significant write-down in the carrying value of the property made in 2001.
Included in the caption in our income statement discontinued operations during
the three and six month periods ended June 30, 2003, were the following amounts directly
related to the Vacaville property:
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Three months | Six months          
| |  | ------------ | --------------------
|
|
|
| |  |              | Rental revenue      
| |  |              | Interest expense    
| |  |              | Depreciation expense
| |  |              | Operating expense   

We believe that the following factors
and events will pose particular challenges for us in 2004 and beyond. The following
statements are forward-looking statements within the meaning of the federal securities
laws, and these factors and others are addressed in more detail below under the heading
Risk Factors That May Affect Future Results.

|o | Existing and Anticipated Vacancies. At June 30, 2004, our portfolio was
approximately 93% leased, although some tenants have vacated the lease premises and
continue to pay rent. In May 2004, our lease with AMC Theaters comprising 26,900 square
feet in our Northlake Festival property expired, and consequently we will no longer
receive approximately $35,000 per month as required under the lease. AMC Theaters has not
occupied the space since 2002, and we do not expect to be able to lease the space to
another theater operator. We are exploring options to reconfigure the space to be suitable
for other uses, and may incur significant costs to complete such a renovation, including
the lack of income during a construction and lease up period. Another tenant in Northlake
Festival has vacated 16,056 square feet but is liable under the lease through July 2005.
Further, our lease on two Sacramento properties (717 and 721 West Del Paso Road) expired
in July 2004, and the tenant may continue to lease some of the space, at a possibly
reduced rental rate. We may incur significant costs to re-lease these spaces. As of August
1, 2004, our occupancy was approximately 90%, after giving effect to the vacancy at the
two Sacramento properties discussed above.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | Loss of Revenues from Disposed Properties. During 2003, we sold three properties.
Although two of the three properties were vacant for all of 2003, we recorded
approximately $68,000 and $136,000 in revenues in the three and six month periods ended
June 30, 2003 for our Cerritos property, which we sold on December 19, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

---

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

|o | Debt maturities.Four of our loans have matured or will mature in 2004, with total
balloon payments of approximately $5,900,000. In March 2004, we paid off the $2,800,000
loan secured by our Ontario property and extended the term of our $1,500,000 Garden Grove
(Banco Popular) loan to September 2004, and believe we will be able to extend the maturity
of this loan further. In addition, we extended the term of the $520,000 loan secured by
our Fresno property for one year to August 1, 2005. The $1,070,000 loan secured by our
Riverside property matures in November 2004, and although we are in discussions with the
lender to extend the maturity date, we cannot assure you we will be successful in
obtaining an extension of the maturity dates of this loan.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | Lease with Adelphia Communications, Inc. in our Ontario property.Adelphia has
filed for bankruptcy protection, and although it is current in its lease payments with us,
a bankruptcy court could terminate the lease. Further, various companies have filed liens
against the property for remodeling work ordered by Adelphia. If the bankruptcy court
terminates our lease and the payments to the creditors from the bankruptcy proceedings are
less than their claims and the liens are indeed valid, then we would be responsible for
the obligations.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of property sales in 2003
and the purchase of land held for development in 2003, as of June 30, 2004, we had total
assets of $54,123,682, total secured indebtedness of $35,475,508, total liabilities of
$36,460,235 and a debt-to-total assets ratio of 67%, calculated on the basis of generally
accepted accounting principles. Because this calculation method reflects accumulated
depreciation and does not reflect any appreciation of the properties beyond their cost, it
may result in assets being valued at less than their fair market values as determined by
the board of directors. Further, this calculation excludes the effects, if any, of the
ground lease on the Northlake Festival property.

# Results of Operations

Quarter
Ended June 30, 2004 Compared to Quarter Ended June 30, 2003

We adopted SFAS No. 144 as of January
1, 2002 and designated seven California properties as held for sale: Fresno; Huntington
Beach; Roseville; Riverside; Vacaville; and two Sacramento properties (717 and 721 West
Del Paso Road). We sold the Huntington Beach property in April 2002 and the Corona
property in September 2002. We sold the Vacaville property in August 2003. On September
30, 2003, we designated the Chino property as held for sale and removed the Roseville
property from the held for sale category. In November and December 2003 we sold our Chino
and Cerritos properties, respectively. In the second quarter of 2004, we determined that
the Fresno and two Sacramento properties (717 and 721 West Del Paso Road) did not meet the
criteria for continued classification as held for sale and we therefore reclassified the
properties to the operating category. In accordance with SFAS No. 144, we

25

---

have restated the prior results of
the properties designated as held for sale and the properties we sold as discontinued
operations for all periods presented.

