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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-QSB



(Mark One)

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



OR



| ̈ | Transition report pursuant to Section 13 or 15 (d) of the Exchange Act
|- | ----------------------------------------------------------------------



For the transition period from
 to



Commission file number 000-24594



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MEREDITH ENTERPRISES, INC.

(Exact name of Small Business Issuer as Specified in Its Charter)



|                                                            |  |                                 
|----------------------------------------------------------- |  | --------------------------------
|Delaware                                                    |  | 95-4246740                      
|State or Other Jurisdiction ofIncorporation or Organization |  | (IRS EmployerIdentification No.)



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



(650) 233-7140

(Registrants telephone number, including area code)



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



Yes þ     No ̈



APPLICABLE ONLY TO CORPORATE ISSUERS



As of May 12, 2004 there were 976,965 shares of the issuers common stock outstanding



Transitional Small Business Disclosure Format (check one): Yes ̈No þ



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##### Table of Contents

MEREDITH ENTERPRISES, INC.



REPORT ON FORM 10-QSB

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004



TABLE OF CONTENTS



|                               |  |                                                                                                          |  |   
|------------------------------ |  | -------------------------------------------------------------------------------------------------------- |  | --
|Part I - Financial Information |  |                                                                                                         
|                               |  |                                                                                                         
|Item 1.                        |  | Financial Statements                                                                                     |  |   
|                               |  | Consolidated Balance Sheets - As of March 31, 2004 (unaudited) and December 31, 2003 (audited)           |  | 3 
|                               |  | Consolidated Statements of Income (unaudited)- Three months ended March 31, 2004 and 2003                |  | 4 
|                               |  | Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31, 2004 and 2003           |  | 5 
|                               |  | Consolidated Statements of Stockholders Equity (unaudited) - Three months ended March 31, 2004 and 2003 |  | 6 
|                               |  | Summary of Accounting Policies                                                                           |  | 7 
|                               |  | Notes to Consolidated Financial Statements                                                               |  | 12
|Item 2.                        |  | Managements Discussion and Analysis or Plan of Operation                                                |  | 21
|Item 3.                        |  | Controls and Procedures                                                                                  |  | 42
|                               | 
|Part II - Other Information    |  |                                                                                                         
|                               |  |                                                                                                         
|Item 1.                        |  | Legal Proceedings                                                                                        |  | 43
|Item 2.                        |  | Changes In Securities and Use of Proceeds                                                                |  | 43
|Item 3.                        |  | Defaults Upon Senior Securities                                                                          |  | 43
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                      |  | 43
|Item 5.                        |  | Other Information                                                                                        |  | 43
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                         |  | 44
|Signatures                     |  | 45                                                                                                      



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. 2





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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



MEREDITH
ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                            |  |                |            |   |                  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                            |  | March 31, 2004 |            |   | December 31,2003 |  
|                                                                                                                                            |  | (Unaudited)    |            |   | (Audited)        |  
|Assets                                                                                                                                      |  |                |            |   |                  |   |            |  
|Rental real estate, less accumulated depreciation (Notes 2, 4 and 6)                                                                        |  | $              | 43,610,697 |   |                  | $ | 43,957,479 |  
|Rental real estate held for sale, net (Notes 2 and 6)                                                                                       |  |                | 4,047,133  |   |                  |   | 4,098,703  |  
|Land held for development (Notes 2 and 6)                                                                                                   |  |                | 2,848,790  |   |                  |   | 2,691,331  |  
|Cash and cash equivalents                                                                                                                   |  |                | 1,647,635  |   |                  |   | 4,699,052  |  
|Deferred rent                                                                                                                               |  |                | 518,702    |   |                  |   | 515,644    |  
|Accounts receivable                                                                                                                         |  |                | 95,798     |   |                  |   | 115,223    |  
|Loan origination fees, net of accumulated amortization of $147,443 and $130,001 at March 31, 2004 and December 31, 2003,
respectively       |  |                | 597,605    |   |                  |   | 615,048    |  
|Other assets                                                                                                                                |  |                | 758,159    |   |                  |   | 667,197    |  
|Other assets related to rental real estate held for sale                                                                                    |  |                |           |   |                  |   | 17,688     |  
|                                                                                                                                            |  |                |            |   |                  |   |            |  
|Total assets                                                                                                                                |  | $              | 54,124,519 |   |                  | $ | 57,377,365 |  
|                                                                                                                                            |  |                |            |   |                  |   |            |  
|Liabilities and Stockholders Equity                                                                                                        |  |                |            |   |                  |   |            |  
|Liabilities                                                                                                                                 |  |                |            |   |                  |   |            |  
|Notes payable secured by rental real estate (Note 6)                                                                                        |  | $              | 33,996,847 |   |                  | $ | 36,878,369 |  
|Notes payable secured by rental real estate held for sale (Note 6)                                                                          |  |                | 1,598,391  |   |                  |   | 1,608,147  |  
|Accounts payable and accrued liabilities                                                                                                    |  |                | 524,519    |   |                  |   | 805,887    |  
|Security deposits and prepaid rent                                                                                                          |  |                | 239,723    |   |                  |   | 225,272    |  
|Other liabilities related to rental real estate held for sale                                                                               |  |                | 27,054     |   |                  |   | 28,666     |  
|                                                                                                                                            |  |                |            |   |                  |   |            |  
|Total liabilities                                                                                                                           |  |                | 36,386,534 |   |                  |   | 39,546,341 |  
|                                                                                                                                            |  |                |            |   |                  |   |            |  
|Commitments and contingencies (Note 9)                                                                                                      |  |                |           |   |                  |   |           |  
|Stockholders equity                                                                                                                        |  |                |            |   |                  |   |            |  
|Common stock $.01 par value; 15,000,000 shares authorized; 975,298 shares issued and outstanding as of March 31, 2004 and December 31,
2003 |  |                | 9,753      |   |                  |   | 9,753      |  
|Additional paid-in capital                                                                                                                  |  |                | 27,157,247 |   |                  |   | 27,157,247 |  
|Dividends in excess of retained earnings                                                                                                    |  |                | (9,429,015 | ) |                  |   | (9,335,976 | )
|                                                                                                                                            |  |                |            |   |                  |   |            |  
|Total stockholders equity                                                                                                                  |  |                | 17,737,985 |   |                  |   | 17,831,024 |  
|                                                                                                                                            |  |                |            |   |                  |   |            |  
|Total liabilities and stockholders equity                                                                                                  |  | $              | 54,124,519 |   |                  | $ | 57,377,365 |  
|                                                                                                                                            |  |                |            |   |                  |   |            |  



