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

# FORM 10-QSB

(Mark One)

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

For the quarterly period ended September 30, 2004

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

For the transition period from ___________ to _____________

Commission file number
000-24594

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

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

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

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

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

Yes X     No

APPLICABLE ONLY TO CORPORATE ISSUERS

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

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

---

# MEREDITH ENTERPRISES,
INC.

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

# TABLE OF CONTENTS

|                                                                      | 
|--------------------------------------------------------------------- | 
|Part I  Financial Information                                        | 
|Item 1.  Financial Statements                                         | 
|Consolidated Balance Sheets-                                          | 
|As of September 30, 2004 (unaudited)                                  | 
|and December 31, 2003 (audited)                                       | 
|Consolidated Statements of Income (unaudited)-                        | 
|Three and nine months ended September 30, 2004 and 2003               | 
|Consolidated Statements of Cash Flows (unaudited)-                    | 
|Nine months ended September 30, 2004 and 2003                         | 
|Consolidated Statements of Stockholders Equity (unaudited)-          | 
|Nine months ended September 30, 2004 and 2003                         | 
|Summary of Accounting Policies                                        | 
|Notes to Consolidated Financial Statements                            | 
|Item 2.  Managements Discussion and Analysis or Plan of Operation    | 
|Item 3.  Controls and Procedures                                      | 
|                                                                      | 
|Part II  Other Information                                           | 
|Item 1.  Legal Proceedings                                            | 
|Item 2.  Changes in Securities and Small Business Issuer Purchases of | 
|Equity Securities                                                     | 
|Item 3.  Defaults Upon Senior Securities                              | 
|Item 4.  Submission of Matters to a Vote of Security Holders          | 
|Item 5.  Other Information                                            | 
|Item 6.  Exhibits and Reports on Form 8-K                             | 
|Signatures                                                            | 

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

---

# PART I.   FINANCIAL INFORMATION

# ITEM 1.   FINANCIAL STATEMENTS

# MEREDITH ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS

|                                                                          | September 30, | December 31,
|------------------------------------------------------------------------- | ------------- | ------------
|
|
|Assets                                                                    |               |             
|Rental real estate, less accumulated depreciation (Notes 2,               |               |             
|4 and 6)                                                                  |               |             
|Rental real estate held for sale, net (Notes 2 and 6)                     |               |             
|Land held for development (Notes 2 and 6)                                 |               |             
|Cash and cash equivalents                                                 |               |             
|Deferred rent, net of allowance of $326,790 and $313,919 at               |               |             
|September 30, 2004 and December 31, 2003, respectively                    |               |             
|Accounts receivable                                                       |               |             
|Loan origination fees, net of accumulated amortization of                 |               |             
|$182,327 and $130,001 at September 30, 2004 and                           |               |             
|December 31, 2003, respectively                                           |               |             
|Other assets                                                              |               |             
|Other assets related to rental real estate held for sale                  |               |             
|                                                                          |              
|Total assets                                                              |               |             
|                                                                          |              
|Liabilities and Stockholders' Equity                                      |               |             
|                                                                          |               |             
|Liabilities                                                               |               |             
|                                                                          |               |             
|Notes payable secured by rental real estate (Note 6)                      |               |             
|Notes payable secured by rental real estate held for sale (Note 6)        |               |             
|Accounts payable and accrued liabilities                                  |               |             
|Security deposits and prepaid rent                                        |               |             
|Other liabilities related to rental real estate held for sale             |               |             
|                                                                          |              
|Total liabilities                                                         |               |             
|                                                                          |              
|Commitments and contingencies (Note 9)                                    |               |             
|Stockholders' equity                                                      |               |             
|Common stock $.01 par value; 15,000,000 shares authorized; 976,965        |               |             
|shares issued and outstanding as of September 30, 2004 and 975,298 shares |               |             
|issued and outstanding as of December 31, 2003                            |               |             
|Additional paid-in capital                                                |               |             
|Dividends in excess of retained earnings                                  |               |             
|                                                                          |              
|Total stockholders' equity                                                |               |             
|                                                                          |              
|Total liabilities and stockholders' equity                                |               |             
|                                                                          |              

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

3

---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED
STATEMENTS OF INCOME

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

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

4

---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

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

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

5

---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED STATEMENT
OF STOCKHOLDERS EQUITY

|                                     |  |  |  | Dividends | 
|------------------------------------ |  |  |  | --------- | 
|
|
|
|(Unaudited)                          |  |  |  |           | 
|Balance, January 1, 2004             |  |  |  | 975,298   | 
|Exercise of stock options            |  |  |  | 1,667     | 
|Net income for the period            |  |  |  | -         | 
|Dividends declared ($0.75 per share) |  |  |  |           | 
|(Note 1)                             |  |  |  | -         | 
|                                     | 
|Balance,September 30, 2004           |  |  |  | 976,965   | 
|                                     | 

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

6

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Business

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

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

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

In the event that facts and
circumstances indicate that the carrying cost of an asset may be impaired, an evaluation
of recoverability would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the carrying amount
to determine if a write-down to fair value is required. We consider fair value
the value that a willing buyer and a willing seller would agree to in an arms length
transaction.