Operations for the years ended June
30, 2004 and 2003 represented full quarters of rental operations for all of our properties
we classify as continuing operations, except for the Banco Popular property in Garden
Grove, which we acquired in June 2003. The only property designated as held for sale at
June 30, 2004, our Riverside property, and those properties sold prior to June 30, 2004
are included in the line items under discontinued operations- income from
operations with revenues netted against expenses.

Rental revenue increased by $45,156
(2%), for the quarter ended June 30, 2004, as compared to the quarter ended June 30, 2003,
primarily due to:

| | (a) | the acquisition of the Banco Popular property in June 2003, and the inclusion of
               approximately $30,000 of revenue in 2004 but not in 2003; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | higher rents in our Northlake Festival property, offset in part by the
               expiration of the lease with AMC Theaters on May 31, 2005.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------

Interest expense decreased by $48,613
(8%) for the quarter ended June 30, 2004, as compared to the quarter ended June 30, 2003,
due to paying off the loan secured by our Ontario property on March 1, 2004 and
accordingly recording no interest expense for that property in the quarter ended June 30,
2004. This decrease in interest expense was offset in part by an increase in interest
expense beginning in June 2003 for the $1,500,000 debt related to the Garden Grove (Banco
Popular) property.

General and administrative costs
decreased by $88,344 (21%) for the quarter ended June 30, 2004, as compared to the quarter
ended June 30, 2003. This decrease was principally due to lower legal expenses in 2004
than in 2003. The 2003 costs included costs related to our defense of the claim by James
Prock settled in 2003 and higher corporate legal fees in than in 2004.

Depreciation expense increased by
$137,355 (59%) for the quarter ended June 30, 2004, as compared to the quarter ended June
30, 2003, due largely to:

| | (a) | reclassifying the Fresno and two Sacramento properties (717 and 721 West Del
               Paso Road) properties to the operating category in June 2004 and charging
               depreciation for those properties in 2004 but not in 2003. Further, as required,
               we recomputed depreciation on those properties as if they had never been
               classified as held for sale, thus catching up the depreciation that
               was not expensed in prior periods totaling approximately $100,000;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | reclassifying the Roseville property to the operating category in September 2003
               and charging depreciation of $12,190 for that property in 2004 but not in 2003;
               and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | the addition of the Banco Popular property in 2004.
| | --- | ---------------------------------------------------

Ground rent increased by $1,065 for
the quarter ended June 30, 2004, as compared to the quarter ended June 30, 2003, due to
slightly higher rental income in the Northlake Festival property in 2004, which in turn
increased the ground rent payable under our lease with the ground lessor.

Operating expenses decreased by
$39,345 (18%) in the quarter ended June 30, 2004, as compared to the quarter ended June
30, 2003, due primarily to lower insurance costs at the Northlake Festival property.

26

---

Property tax expense increased by
$4,526 (4%) in the quarter ended June 30, 2004, as compared to the quarter ended June 30,
2003, primarily due to the addition of the Banco Popular property in June 2003.

Income from discontinued operations
decreased by $14,065 (100%) primarily due to income from the Cerritos property in 2003,
and was offset by the sales of the vacant Vacaville and Chino properties in 2003; the net
loss from these properties is not included in our 2004 results. In 2004, we recorded a
fair value adjustment on the Riverside property, reducing income from discontinued
operations to zero.

Net income for the quarter ended June
30, 2004 was $152,616 compared to $86,191 for the quarter ended June 30, 2003. This
increase was due primarily to higher revenues and lower general and administrative,
operating and interest expense in 2004, offset in part by lower income from discontinued
properties in 2004.

The diluted weighted average number
of shares outstanding was 1,002,834 and 985,262 for quarters ended June 30, 2004 and 2003,
respectively. For the reasons explained in the preceding paragraph, net income per share
assuming dilution increased to $0.15 for the quarter ended June 30, 2004 from $0.09 for
the quarter ended June 30, 2003.