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



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MEREDITH ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME



|                                                        |  |                    |           |                |    |           |  
|------------------------------------------------------- |  | ------------------ | --------- | -------------- | -- | --------- | -
|                                                        |  | Three months ended |          
|                                                        |  | March 31, 2004     |           | March 31, 2003 |   
|                                                        |  | (Unaudited)        |           | (Unaudited)    |   
|Revenues                                                |  |                    |           |                |    |           |  
|Rental (Notes 2 and 4)                                  |  | $                  | 2,018,426 |                | $  | 1,876,248 |  
|Interest                                                |  |                    | 5,180     |                |    | 8,114     |  
|                                                        |  |                    |           |                |    |           |  
|                                                        |  |                    | 2,023,606 |                |    | 1,884,362 |  
|                                                        |  |                    |           |                |    |           |  
|Cost and expenses                                       |  |                    |           |                |    |           |  
|Interest                                                |  |                    | 628,722   |                |    | 677,779   |  
|General and administrative                              |  |                    | 363,103   |                |    | 431,129   |  
|Depreciation                                            |  |                    | 346,782   |                |    | 229,862   |  
|Ground rent (Note 9)                                    |  |                    | 242,969   |                |    | 233,893   |  
|Operating                                               |  |                    | 220,072   |                |    | 238,144   |  
|Property tax                                            |  |                    | 127,162   |                |    | 121,738   |  
|                                                        |  |                    |           |                |    |           |  
|                                                        |  |                    | 1,928,810 |                |    | 1,932,545 |  
|                                                        |  |                    |           |                |    |           |  
|Income (loss) from continuing operations                |  |                    | 94,796    |                |    | (48,183   | )
|Discontinued operations (Note 3)                        |  |                    | 55,991    |                |    | 12,433    |  
|                                                        |  |                    |           |                |    |           |  
|Net income (loss)                                       |  | $                  | 150,787   |                | $  | (35,750   | )
|                                                        |  |                    |           |                |    |           |  
|Net income (loss) per sharebasic (Note 1):             |  |                    |           |                |    |           |  
|Income (loss) from continuing operations                |  | $                  | 0.10      |                |    | ($0.05    | )
|Discontinued operations                                 |  | $                  | 0.06      |                | $  | 0.01      |  
|                                                        |  |                    |           |                |    |           |  
|Net income (loss) per share-basic                       |  | $                  | 0.16      |                | ($ | 0.04      | )
|                                                        |  |                    |           |                |    |           |  
|Net income (loss) per shareassuming dilution (Note 1): |  |                    |           |                |    |           |  
|Income (loss) from continuing operations                |  | $                  | 0.10      |                |    | ($0.05    | )
|Discontinued operations                                 |  | $                  | 0.05      |                | $  | 0.01      |  
|                                                        |  |                    |           |                |    |           |  
|Net income (loss) per share-assuming dilution           |  | $                  | 0.15      |                |    | ($0.04    | )
|                                                        |  |                    |           |                |    |           |  