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

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

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

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

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

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

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

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

Real estate classified as held
for sale is stated at the lower of its carrying amount or estimated fair value less
disposal costs. Depreciation is not recorded on assets classified as held for sale. If we
determine that we should no longer classify an asset as held for sale, we
recompute depreciation such that the accumulated depreciation on the asset at the time of
the reclassification is the same as if it had never been classified as held for sale and
charge the additional expense to depreciation in the period of such determination.
Operating results of properties we consider held for sale, as well as those sold, are
included in discontinued operations in our consolidated statements of income.

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

# Rental Income, Operating
Expense and Capitalized Costs

Rental revenue is recognized on a
straight-line basis to the extent that rental revenue is deemed collectible. Percentage
rents in the three and nine month periods ended September 30, 2004 and 2003 were
immaterial, and recognized when received. Improvements and betterments that increase the
value of the property or extend its useful life are capitalized.

# Acquisition Costs

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

# Loan Origination Fees

Loan origination fees are capitalized
and amortized over the life of the loan and charged to interest expense.

# Cash and Cash Equivalents

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

7

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Consolidation

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

# Use of Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.

# Net Income Per Share

We calculate net income per share by
dividing net income by the weighted average number of shares outstanding for the period
adjusted for the dilutive effect of stock options. Stock options are excluded whenever
their effect would be anti-dilutive in loss periods or when their strike prices are out of
the money.

# Comprehensive Income

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

# Reclassifications

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

# 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
September 30, 2004 and December 31, 2003, respectively and over 99% of our total revenues
(including discontinued operations) for the three month periods ended September 30, 2004
and 2003. All the rental real estate we own is located in California and Georgia. We do
not use reporting by geographic region.

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

# Stock-Based Compensation

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

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

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

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

8

---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

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

|                                                           | Three months ended September 30, | Nine months ended September 30,
|---------------------------------------------------------- | -------------------------------- | -------------------------------
|
|Numerator:                                                 |                                  |                                
|Net income, as reported                                    |                                  |                                
|Less - total stock-based compensation expense determined   |                                  |                                
|under the fair value based method, net of applicable taxes |                                  |                                
|                                                           |                                  |                                
|Pro forma net income                                       |                                  |                                
|                                                           |                                  |                                
|Basic-as reported                                          |                                  |                                
|                                                           |                                  |                                
|Basic-pro forma                                            |                                  |                                
|                                                           |                                  |                                
|Weighted average shares outstanding                        |                                  |                                
|                                                           |                                  |                                
|Diluted-as reported                                        |                                  |                                
|                                                           |                                  |                                
|Diluted-pro forma                                          |                                  |                                
|                                                           |                                  |                                
|Weighted average shares outstanding                        |                                  |                                
|                                                           |                                  |                                

# New Accounting
Pronouncements

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

9

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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

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

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

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

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

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

|                                                 | Three months ended September 30, | Nine months ended September 30,
|------------------------------------------------ | -------------------------------- | -------------------------------
|
|Numerator:                                       |                                  |                                
|Income (loss) from continuing operations         |                                  |                                
|Gain on sale of rental real estate held for sale |                                  |                                
|Loss from discontinued operations                |                                  |                                
|                                                 |                                  |                                
|Net income                                       |                                  |                                
|                                                 |                                  |                                
|Denominator for basic earnings per               |                                  |                                
|share - weighted average shares                  |                                  |                                
|Effect of dilutive securities - stock            |                                  |                                
|options                                          |                                  |                                
|                                                 |                                  |                                
|Denominator for diluted earnings per share       |                                  |                                
|adjusted for weighted average shares             |                                  |                                
|                                                 |                                  |                                
|Basic earnings per share:                        |                                  |                                
|Income from continuing operations                |                                  |                                
|Discontinued operations:                         |                                  |                                
|Gain on sale of rental real estate held for sale |                                  |                                
|Loss from discontinued operations                |                                  |                                
|                                                 |                                  |                                
|Net income per share- basic                      |                                  |                                
|                                                 |                                  |                                
|Diluted earnings per share:                      |                                  |                                
|Income from continuing operations                |                                  |                                
|Discontinued operations:                         |                                  |                                
|Gain on sale of rental real estate held for sale |                                  |                                
|Loss from discontinued operations                |                                  |                                
|                                                 |                                  |                                
|Net income per share- assuming dilution          |                                  |                                
|                                                 |                                  |                                

Anti-dilutive items are excluded from
this calculation.