Six
Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

We adopted SFAS No. 144 as of January
1, 2002 and designated seven California properties as held for sale: Fresno; Huntington
Beach; Roseville; Riverside; Vacaville; and two Sacramento properties (717 and 721 West
Del Paso Road). We sold the Huntington Beach property in April 2002 and the Corona
property in September 2002. We sold the Vacaville property in August 2003. On September
30, 2003, we designated the Chino property as held for sale and removed the Roseville
property from the held for sale category. In November and December 2003 we sold our Chino
and Cerritos properties, respectively. In the second quarter of 2004, we determined that
the Fresno and two Sacramento properties (717 and 721 West Del Paso Road) did not meet the
criteria for continued classification as held for sale and we therefore reclassified the
properties to the operating category. In accordance with SFAS No. 144, we have restated
the prior results of the properties designated as held for sale and the properties we sold
as discontinued operations for all periods presented.

Operations for the six months ended
June 30, 2004 and 2003 represented full periods of rental operations for all of our
properties we classify as continuing operations, except for the Banco Popular property in
Garden Grove, which we acquired in June 2003. The one property designated as held for sale
at June 30, 2004 and those properties sold prior to June 30, 2004 are included in the line
items under discontinued operations- income from operations with revenues
netted against expenses.

Rental revenue increased by $186,920
(5%), for the six months ended June 30, 2004, as compared to the six months ended June 30,
2003, primarily due to:

| | (a) | the acquisition of the Banco Popular property in June 2003, and the inclusion of
               approximately $65,000 of revenue in 2004 in but not in 2003;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | higher common area billings in our Folsom Property in 2004 of approximately
               $50,000; and
| | --- | -------------------------------------------------------------------------------------------------------

27

---

| | (c) | higher rents in our Northlake Festival property offset in part by the expiration
               of the AMC Theaters lease in May 2004 resulting in a net increase of
               approximately $20,000.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest expense decreased by
$101,501 (8%) for the six months ended June 30, 2004, as compared to the six months ended
June 30, 2003, due to capitalized interest in 2004 on the Garden Grove Festival
development property we acquired on March 26, 2003 and lower interest expense on the debt
secured by our Ontario property, which we paid off on March 1, 2004. These decreases in
interest expense were offset in part by an increase in interest expense beginning in June
2003 for the $1,500,000 debt related to the Garden Grove (Banco Popular) property.

General and administrative costs
decreased by $156,330 (18%) for the six months ended June 30, 2004, as compared to the six
months ended June 30, 2003. This decrease was principally due to lower legal expenses in
2004 than in 2003. The 2003 costs included costs related to our defense of the claim by
James Prock settled in 2003, higher corporate legal fees than in 2004 and the costs of
relocating our corporate office in 2003.

Depreciation expense increased by
$254,275 (55%) for the six months ended June 30, 2004, as compared to the six months ended
June 30, 2003, due largely to:

| | (a) | reclassifying the Fresno and two Sacramento properties (717 and 721 West Del
               Paso Road properties to the operating category in June 2004 and charging
               depreciation for those properties in 2004 but not in 2003. Further, as required,
               we recomputed depreciation on those properties as if they had never been
               classified as held for sale, thus catching up the depreciation that
               was not expensed in prior periods totaling approximately $100,000;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | a reduction in the estimated depreciable life of a component of the Roseville
               propertys basis, resulting in a one time charge of approximately $90,000
               of additional depreciation in 2004;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | reclassifying the Roseville property to the operating category in September 2003
               and charging depreciation of approximately $20,000 for that property (excluding
               amounts noted above) in 2004 but not in 2003; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | the addition of the Banco Popular property in 2004.
| | --- | ---------------------------------------------------

Ground rent increased by $10,141 (2%)
for the six months ended June 30, 2004, as compared to the six months ended June 30, 2003,
due to higher rental income in the Northlake Festival property in 2004, which in turn
increased the ground rent payable under our lease with the ground lessor.

Operating expenses decreased by
$63,274 (13%) in the six months ended June 30, 2004, as compared to the six months ended
June 30, 2003, due primarily to lower insurance costs at the Northlake Festival property.

Property tax expense increased by
$9,714 (4%) in the six months ended June 30, 2004, as compared to the six months ended
June 30, 2003, primarily due the addition of the Banco Popular property in June 2003.

Income from discontinued operations
increased from a loss of $11,012 for the six months ended June 30, 2003 to income of
$9,011 for the six months ended June 30, 2004, primarily due to the sales of the vacant
Vacaville and Chino properties in 2003; the net loss from these properties is not included
in our 2004 results. The benefit of the sales of the vacant properties is offset in part
by the fair value adjustment in 2004 on the Riverside property.