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



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MEREDITH ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                         |  |             |            |   |      |   |            |  
|---------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ---- | - | ---------- | -
|Three months ended March 31,                                                             |  | 2004        |            |   | 2003 |  
|                                                                                         |  | (Unaudited) |           
|Cash flows from operating activities                                                     |  |             |            |   |      |   |            |  
|Net income (loss)                                                                        |  | $           | 150,787    |   |      | $ | (35,750    | )
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |             |            |   |      |   |            |  
|Depreciation expense                                                                     |  |             | 346,782    |   |      |   | 246,404    |  
|Fair value adjustment to property carrying value                                         |  |             | 51,570     |   |      |   |           |  
|Interest expense due to amortization of loan origination fees                            |  |             | 17,443     |   |      |   | 18,155     |  
|Increase (decrease) in cash flows from changes in operating assets and liabilities:      |  |             |            |   |      |   |            |  
|Deferred rent                                                                            |  |             | (3,058     | ) |      |   | (6,763     | )
|Accounts receivable                                                                      |  |             | 19,425     |   |      |   | 132,780    |  
|Other assets                                                                             |  |             | (90,962    | ) |      |   | (288,881   | )
|Other assets related to rental real estate held for sale                                 |  |             | 17,688     |   |      |   | 360,285    |  
|Accounts payable and accrued liabilities                                                 |  |             | (281,368   | ) |      |   | (170,156   | )
|Security deposits and prepaid rent                                                       |  |             | 14,451     |   |      |   | (145,460   | )
|Other liabilities related to rental real estate held for sale                            |  |             | (1,612     | ) |      |   | (8,333     | )
|                                                                                         |  |             |            |   |      |   |            |  
|Net cash provided by operating activities                                                |  |             | 241,146    |   |      |   | 102,281    |  
|                                                                                         |  |             |            |   |      |   |            |  
|Cash flows from investing activities                                                     |  |             |            |   |      |   |            |  
|Expenditures on land held for development                                                |  |             | (157,459   | ) |      |   |           |  
|Purchase of land held for development                                                    |  |             |           |   |      |   | (2,238,359 | )
|Capital expenditures on rental real estate                                               |  |             |           |   |      |   | (324,605   | )
|                                                                                         |  |             |            |   |      |   |            |  
|Net cash used in investing activities                                                    |  |             | (157,459   | ) |      |   | (2,562,964 | )
|                                                                                         |  |             |            |   |      |   |            |  
|Cash flows from financing activities                                                     |  |             |            |   |      |   |            |  
|Dividends paid                                                                           |  |             | (243,826   | ) |      |   | (292,589   | )
|Payments on notes payable secured by rental real estate                                  |  |             | (2,881,522 | ) |      |   | (118,500   | )
|Payments on notes payable secured by rental real estate held for sale                    |  |             | (9,756     | ) |      |   | (351,825   | )
|                                                                                         |  |             |            |   |      |   |            |  
|Net cash used in financing activities                                                    |  |             | (3,135,104 | ) |      |   | (762,914   | )
|                                                                                         |  |             |            |   |      |   |            |  
|Net decrease in cash and cash equivalents                                                |  |             | (3,051,417 | ) |      |   | (3,223,597 | )
|Cash and cash equivalents,beginning of year                                              |  |             | 4,699,052  |   |      |   | 3,923,923  |  
|                                                                                         |  |             |            |   |      |   |            |  
|Cash and cash equivalents,end of period                                                  |  | $           | 1,647,635  |   |      | $ | 700,326    |  
|                                                                                         |  |             |            |   |      |   |            |  



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



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MEREDITH ENTERPRISES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY



|                                              |  |              |  |                            |       |                                          |   |            |       |   |            |   |  |   |            |  
|--------------------------------------------- |  | ------------ |  | -------------------------- | ----- | ---------------------------------------- | - | ---------- | ----- | - | ---------- | - |  | - | ---------- | -
|                                              |  | Common Stock |  | Additional Paid-In Capital |       | Dividends in Excess of Retained Earnings |   |            | Total |  
|                                              |  | Shares       |  | Amount                     |       |                                          |  
|(Unaudited)                                   |  |              |  |                            |       |                                          |   |            |       |   |            |  
|Balance, January 1, 2004                      |  | 975,298      |  | $                          | 9,753 |                                          | $ | 27,157,247 |       | $ | (9,335,976 | ) |  | $ | 17,831,024 |  
|Net income for the period                     |  |              |  |                            |       |                                          |   |            |       |   | 150,787    |   |  |   | 150,787    |  
|Dividends declared ($0.25 per share) (Note 1) |  |              |  |                            |       |                                          |   |            |       |   | (243,826   | ) |  |   | (243,826   | )
|                                              |  |              |  |                            |       |                                          |   |            |       |   |            |   |  |   |            |  
|Balance, March 31, 2004                       |  | 975,298      |  | $                          | 9,753 |                                          | $ | 27,157,247 |       | $ | (9,429,015 | ) |  | $ | 17,737,985 |  
|                                              |  |              |  |                            |       |                                          |   |            |       |   |            |   |  |   |            |  



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



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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 March 31, 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 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.



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 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 earnings.



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 March 31, 2004, there were four properties classified as held for sale, as they were listed for sale with real estate
brokers and we believed there was a high likelihood of sale in the near term. There can be no assurance that the properties held for sale will be sold in the near term, at prices we consider acceptable, or at all.



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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES



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 years ended December 31, 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 are included in interest expense.



Cash and Cash Equivalents



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



Consolidation



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



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.



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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES



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 periods ended March 31, 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.



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 March 31, 2004 and December 31, 2003, respectively and over 99% of our total revenues (including discontinued operations) for the three month periods ended March 31, 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 March 31,
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 expenses 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



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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES



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 period ended December 31, 2003 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 months March 31, 2004:



|                             |  |          |  
|---------------------------- |  | -------- | -
|Risk-free interest rate      |  | 4.00     | %
|Dividend yield               |  | 6.40     | %
|Volatility                   |  | 24.00    | %
|Weighted average option life |  | 10 years |  



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.



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



|                                                                                           |  |                                |         |                                |    |        |  
|------------------------------------------------------------------------------------------ |  | ------------------------------ | ------- | ------------------------------ | -- | ------ | -
|                                                                                           |  | Three monthsendedMarch 31,2004 |         | Three monthsendedMarch 31,2003 |   
|Net income (loss), as reported                                                             |  | $                              | 150,787 |                                | ($ | 35,750 | )
|Less  total stock-based compensation expense determined under the fair value based method |  |                                | 15,011  |                                |    | 29,059 |  
|                                                                                           |  |                                |         |                                |    |        |  
|Proforma net income (loss)                                                                 |  | $                              | 135,776 |                                | ($ | 64,809 | )
|                                                                                           |  |                                |         |                                |    |        |  
|Net income (loss) per share:                                                               |  |                                |         |                                |    |        |  
|Basic-as reported                                                                          |  | $                              | 0.16    |                                |    | ($0.04 | )
|                                                                                           |  |                                |         |                                |    |        |  
|Basic-proforma                                                                             |  | $                              | 0.14    |                                |    | ($0.07 | )
|                                                                                           |  |                                |         |                                |    |        |  
|Diluted-as reported                                                                        |  | $                              | 0.15    |                                |    | ($0.04 | )
|                                                                                           |  |                                |         |                                |    |        |  
|Diluted-proforma                                                                           |  | $                              | 0.13    |                                |    | ($0.07 | )
|                                                                                           |  |                                |         |                                |    |        |  