28

---

Net income for the six months ended
June 30, 2004 was $303,403 compared to $50,441 for the six months ended June 30, 2003.
This increase was due primarily to higher revenues and lower general and administrative,
operating and interest expense in 2004.

The diluted weighted average number
of shares outstanding was 1,004,869 and 985,262 for six months ended June 30, 2004 and
2003, respectively. For the reasons explained in the preceding paragraph, net income per
share assuming dilution increased to $0.30 for the six months ended June 30, 2004 from
$0.05 for the six months ended June 30, 2003.

# Inflation

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

# Liquidity and Capital
Resources

Our primary source of liquidity to
fund distributions, principal payments on notes payable and minor capital expenditures is
our cash flows from operating activities. To qualify as a REIT for federal income tax
purposes, among other requirements, we must distribute annually at least 90% of our REIT
taxable income (excluding capital gains). Accordingly, we currently intend to continue to
make, but have not contractually bound ourselves to make, regular quarterly distributions
to holders of our common stock. As a policy, we keep cash balances on hand for reserves
for unexpected cash requirements. Our primary sources for liquidity to fund asset
acquisitions, major capital expenditures and balloon payments on notes payable are the
proceeds from refinancing selected existing notes payable and from selling selected
properties. 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 June 30, 2004:

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

29

---

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

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

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

At June 30, 2004, our total
investments in rental real estate and rental real estate held for sale totaled $52,214,570
for the 12 properties we own. In addition, we own a parcel of land held for development
valued at $2,948,776. Depending upon the availability and cost of external capital, we
anticipate making additional investments in suburban office, retail shopping center and
light industrial properties, although we may make other types of investments. We intend to
fund new investments from (a) existing cash balances (subject to maintaining reasonable
cash reserves), (b) proceeds from refinancing selected notes payable to higher balances
and (c) the net proceeds from asset sales. We may consider other sources of possible
funding, including joint ventures. To increase our financial flexibility, we may seek to
obtain a revolving line of credit, although there can be no assurance we will be
successful.

During the remainder of 2004, two of
our loans are scheduled to mature, totaling approximately $2,570,000. We believe we will
be able to extend the maturity dates on these loans; however, we cannot assure you we will
be indeed be able to do so. We do not believe we will be able to use our Ontario property
as security for a loan until the bankruptcy court accepts our lease with the tenant (if
the lease is accepted at all), and we do not believe that a formal acceptance or rejection
of the lease will occur by September 30, 2004. Further, we anticipate the following
significant needs for cash during the remainder of 2004 and 2005:

| | o | We plan to build an approximate 30,000 square foot shopping center, Garden Grove Festival
on our parcel of land in Garden Grove using a construction loan. We anticipate using a
construction loan to fund the construction costs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | We may renovate the 26,900 square foot space vacated by AMC Theaters in our Northlake
Festival property to a use other than that of a theater, at a potentially significant
cost.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe our liquidity and various
sources of capital are sufficient to fund operations including capital expenditures and
leasing commissions, meet debt service and dividend requirements under the Internal
Revenue Code for REIT status and finance future investments, although we cannot assure you
we will be successful in obtaining such capital. We believe our properties are in good
condition without significant deferred maintenance obligations, and many are leased under
triple-net leases, which reduce our risk pertaining to excessive maintenance
and operating costs. However, we anticipate we will continue to require outside sources of
financing to meet our liquidity needs beyond 2004, such as scheduled debt repayments
(including balloon payments on our debt) and property acquisitions.

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

30

---

# Cash Flows in 2004

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

# Cash Flows in 2003

Our cash resources decreased
$2,918,367 during the six months ended June 30, 2003. During 2003, cash provided by
operating activities was $1,055,979, primarily from the net loss adjusted for non-cash
items such as depreciation and amortization. Investing activities in 2003 used $4,261,923
of cash resources primarily for purchase of the Garden Grove Festival and Banco Popular
properties. For the six months ended June 30, 2003 financing activities provided $287,577
due largely to proceeds from the loan secured by our Banco Popular property and offset in
part by dividends, the payoff of the loan secured by our Java City, 721 West Del Paso Road
property and principal payments on notes payable secured by rental real estate and notes
payable secured by rental real estate held for sale.

# Critical Accounting
Policies and Estimates

# General

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. We evaluate our estimates and assumptions on an
ongoing basis based on a combination of historical information and various other
assumptions that we believe are reasonable under the particular circumstances. Actual
results may differ from these estimates based on different assumptions or conditions. We
define critical accounting policies as those that require managements most
difficult, subjective or complex judgments. A summary of our critical accounting policies
follows. Additional discussion of accounting policies that we consider significant,
including further discussion of the critical accounting policies described below, can be
found in the notes to our consolidated financial statements.

# Critical Accounting
Policies

Revenue Recognition. We
recognize minimum rents on the straight-line method over the terms of the leases, as
required under SFAS No. 13. Certain 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
provide for tenant recoveries of common area maintenance, real estate taxes and other
operating expenses. These recoveries are recognized as revenue in the period the
applicable costs are incurred, except for several tenants where the revenue is recognized
when the revenue is billable to the tenant under the lease. Rents due, but not yet
collected, are recognized to the extent determined by management to be collectible. We
believe that the likelihood of collection of amounts over six months past due is low. As
of June 30, 2004 we had approximately $77,000 in receivables over six months old and we
have provided approximately $73,000 for uncollectible receivables.

31

---

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

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 it is classified as held for
sale. The property specific real estate classified as held for sale is stated at the
lower of its carrying amount or estimated fair value less disposal costs.

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

# Critical Accounting
Estimates

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

# New Accounting
Pronouncements

In November 2002, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The disclosure provisions are effective for financial
statements for annual or interim periods ending after December 15, 2002. We have not
entered into any new guarantees or modified any existing guarantees subsequent to December
31, 2002; therefore, adoption of this statement has had no effect on our financial
position, operating results or cash flows.

In December 2003, the FASB issued FIN
46R, Consolidation of Variable Interest Entities, a revision to FIN 46, which
was issued in January 2003. Under FIN 46R, a variable interest entity must be consolidated
by a company if that company is subject to a majority of the entitys expected losses
or entitled to receive a majority of the entitys expected residual returns or both.
FIN 46R requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable interest. The
consolidation requirements apply to existing entities in the first reporting period that
ends after March 15, 2004. The adoption of FIN 46R did not affect our financial position
of results of operations.

32

---

In December 2002, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 148, Accounting
for Stock-Based Compensation Transition and Disclosure, which amended SFAS No.
123 Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of accounting
for stock-based compensation and amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method
used on reported results. We adopted the disclosure provisions of SFAS No. 148 and
continues to account for stock-based compensation under Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees. Therefore, the
adoption of SFAS No. 148 did not have any effect on our financial position, operating
results or cash flows.

In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). SFAS No. 150 was
effective beginning in the third quarter of 2003. The FASB deferred the implementation of
SFAS No. 150 as applied to certain minority interests in finite life entities, however. We
adopted the requirements of SFAS No. 150 on June 1, 2003. The adoption of this statement
did not have a material effect on our financial position, results of operations or cash
flows.

33

---

# RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS

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

# Risks 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 pay dividends to stockholders and
to pay amounts due on our debt will be adversely affected. The performance of the economy
in each of the areas in which the properties are located can affect occupancy, market
rental rates and expenses, which in turn can affect the revenues from the properties and
their underlying values. The financial results of major local employers may also affect
the revenues and value of some properties. Other factors include:

| | o | the general economic climate;
| | - | -----------------------------

| | o | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

Our
tenants may go bankrupt.

Our tenants may file for bankruptcy protection or become insolvent in the future. Currently,
one of our tenants has filed for bankruptcy protection. We cannot evict a tenant solely
because of its bankruptcy. A court might authorize the tenant to reject and terminate its
lease with us. The bankruptcy court rejected our lease with one tenant in our Fresno
property and the tenant vacated the premises in November 2003. When a lease is terminated
by the bankruptcy court, our claim against the bankrupt tenant for unpaid, future rent
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 whether current tenants will renew their leases upon the expiration of
their terms or whether current tenants will attempt to terminate their leases before they
expire. Because the tenants in our Irvine and Tustin properties are either subletting the
property or not fully using the property for their operations, they may be less likely to
re-lease the properties when the leases expire or may re-lease a smaller space. Further,
the lease for our two Sacramento properties (717 and 721 West Del Paso Road) expired in
July 2004, and the tenant has moved its operations from the premises, although we believe
they may continue to lease some space for a short period. If we are unable to promptly
sell significant vacant properties or re-lease or renew the leases for them, or if the
rental rates upon such renewal or re-leasing

34

---

are
significantly lower than expected rates, then our ability to pay dividends to stockholders
and to pay amounts due on our debt may be adversely affected.