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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES



New Accounting Pronouncements



On May 15, 2002, we adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 rescinds SFAS No. 4 and an amendment of that Statement, and SFAS No. 64. This Statement also rescinds SFAS No. 44. SFAS No. 145 amends SFAS No. 13, to eliminate an inconsistency between the required
accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The adoption of SFAS No. 145 did not have a material effect on our financial position or results of operations.



On January 1, 2003, we adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The adoption of SFAS No. 146 did not have a material effect on our financial position or results of operations.



On January 1, 2003, we adopted FASB Interpretation No. 45 (FIN No. 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 affects leasing transactions involving residual guarantees, vendor and manufacturer guarantees, and tax and environmental indemnities. All such
guarantees will need to be disclosed in the notes to the financial statements starting with the period ending after December 15, 2002. For guarantees issued after December 31, 2002, the fair value of the obligation must be reported on the balance
sheet. Existing guarantees will be grandfathered and no fair value of the obligation of them will be recognized on the balance sheet. The adoption of FIN No. 45 did not have an impact on our financial position and results of operations.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN No. 46 explains how to identify variable interest entities and how an enterprise
assesses its interest in a variable entity to decide whether to consolidate that entity. FIN No. 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. FIN No. 46 is effective immediately for variable interest entities after January 31, 2003, and to variable interest entities in which an enterprise obtained an interest after that date. FIN No. 46 applies in
the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN No. 46 did not have impact on our
financial position and results of operations.



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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 (loss) income 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 three months ended March 31, 2004 were as follows:



|                                                                    |  |                    |         |                               |   |      
|------------------------------------------------------------------- |  | ------------------ | ------- | ----------------------------- | - | -----
|                                                                    |  | Shares underoption |         | Weightedaverageexercise price
|Balance at the beginning of the period                              |  |                    | 91,669  |                               | $ | 10.25
|Granted                                                             |  |                    | 53,335  |                               | $ | 16.00
|Exercised                                                           |  |                    |        |                               |   |     
|Cancelled                                                           |  |                    |        |                               |   |     
|                                                                    |  |                    |         |                               |   |      
|Balance at end of period                                            |  |                    | 145,004 |                               | $ | 12.36
|                                                                    |  |                    |         |                               |   |      
|Exercisable                                                         |  |                    | 99,795  |                               | $ | 10.73
|                                                                    |  |                    |         |                               |   |      
|Shares available for future grants at March 31, 2004                |  |                    | 4,996   |                               |   |      
|                                                                    |  |                    |         |                               |   |      
|Estimated fair value of options granted during the period per share |  | $                  | 1.80    |                               |   |      
|                                                                    |  |                    |         |                               |   |      



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 10 years.



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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 March 31, |          
|                                                                                |  | 2004                         |           | 2003 |  
|Numerator:                                                                      |  |                              |           |      |   |         |  
|Income (loss) from continuing operations                                        |  | $                            | 94,796    |      | $ | (48,183 | )
|Income from discontinued operations                                             |  |                              | 55,991    |      |   | 12,433  |  
|                                                                                |  |                              |           |      |   |         |  
|Net income (loss)                                                               |  | $                            | 150,787   |      | $ | (35,750 | )
|                                                                                |  |                              |           |      |   |         |  
|Denominator for basic earnings per share  weighted average shares              |  |                              | 975,298   |      |   | 975,298 |  
|Effect of dilutive securities  stock options                                   |  |                              | 31,438    |      |   | 8,237   |  
|                                                                                |  |                              |           |      |   |         |  
|Denominator for diluted earnings per share adjusted for weighted average shares |  |                              | 1,006,736 |      |   | 983,535 |  
|                                                                                |  |                              |           |      |   |         |  
|Basic earnings per share:                                                       |  |                              |           |      |   |         |  
|Income (loss) from continuing operations                                        |  | $                            | 0.10      |      |   | ($0.05  | )
|Income per share from discontinued operations                                   |  | $                            | 0.06      |      | $ | 0.01    |  
|                                                                                |  |                              |           |      |   |         |  
|Net income (loss) per share - basic                                             |  | $                            | 0.16      |      |   | ($0.04  | )
|                                                                                |  |                              |           |      |   |         |  
|Diluted earnings per share:                                                     |  |                              |           |      |   |         |  
|Income (loss) from continuing operations                                        |  | $                            | 0.10      |      |   | ($0.05  | )
|Income per share from discontinued operations                                   |  | $                            | 0.05      |      | $ | 0.01    |  
|                                                                                |  |                              |           |      |   |         |  
|Net income (loss) per share - assuming dilution                                 |  | $                            | 0.15      |      |   | (0.04   | )
|                                                                                |  |                              |           |      |   |         |  