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

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

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

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

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

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

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

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

35

---

We may be unable to reinvest in
attractive properties, which 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
assurances that we can reinvest the proceeds realized from the disposition of assets into
new assets that will produce economic returns comparable to those being realized from the
properties disposed of, or that we will be able to acquire properties meeting our
investment criteria. To the extent that we are unable to reinvest those proceeds, or if
the properties we acquire with those proceeds produce a lower rate of return than the
properties we disposed, those results may have a material adverse effect on us.

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

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

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

All of our properties are located in
developed areas where we face substantial competition from other properties and from other
real estate companies 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 pay
dividends to stockholders and to pay amounts due on our debt.

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

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

36

---

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

Many of our properties are leased to
a single tenant, and some of these single tenant properties are individually significant
to our total revenue. In the three months ended June 30, 2004, the tenant in our Tustin
property, Safeguard Business Systems, Inc., accounted for approximately 8% of our total
rental revenue, including discontinued operations. Further, the California Independent
System Operator Corporation, a tenant in our Folsom property, directly accounted for over
6% of our total rental revenue, including discontinued operations. That tenant also
subleases space from another tenant in our Folsom property that accounted for another 4%
of our total rental revenue, including discontinued operations. A tenant may attempt to
terminate its lease before its scheduled term, or we may be unable to renew the lease with
the tenant. In that event, we may be unable to re-lease the space to another anchor tenant
of similar or better quality upon expiration of the current lease on similar or better
terms, and we could experience material adverse consequences such as higher vacancy rates,
re-leasing on less favorable economic terms and reduced net income. Similarly, if one or
more of our single tenants goes bankrupt, we could experience material adverse
consequences like those described above. There can be no assurance that our sole tenants
will renew their leases when they expire or will be willing to renew on similar economic
terms.

# Northlake Festival
represents approximately 50% of our revenues.

The Northlake Festival property
accounted for approximately 50% of our total rental revenues, including discontinued
operations. If economic conditions in the area of Northlake Festival become depressed and
the performance of that center is adversely affected, our overall financial condition and
results of operations will be adversely affected as well.

Construction and development risks
could adversely affect our profitability.

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

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

Our future growth 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 effect on us and
our ability to pay dividends to stockholders and to pay amounts due on our debt. We intend
to acquire properties that meet our investment criteria. Acquisitions of properties entail
risks that investments will fail to perform in accordance with expectations. Estimates of
the

37

---

costs of improvements to bring an
acquired property up to standards established for the market position intended for that
property may prove inaccurate.

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

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

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

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

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

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

# We may have liability
under environmental laws.

Under federal, state and local
environmental laws, ordinances and regulations, we may be required to investigate and
clean up the effects of releases of hazardous or toxic substances or

38

---

petroleum products at our properties,
regardless of our knowledge or responsibility, simply because of our current or past
ownership or operation of the real estate. Thus, we may have liability with respect to
properties we have already sold. If unidentified environmental problems arise, we may have
to take extensive measures to remediate the problems, which could adversely affect our
cash flow and our ability to pay dividends to our stockholders because:

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

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

| | o | 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
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

# We face particular
environmental risks related to asbestos.

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

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

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

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

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

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

# Our environmental due
diligence may be inadequate.

Our policy is to retain independent
environmental consultants to conduct Phase I environmental site assessments and asbestos
surveys of properties we intend to acquire. These assessments generally include a visual
inspection of the properties and the surrounding areas, an

39

---

examination of current and historical
uses of the properties and the surrounding areas and a review of relevant state, federal
and historical documents, but they do not involve invasive techniques such as soil and
ground water sampling. Where appropriate, on a property-by-property basis, we may have
these consultants conduct additional testing, including sampling for asbestos, for lead in
drinking water, for soil contamination where underground storage tanks are or were located
or where other past site usages create a potential environmental problem, and for
contamination in groundwater. Notwithstanding these environmental assessments, we still
face the risk that:

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

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

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

| | o | 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:

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

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

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

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

# Risks Due to Real
Estate Financing

We have a significant amount of
indebtedness. As of June 30, 2004, we had total assets of $54,123,682, total secured
indebtedness of $35,475,508, total liabilities of $36,460,235 and a debt-to-total assets
ratio of 67%, using amounts calculated on the basis of generally accepted accounting
principles. Because this calculation method reflects accumulated depreciation and does not
reflect any appreciation of the properties beyond their cost, it may result in assets
being valued at less than their fair market values as determined by the board of
directors. Further, this calculation excludes the effects, if any, of the ground lease on
the Northlake Festival property.

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

40

---

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:

| | o | increase our vulnerability to general adverse economic and industry conditions,
| | - | -------------------------------------------------------------------------------

| | o | 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
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

We are subject to the normal risks
associated with debt financing, including the risk that our cash flow will be insufficient
to meet required payments of principal and interest, the risk that we will not be able to
renew, repay or refinance our debt when it matures or that the terms of any renewal or
refinancing will not be as favorable as the existing terms of that debt. From July 1, 2004
to December 31, 2004, two of our loans are scheduled to mature, totaling approximately
$2,570,000. In many of the mortgage notes on our properties, the mortgage payment terms do
not fully amortize the loan balance, and a balloon payment of the balance will be due upon
its maturity. If we are unable to refinance our indebtedness on acceptable terms, or at
all, we might be forced to dispose of one or more of the properties on disadvantageous
terms, which might result in losses to us. Those losses could have a material adverse
effect on us and our ability to pay dividends to stockholders and pay amounts due on our
debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are
unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint
a receiver and receive an assignment of rents and leases or pursue other remedies, all
with a consequent loss of our revenues and asset value. Foreclosures could also create
taxable income without accompanying cash proceeds, thereby hindering our ability to meet
the REIT distribution requirements of the Internal Revenue Code.

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

We have incurred and may in the
future again incur debt that bears interest at a variable rate. As of June 30, 2004, we
have one note payable in the amount $1,500,000 that bears interest at a variable rate. If
we are successful in obtaining a construction loan for the development and construction of
our Garden Grove Festival shopping center, that loan may bear interest at a variable rate.
Accordingly, increases in interest rates would increase our interest costs, which could
have a material adverse effect on us and our ability to pay dividends to stockholders. In
addition, an increase in market interest rates may lead holders of our common shares to
expect a higher dividend yield, which could adversely affect the market price of our
common stock.

# We may incur additional
debt and related debt service.

We intend to fund the acquisition of
additional properties partially through borrowings and from other sources such as sales of
properties that no longer meet our investment criteria or the contribution of property to
joint ventures or other financing methods. Unlike our previous

41

---

certificate of incorporation and
bylaws, our new organizational documents do not limit the amount of debt that we may
incur.

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

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

| | o | incur additional debt and issue preferred stock; o pay dividends and make other
distributions;
| | - | ----------------------------------------------------------------------------------------------

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

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

| | o | consolidate or merge;
| | - | ---------------------

| | o | create liens;
| | - | -------------

| | o | sell assets; or
| | - | ---------------

| | o | 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 four 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. In addition, the land
we hold for development of our Garden Grove Festival shopping center also secures the loan
on our Banco Popular property in Garden Grove.

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.

# Risks Related to our
Stock

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

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

42

---

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

While we have declared quarterly
dividends on our common stock regularly in the past, the declaration and payment of
dividends is subject to the discretion of our board of directors. Any determination as to
the payment of dividends, as well as the level of those dividends, will depend on, among
other items, our financial results and condition, general economic and business
conditions, our strategic plans and contractual, legal and regulatory restrictions on our
ability to pay dividends. During 2002 and the first six months of 2003, the total of
dividends based on our quarterly dividend rate of $0.30 per share of common stock and
scheduled principal amortization on notes payable exceeded our net cash provided by
operating activities (excluding changes in operating assets and liabilities). To address
this shortfall, we used proceeds from sales of properties and existing cash balances. On
September 30, 2003, our board of directors reduced the dividend for the quarter ended
September 30, 2003 to $0.25 per share, and we have subsequently paid dividends at the
$0.25 per share rate. We cannot assure stockholders that we will maintain this quarterly
dividend level or that we will pay dividends in any future period.

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

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

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

The interests of our existing
stockholders could be diluted if we issue additional equity securities to finance future
developments and acquisitions instead of incurring additional debt. 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.