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2RENTAL REAL ESTATE



Our major categories of rental real estate are:



|                              |  |               |            |   |                  |   |            |  
|----------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                              |  | March 31,2004 |            |   | December 31,2003 |  
|Land                          |  | $             | 8,319,091  |   |                  | $ | 8,319,091  |  
|Buildings and improvements    |  |               | 39,009,131 |   |                  |   | 39,009,131 |  
|                              |  |               |            |   |                  |   |            |  
|                              |  |               | 47,328,222 |   |                  |   | 47,328,222 |  
|Less accumulated depreciation |  |               | (3,717,525 | ) |                  |   | (3,370,743 | )
|                              |  |               |            |   |                  |   |            |  
|Net rental real estate        |  | $             | 43,610,697 |   |                  | $ | 43,957,479 |  
|                              |  |               |            |   |                  |   |            |  



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



|                                     |  |               |           |   |                  |   |           |  
|------------------------------------ |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                     |  | March 31,2004 |           |   | December 31,2003 |  
|Land                                 |  | $             | 1,747,804 |   |                  | $ | 1,747,804 |  
|Buildings and improvements           |  |               | 3,129,876 |   |                  |   | 3,181,446 |  
|                                     |  |               |           |   |                  |   |           |  
|                                     |  |               | 4,877,680 |   |                  |   | 4,929,250 |  
|Less accumulated depreciation        |  |               | (830,547  | ) |                  |   | (830,547  | )
|                                     |  |               |           |   |                  |   |           |  
|Net rental real estate held for sale |  | $             | 4,047,133 |   |                  | $ | 4,098,703 |  
|                                     |  |               |           |   |                  |   |           |  



In addition, we own land we are
holding for future development, valued at its cost plus development expenditures, at March 31, 2004 of $2,848,790.



During 2004, no one tenant represented 10% or more of our total rental revenue including discontinued operations, although two tenants represented approximately 8% each.
In 2003, one tenant represented 11% of our total rental revenue including discontinued operations and another tenant represented 8%.



NOTE 3DISCONTINUED OPERATONS



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). In addition, we sold two properties since January 1, 2002 that we had not designated as held for sale, the Corona and Cerritos properties. 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 the Chino and Cerritos properties, respectively. As of March 31, 2004



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



and December 31, 2003, we have designated four properties as held for sale: Fresno; Riverside; and two Sacramento properties (717 and 721 West Del Paso
Road). 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 of properties included in
discontinued operations for the three months ended March 31, 2004 and 2003 are as follows:



|                                                 |  |      |         |      |   |        
|------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|Three months ended March 31,                     |  | 2004 |         | 2003
|Revenues                                         |  |      |         |      |   |        
|Rental                                           |  | $    | 158,920 |      | $ | 192,358
|                                                 |  |      |         |      |   |        
|                                                 |  |      | 158,920 |      |   | 192,358
|                                                 |  |      |         |      |   |        
|Cost and expenses                                |  |      |         |      |   |        
|Interest                                         |  |      | 33,700  |      |   | 104,579
|General and administrative                       |  |      | 40      |      |   |       
|Depreciation                                     |  |      |        |      |   | 16,542 
|Operating                                        |  |      | 14,753  |      |   | 47,538 
|Property tax                                     |  |      | 2,866   |      |   | 11,266 
|Fair value adjustment to property carrying value |  |      | 51,570  |      |   |       
|                                                 |  |      |         |      |   |        
|                                                 |  |      | 102,929 |      |   | 179,925
|                                                 |  |      |         |      |   |        
|Net income from discontinued operations          |  | $    | 55,991  |      | $ | 12,433 
|                                                 |  |      |         |      |   |        



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 for all periods presented.



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



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4FUTURE MINIMUM RENTAL INCOME



As of March 31, 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 March 31, |  | Amount
|2005                   |  | $      | 6,701,869 
|2006                   |  |        | 5,417,575 
|2007                   |  |        | 4,266,857 
|2008                   |  |        | 3,467,538 
|2009                   |  |        | 2,398,099 
|Thereafter             |  |        | 11,749,050
|                       |  |        |           
|Total                  |  | $      | 34,000,988
|                       |  |        |           



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. The firm owned by Mr. Gary Coursey, one of our directors, provides architectural services for this project.
During the three months ended March 31, 2004 and 2003, we paid $54,847 and $20,057, 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 $45,902 and $36,674, respectively, to Isakson-Barnhart Properties in the three months ended March 31, 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.



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 6NOTES PAYABLE



Notes payable consist of the following:



|                                                                                                                                                                                                                                                                                                                  |  |               |            |                  |   |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                                                                                                                                                                                                                                                                                                                  |  | March 31,2004 |            | December 31,2003
|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.                                                                                                                                             |  | $             | 4,833,366  |                  | $ | 4,846,690 
|Variable rate interest only promissory note secured by our Garden Grove property (Banco Popular) and land we hold for development in Garden
Grove. The note bears interest rate at prime plus 1.25% (5.25% at March 31, 2004) and is due on June 18, 2004.                                                        |  |               | 1,500,000  |                  |   | 1,500,000 
|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.                                                                                                                                             |  |               | 3,725,924  |                  |   | 3,736,196 
|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%. |  |               | 16,383,987 |                  |   | 16,444,541
|8.33% promissory note secured by a Deed of Trust on the Roseville property, monthly principal and interest payments of $11,510; due July 1,
2008.                                                                                                                                                                 |  |               | 1,327,289  |                  |   | 1,334,083 
|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.                                                                                                                             |  |               | 1,673,467  |                  |   | 1,678,080 
|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.                                                                                                                                             |  |               | 4,552,814  |                  |   | 4,565,365 
|7.50% promissory note secured by a deed of trust on the Ontario property, monthly principal and interest payments are $22,390; due March 1,
2004. We paid off this loan in March 2004.                                                                                                                            |  |               |           |                  |   | 2,773,414 
|                                                                                                                                                                                                                                                                                                                  |  |               |            |                  |   |           
|Subtotal  notes payable secured by rental real estate                                                                                                                                                                                                                                                            |  |               | 33,996,847 |                  |   | 36,878,369
|                                                                                                                                                                                                                                                                                                                  |  |               |            |                  |   |           