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

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

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

| | o | REIT protective provisions that limit stock ownership to 5.0% for anyone other than Mr. Allen Meredith,
our President, Chairman and Chief Executive Officer;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

43

---

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

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

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

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

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

We have entered into change of
control agreements with Mr. Meredith, our President, Chairman and Chief Executive Officer,
and Mr. Wingard, our Chief Financial Officer, providing for the payment of money to them
upon the occurrence of a change of control, as defined in these agreements. If, within one
year following a change of control, either Mr. Meredith or Mr. Wingard 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 their current salaries and benefit levels, this provision would result in payments
totaling at least $200,000 to Mr. Meredith and $127,500 to Mr. Wingard. The agreements
with Mr. Meredith and Mr. Wingard may deter changes of control because of the increased
cost for a third party to acquire control of us, thus limiting the opportunity for
stockholders to receive a premium for our common stock over then-prevailing market prices.

# 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.

44

---

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

Qualification as a REIT involves both
the application of highly technical and complex Internal Revenue Code provisions for which
there are only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within our control. For example, to
qualify as a REIT in 2004, at least 95% of our taxable gross income in any year must be
derived from qualifying sources and we must pay dividends to stockholders aggregating
annually at least 90% of our REIT taxable income (excluding net capital gains). Thus, to
the extent revenues from non-qualifying sources represent more than 5% of our gross income
in any taxable year, we will not satisfy the 95% income test and may fail to qualify as a
REIT, unless certain relief provisions apply. Even if those relief provisions apply, a tax
would be imposed with respect to excess net income, which could have a material adverse
effect on us and our ability to pay dividends to stockholders and to pay amounts due on
our debt. We cannot give assurances that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such qualification. If
we fail to qualify as a REIT, we will be subject to federal income tax (including any
applicable alternative minimum tax) on our taxable income at corporate rates, which would
likely have a material adverse effect on us and our ability to pay dividends to
stockholders and to pay amounts due on our debt. In addition, unless entitled to relief
under certain statutory provisions, we would also be disqualified from treatment as a REIT
for the four taxable years following the year during which REIT qualification is lost.
This treatment would reduce funds available for investment or distributions to
stockholders because of the additional tax liability to us for the year or years involved.
In addition, we would no longer be required to make, and indeed may not make,
distributions to stockholders. To the extent that distributions to stockholders would have
been made in anticipation of qualifying as a REIT, we might be required to borrow funds or
to liquidate certain investments to pay the applicable tax. Further, to maintain our real
estate investment trust status, we may borrow funds on a short-term basis to meet the real
estate investment trust distribution requirements, even if the then-prevailing market
conditions are not favorable for these borrowings.

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

We currently are attempting to sell
one 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.

45

---

# ITEM 3.  CONTROLS AND
PROCEDURES

As of June 30, 2004, we carried out
an evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our current disclosure controls and procedures are effective as of June 30,
2004.

There was no change in our internal
control over financial reporting that occurred during the quarter ended June 30, 2004 that
has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

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

46

---

# PART II  OTHER
INFORMATON

# ITEM 1.  LEGAL PROCEEDINGS

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

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

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. We understand that Sanborn intends to vigorously defend against the DOJ.

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

# ITEM 2.  CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

None.

# ITEM 3.  DEFAULTS UPON
SENIOR SECURITIES

None.

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

None.

# ITEM 5.  OTHER INFORMATION

None.

47

---

# ITEM 6.  EXHIBITS AND
REPORTS ON FORM 8-K

(a)        
          EXHIBITS 
                No.
               Description

| | 10.1 | Employment Agreement between Meredith Enterprises and Allen K. Meredith
| | ---- | -----------------------------------------------------------------------

| | 31.1 | Certification of Allen K. Meredith pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------

| | 31.2 | Certification of Charles P. Wingard pursuant to Section 302 of the Sarbanes
              Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------

| | 31.2 | Certification of Allen K. Meredith pursuant to Section 906 of the Sarbanes-Oxley
              Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------

| | 32.2 | Certification of Charles P. Wingard pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------

(b)        
          REPORTS ON FORM 8-K

None

48

---

# SIGNATURES

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

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

|Dated:   August 9, 2004 |  | /s/ Charles P. Wingard
Charles P. WingardChief Financial Officer(principal financial and accounting officer)
|----------------------- |  | ------------------------------------------------------------------------------------------------------------