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                      |  |               |            |                  |   |           
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                                                                                                                                                      |  | March 31,2004 |            | December 31,2003
|Notes payable secured by rental real estate held for sale:                                                                                            |  |               |            |                  |   |           
|8.25% promissory note secured by a Deed of Trust on the Fresno property, monthly principal and interest payments are $5,244; due August 1,
2004.      |  |               | 524,644    |                  |   | 529,520   
|8.25% promissory note secured by a Deed of Trust on the Riverside property, monthly principal and interest payments are $9,116; due November
8, 2004. |  |               | 1,073,747  |                  |   | 1,078,627 
|                                                                                                                                                      |  |               |            |                  |   |           
|Subtotal  notes payable secured by rental real estate held for sale                                                                                  |  |               | 1,598,391  |                  |   | 1,608,147 
|                                                                                                                                                      |  |               |            |                  |   |           
|Total notes payable                                                                                                                                   |  | $             | 35,595,238 |                  | $ | 38,486,516
|                                                                                                                                                      |  |               |            |                  |   |           



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 March 31, 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 March 31, |  | Amount
|2005                   |  | $      | 3,551,424 
|2006                   |  |        | 487,877   
|2007                   |  |        | 525,407   
|2008                   |  |        | 565,833   
|2009                   |  |        | 1,766,465 
|Thereafter             |  |        | 28,698,232
|                       |  |        |           
|Total                  |  | $      | 35,595,238
|                       |  |        |           



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.



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION



A supplemental disclosure of cash flow information follows:



|                                         |  |      |         |      |   |        
|---------------------------------------- |  | ---- | ------- | ---- | - | -------
|Quarters ended March 31,                 |  | 2004 |         | 2003
|Cash paid during the period for interest |  | $    | 645,298 |      | $ | 741,275
|                                         |  |      |         |      |   |        
|Capitalized interest during the period   |  | $    | 47,756  |      |   |       
|                                         |  |      |         |      |   |        



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:



|                            |  |                                                                                                                        
|--------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|January 2003 October 2007  |  | Fixed at $600,000 per year                                                                                             
|November 2007 October 2032 |  | Subject to appraisal, but not less than $600,000 per year, nor more than $1,200,000 per year                           
|November 2032 October 2057 |  | Subject to appraisal, but not less than nor more than twice amount payable for the period November 2007 to October 2032



We have entered into a 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.



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.



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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The tenant in our Ontario property, Adelphia Communications, Inc. has filed for bankruptcy protection. Presently, the
rent is current. 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 April 22, 2004, the board of directors declared a dividend of $0.25
per common share to holders of record on May 6, 2004, payable on May 20, 2004.



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##### Table of Contents

|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:



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



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



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



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



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



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



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



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



| |  | any particular tenants intentions or financial condition, such as its plans to renew or terminate a property lease, or the likelihood that it will default upon a property
lease;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | vacancies;
| | - | ----------



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



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



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



| |  | our ability to meet our debt obligations, including loans that mature in 2004 that are secured by our Fresno, Garden Grove and Riverside properties;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



These statements are subject to risks and uncertainties that could cause actual results and events to differ materially. For a detailed discussion of these risks and
uncertainties, see the portion of this Item 2 entitled Risk Factors. 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.



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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 March 31, 2004, we had a real estate portfolio of 12 properties, including:



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



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



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



| |  | three suburban office properties representing 94,806 square feet; and
| | - | ---------------------------------------------------------------------



| |  | four properties held for sale totaling 53,715 square feet.
| | - | ----------------------------------------------------------



In addition to the above, we own a 2.5 acre parcel of undeveloped land in Garden Grove; we intend to construct a multi-tenant shopping center comprising approximately
30,000 square feet on this parcel. 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. 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:



| | 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 quarter ended March 31, 2003, were the following amounts directly related to the Cerritos property:
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  |   |       
|----------------- |  | - | ------
|Rental revenue    |  | $ | 68,212
|Interest expense  |  | $ | 22,662
|Depreciation      |  | $ | 9,202 
|Operating expense |  | $ | 910   



| | 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 the quarter ended March 31, 2003, were the following amounts directly related to the Chino property:
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  |    |        |  
|----------------- |  | -- | ------ | -
|Rental revenue    |  | ($ | 22,770 | )
|Interest expense  |  | $  | 16,649 |  
|Depreciation      |  | $  | 7,340  |  
|Operating expense |  | $  | 5,669  |  



| | 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 quarter ended March 31, 2003, were the following amounts directly related to
the Vacaville property:
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  |   |       
|----------------- |  | - | ------
|Rental revenue    |  | $ | 162   
|Interest expense  |  | $ | 25,083
|Operating expense |  | $ | 18,918



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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.



| | Existing and Anticipated Vacancies. At present, our portfolio is approximately 97% 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 expires. 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 has vacated 16,056
square feet but is liable under the lease through July 2005. Further, our lease on two Sacramento properties expires in July 2004. We may incur significant costs to re-lease these spaces.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 in revenues in the quarter ended March 31, 2003 for our Cerritos property, which we sold on December 19, 2003.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Debt maturities.Four of our loans mature in 2004, with total balloon payments of approximately $5,900,000. In March 2004, we paid the loan secured by our Ontario property
and extended the term of our Garden Grove (Banco Popular) loan to June 2004. The loans on our Fresno and Riverside properties are due in August and November 2004, respectively, and although we are in discussions with the lenders to extend the
maturity dates on these properties, we cannot assure you we will be successful in obtaining an extension of the maturity dates of these loans.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 March 31, 2004, we had total assets of $54,124,519, total secured
indebtedness of $35,595,238, total liabilities of $36,386,534 and a debt-to-total assets ratio of 67%, calculated on the basis of



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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 March 31, 2004 Compared to quarter ended March 31, 2004



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 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 years ended March 31, 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 four properties designated as held for sale at March 31, 2004
and those properties sold prior to March 31, 2004 are included in the line items under discontinued operations- income from operations with revenues netted against expenses.



Rental revenue increased by $142,178 (8%), for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 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 in but not in 2003;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | higher common area billings in our Folsom Property in 2004; and
| | --- | ---------------------------------------------------------------



| | (c) | higher rents in our Northlake Festival property.
| | --- | ------------------------------------------------



Interest expense decreased by $49,057 (7%) for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 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 the
addition in June 2003 of the $1,500,000 debt secured by the Garden Grove (Banco Popular) property.



General and administrative costs decreased by $68,026 (16%) for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003. This decrease was principally due to lower legal expenses in 2004 as
the 2003 amounts included costs related to our to our defense of the claim by James Prock settled in 2003 and the costs of relocating our corporate office in 2003.



Depreciation expense increased by $116,920 (51%) for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003, due
largely to:



| | (a) | reclassifying the Roseville property to the operating category in September 2003 and charging depreciation for that property in 2004 but not in 2003
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



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| | (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; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Ground rent increased by $9,076 (4%) for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 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 $18,072 (8%) in the quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003, due primarily to lower insurance costs
at the Northlake Festival property.



Property tax expense increased $5,424 (4%)
in the quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003, primarily due the addition of the Banco Popular property in June 2003.



Discontinued operations- income from operations increased by $43,558 (350%) 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.



Net income for the quarter ended March 31, 2004 was $150,787 compared to a loss of ($35,750)
for the quarter ended March 31, 2003. This increase was due primarily to higher revenues and lower general and administrative and interest expense in 2004.



The diluted weighted average number of shares outstanding was 1,006,736 and 983,535 for quarters ended March 31, 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 March 31, 2004 from a net loss share of ($0.04) for the quarter ended March 31, 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 payment 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.



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The following table presents our contractual cash obligations as of March 31, 2004:



|
|

|                                                                                  |  |                        |            |                   |   |                   |  |                    |           |                |   |           |  |   |           
|--------------------------------------------------------------------------------- |  | ---------------------- | ---------- | ----------------- | - | ----------------- |  | ------------------ | --------- | -------------- | - | --------- |  | - | ----------
|                                                                                  |  | Payments Due by Period
|Contractual Obligations                                                           |  | Total                  |            | Less ThanOne year |   | One toThree Years |  | Three toFive Years |           | Over FiveYears
|Notes payable secured by rental real estate and real estate held for sale(1)      |  | $                      | 35,595,238 |                   | $ | 3,551,424         |  | $                  | 1,013,284 |                | $ | 2,332,298 |  | $ | 28,698,232
|Minimum payments due under the ground lease at the Northlake Festival property(2) |  |                        | 32,100,000 |                   |   | 600,000           |  |                    | 1,200,000 |                |   | 1,200,000 |  |   | 29,100,000
|Other                                                                             |  |                        | 77,000     |                   |   | 77,000            |  |                    |          |                |   |          |  |   |          
|                                                                                  |  |                        |            |                   |   |                   |  |                    |           |                |   |           |  |   |           
|Total Contractual Cash Obligations                                                |  | $                      | 67,772,238 |                   | $ | 4,228,424         |  | $                  | 2,213,284 |                | $ | 3,532,298 |  | $ | 57,798,232
|                                                                                  |  |                        |            |                   |   |                   |  |                    |           |                |   |           |  |   |           

|(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 10 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 March 31, 2004, our total
investments in rental real estate and rental real estate held for sale totaled $52,205,902 for the 12 properties we own. In addition, we own a parcel of land held for development valued at $2,848,790. 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 existing cash balances
(subject to maintaining reasonable cash reserves), proceeds from refinancing of selected existing secured debt to higher balances and the 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, three of our loans are scheduled to mature, totaling approximately $3,100,000. We believe we will be able to extend the maturity dates on
all of 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:



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



| |  | After the lease with AMC Theaters in the our Northlake Festival property expires in May 2004, we may renovate the 26,900 square foot space to a use other than that of a theater, at
a potentially significant cost.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.



Cash Flows in 2004



Our cash resources decreased $3,051,417 during the three months ended March 31, 2004.
Cash provided by operating activities in this period was $241,146, primarily from net income adjusted for non-cash items such as depreciation and amortization. Investing activities in 2003 resulted in a $157,459 use of cash resources for
predevelopment costs on our Garden Grove Festival property. For the three months ended March 31, 2004, financing activities used $3,135,104 in cash resources, due largely to paying off the loan on our Ontario property.



Cash Flows in 2003



Our cash resources decreased $3,223,597 during the three months ended March 31, 2003. During 2003, cash provided by operating activities was
$102,281, primarily from the net loss adjusted for non-cash items such as depreciation and amortization. Investing activities in 2002 used $2,562,964 of cash resources primarily for purchase of the Garden Grove Festival property. For the three
months ended March 31, 2003 financing activities used $762,914, due largely to dividends paid, 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



Critical Accounting Policies



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



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that we consider significant, including further discussion of the critical accounting policies described below, can be found in the notes to our consolidated
financial statements.



Revenue Recognition. We recognize minimum rents
on the straight-line method over the terms of the leases, as required under 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 March 31, 2004 we had approximately $78,000 in receivables over six months old and we have provided approximately $73,000 for uncollectible
receivables.



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



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



On May 15, 2002, we adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS
No. 145 rescinds SFAS No. 4 and an amendment of that Statement, and SFAS No. 64. This Statement also rescinds SFAS No. 44. SFAS No. 145 amends SFAS No. 13, to eliminate an inconsistency between the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed
conditions. The adoption of SFAS No. 145 did not have a material effect on our financial position or results of operations.



On January 1, 2003, we adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition



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for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The adoption of
SFAS No. 146 did not have a material effect on our financial position or results of operations.



On January 1, 2003, we adopted FASB Interpretation No. 45 (FIN No. 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 affects leasing transactions involving residual guarantees, vendor and manufacturer guarantees, and tax and environmental indemnities. All such guarantees will need to be disclosed in the notes to the financial statements
starting with the period ending after December 15, 2002. For guarantees issued after December 31, 2002, the fair value of the obligation must be reported on the balance sheet. Existing guarantees will be grandfathered and no fair value of the
obligation of them will be recognized on the balance sheet. The adoption of FIN No. 45 did not have an impact on our financial position and results of operations.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest
Entities, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interest in a variable entity
to decide whether to consolidate that entity. FIN No. 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities after January 31, 2003, and to variable interest entities in which an enterprise obtained an interest after that date. FIN No. 46 applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN No. 46 did not have impact on our financial position and results of operations.



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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:



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



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



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



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



Our tenants may go bankrupt.



Our tenants may file for bankruptcy protection or become insolvent in the future. Currently, one of our tenants has filed for bankruptcy protection. We cannot evict a
tenant solely because of its bankruptcy. A court might authorize the tenant to reject and terminate its lease with us. 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) now
expires in July 2004, and we do not expect our current tenant to renew the lease beyond July of 2004. If we are unable to promptly sell significant vacant properties or re-lease or renew the leases for them, or if the rental rates upon such renewal
or re-leasing are significantly lower than expected rates, then our ability to pay dividends to stockholders and to pay amounts due on our debt may be adversely affected.



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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.



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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.



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 March 31, 2004, the tenant



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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 5% of our total rental revenue, including discontinued operations. That tenant also subleases space from another tenant in
our Folsom property that accounted for another 3% 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 costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate.



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



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



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



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



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



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



We face particular environmental risks related to asbestos.



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



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



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



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



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



Recently, there has been an increasing number of lawsuits against owners and managers of properties alleging personal injury and property damage caused by the presence of mold in real estate. Some of these lawsuits have resulted in
substantial monetary judgments or settlements. 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 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



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site usages create a potential environmental problem, and for contamination in groundwater. Notwithstanding these environmental assessments, we still face
the risk that:



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



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



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



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



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



These liabilities can
include:



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



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



| |  | 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 March 31, 2004, we had total assets of $54,124,519, total secured indebtedness of $35,595,238, total liabilities of $36,386,534 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.



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



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



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



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



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



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



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



We are subject to
the normal risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, the risk that we will not be able to renew, repay or refinance our debt when it matures
or that the terms of any renewal or refinancing will not be as favorable as the existing terms of that debt. From April 1, 2004 and December 31, 2004, three of our loans are scheduled to mature, totaling approximately $3,100,000. 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 March 31, 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 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 certificate of incorporation and bylaws, our new
organizational documents do not limit the amount of debt that we may incur.



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



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



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



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



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



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



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



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



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



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



Further, the loan documents from our August 5, 2002 refinancing contain cross-collateral provisions. If one of the loans is in default and the lender forecloses on the
property securing that loan, and the proceeds from the foreclosure are not sufficient to repay the defaulted loan in full, the lender can foreclose upon one or more of the other properties to recover the loan. Previously, we had no such
cross-collateral provisions in our loans. In addition, the land we hold for development 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.



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



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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:



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



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



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



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



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



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



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



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



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| | (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 $125,000 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.



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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
2003, 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 four 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.



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|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------



As of March 31, 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 March 31, 2004.



There
was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 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.



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PART II  OTHER INFORMATON



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------



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



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



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



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



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



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



|ITEM 2. | CHANGES IN 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.



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



|(a) | EXHIBITS
|--- | --------



|     |  |                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------
|No.  |  | Description                                                                                   
|     | 
|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.
|     | 
|32.1 |  | 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
|--- | -------------------



| |  | On March 3, 2004, we filed a Current Report on Form 8-K reporting under Item 5 concerning the payoff of the loan secured by our Ontario property. No financial statements were filed.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On February 10, 2004 we filed a Current Report on Form 8-K reporting under Item 12 concerning a press release of our operating results for the quarter and year ended December 31,
2003. No financial statements were filed.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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.                                                             
|                   |  | 
|Date: May 13, 2004 |  |  |  | /s/ Charles P. Wingard                                                                 
|                   |  |  |  |                                                                                        
|                   |  |  |  | Charles P. Wingard Chief Financial Officer (principal financial and accounting officer)



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