10

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 2RENTAL REAL
ESTATE

Our major categories of rental real
estate are:

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

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

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

In addition, we own land we are
holding for future development, valued at its cost plus development expenditures at
September 30, 2004 of $3,487,066.

During the three months ended
September 30, 2004, one tenant represented 10% or more of our total rental revenue
including discontinued operations and another tenant represented approximately 7%. In
2003, one tenant represented 10% of our total rental revenue including discontinued
operations and another tenant represented 8%.

# NOTE 3DISCONTINUED
OPERATONS

In the second quarter of 2004, we
determined that the 717 and 721 West Del Paso Road properties in Sacramento, California
and the Fresno, California property no longer met the required criteria for classification
as held for sale. Accordingly, we removed them from that category in our financial
statements. As of September 30, 2004, we have designated one property, Riverside, as held
for sale. During September 2004, the Fresno property was sold. In accordance with SFAS
No.144, we have reclassified during the second quarter the results of the West Del Paso
properties from discontinued operations to continued operations. Further, results of the
sold Fresno property and Riverside property are included in discontinued operations for
the three and nine months ended September 30, 2004 and 2003 as follows:

|                                                             | Three months ended | Nine months ended
|------------------------------------------------------------ | ------------------ | -----------------
|
|
|Revenues                                                     |                    |                  
|Base rent                                                    |                    |                  
|Tenant reimbursements                                        |                    |                  
|Interest                                                     |                    |                  
|                                                             |                   
|                                                             |                    |                  
|                                                             |                   
|Cost and expenses                                            |                    |                  
|Interest                                                     |                    |                  
|General and administrative                                   |                    |                  
|Depreciation                                                 |                    |                  
|Operating                                                    |                    |                  
|Property tax                                                 |                    |                  
|Fair value adjustment to                                     |                    |                  
|property carrying value                                      |                    |                  
|                                                             |                   
|                                                             |                    |                  
|                                                             |                   
|Loss before gain on sale of rental real estate held for sale |                    |                  
|Gain on sale of rental real estate held for sale             |                    |                  
|                                                             |                   
|Income from discontinued operations                          |                    |                  
|                                                             |                   

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

11

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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

# NOTE 4FUTURE
MINIMUM RENTAL INCOME

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

| | Years ending September 30, | Amount
| | -------------------------- | ------
|
| |                            |       
| |                            |       
| |                            |       
| |                            |       
| |                            |       
| |                            |       
| |                            |       
| |                            |       
| |                            |       

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

# NOTE 5RELATED
PARTY TRANSACTIONS

We acquired 2.5 acres of land in
March 2003 and intend to build an approximate 30,000 square foot shopping center on the
land. A firm owned by Mr. Gary Coursey, one of our directors, provides architectural
services for this project. During the nine month periods ended September 30, 2004 and
2003, we paid $68,584 and $134,698 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 $140,552 and
$30,334, respectively, to Isakson-Barnhart Properties in the nine month periods ended
September 30, 2004 and 2003. The agreement is renewable annually, and either party is
allowed to terminate the agreement upon 30 days prior written notice to the other.
In addition, Mr. Isakson owns a 50% interest in a retail shopping center that is located
adjacent to the retail shopping center.

We have entered into an agreement
with Allen K. Meredith, our Chairman and Chief Executive Officer, to sell 20,000 shares of
common stock we hold in treasury at our cost (including commissions) on or before March
15, 2005.

12

---

# NOTE 6NOTES PAYABLE

Notes payable consist of the
following:

|                                                                                     | September 30, | December 31,
|------------------------------------------------------------------------------------ | ------------- | ------------
|
|Notes payable secured by rental real estate:                                         |               |             
|                                                                                     |               |             
|6.97% promissory note secured by our Folsom property, monthly principal              |               |             
|and interest payments of $32,567; due September 1, 2009 with a balloon               |               |             
|payment of $4,479,793                                                                |               |             
|Variable rate interest only promissory note secured by our Garden Grove              |               |             
|property (Banco Popular) and land we hold for development in Garden                  |               |             
|Grove (Garden Grove Festival). The note bears interest at prime                      |               |             
|plus 1.25% (6.00% at September 30, 2004) and is due on December 18, 2004             |               |             
|6.97% promissory note secured by our Irvine property, monthly principal and interest |               |             
|payments of $25,105; due September 1, 2009 with a balloon payment of $3,453,364      |               |             
|7.64% promissory note secured by our Atlanta, GA property (Northlake                 |               |             
|Festival Shopping Center), monthly principal and interest payments of                |               |             
|$124,753 fully amortizing with the final payment due December 1,                     |               |             
|2027. Starting December 2010, year 13 of the note, the interest rate                 |               |             
|increases to a minimum of 9.64%                                                      |               |             
|8.33% promissory note secured by our Roseville property, monthly                     |               |             
|principal and interest payments of $11,510; due July 1, 2008                         |               |             
|6.97% promissory note secured by our Sacramento property (Horn Road),                |               |             
|monthly principal and interest payments of $11,276; due September 1,                 |               |             
|2009 with a balloon payment of $1,551,049                                            |               |             
|6.97% promissory note secured by our Tustin property, monthly principal              |               |             
|and interest payments of $30,677; due September 1, 2009 with a balloon               |               |             
|payment of $4,219,765                                                                |               |             
|7.50% promissory note secured by our Ontario property, monthly                       |               |             
|principal and interest payments are $22,390; due March 1, 2004. We                   |               |             
|paid this loan off in March 2004                                                     |               |             
|                                                                                     |              
|Subtotal - notes payable secured by rental real estate                               |               |             
|                                                                                     |              
|Notes payable secured by rental real estate held for sale:                           |               |             
|                                                                                     |               |             
|8.25% promissory note secured by our Fresno property. We sold this property          |               |             
|on September 27, 2004                                                                |               |             
|8.25% promissory note secured by our Riverside property, monthly                     |               |             
|principal and interest payments are $9,116; due November 8, 2004                     |               |             
|On November 8, 2004, we extended the maturity date of this note to                   |               |             
|March 8, 2005 under the same terms                                                   |               |             
|                                                                                     |              
|Subtotal - notes payable secured by rental real estate held for sale                 |               |             
|                                                                                     |              
|Total notes payable                                                                  |               |             
|                                                                                     |              

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

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

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

# NOTE 7TAXES ON
INCOME

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

13

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 8SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash
flow information follows:

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

# NOTE 9COMMITMENTS
AND CONTINGENCIES

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

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

We have entered into employment
agreements with our President and Chief Executive Officer and our Vice President 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.

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

14

---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 10 
SUBSEQUENT EVENTS

On October 5, 2004, we declared a
dividend of $0.25 per share to the stockholders of record on October 29, 2004, which is
payable on November 19, 2004.

On October 18, 2004, we purchased
20,000 shares of our common stock for the then fair market price of $13.46 per share.
Pursuant to an agreement with our Chairman and Chief Executive Officer, we sold 12,000 of
the 20,000 shares to a limited liability company that is an affiliate of our Chairman and
Chief Executive Officer on November 11, 2004. In this transaction, we will recognize in
the fourth quarter of 2004 a non-cash charge of the difference between the price paid for
the shares and the market value of the time of the transaction of approximately $16,000.

On November 8, 2004, we extended the
maturity date of the note secured by our Riverside property to March 8, 2005 under the
same terms.

15

---

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

# Special Note Regarding
Forward-Looking Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

# Overview

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

|At
September 30, 2004, we had a real estate portfolio of 11 properties, including: | 
|---------------------------------------------------------------------------------- | 

| | o | five light industrial properties totaling 171,025 square feet;
| | - | --------------------------------------------------------------

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

| | o | one retail property of 5,133 square feet;
| | - | -----------------------------------------

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

| | o | one property held for sale comprising 25,000 square feet.
| | - | ---------------------------------------------------------

In addition to the above, we own a
2.5 acre parcel of undeveloped land in Garden Grove, California. We intend to construct on
this parcel a multi-tenant shopping center, Garden Grove Festival, comprising
approximately 30,000 square feet. All of our properties are located in California except
for one shopping center in Georgia. Until 2002, our business focus was the ownership and
operation of suburban office properties and light industrial buildings. We have broadened
our focus to include large shopping centers and properties outside of California. We
acquired an Atlanta, Georgia shopping center in October 2002 and may pursue other real
estate opportunities outside of California. Many of our leases are triple-net
leases where the tenant is responsible for maintenance, taxes and insurance.

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

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

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

16

---

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

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

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

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

|o | Sale of Fresno Property. On September 27, 2004, we sold our vacant Fresno property
for a gross sales price of $900,000 and a gain of $344,314. This gain incorporates a
significant write-down in the carrying value of the property made in 2001. Included in the
caption in our income statement discontinued operations during the three and
nine month periods ended September 30, 2004, were the following amounts directly related
to the Fresno property:
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Three months | Nine months      
| |  | ------------ | -----------------
|
|
|
| |  |              | Rental revenue   
| |  |              | Interest expense 
| |  |              | Operating expense

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

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

|o | Loss of Revenues from Disposed Properties. During 2003, we sold three properties.
Although two of the three properties were vacant for all of 2003, we recorded
approximately $68,233 and $204,698 in revenues in the three and nine month periods ended
September 30, 2003 for our Cerritos property, which we sold on December 19, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

17

---

|o | Debt maturities. In September 2004, we extended the term of our $1,500,000 Garden
Grove (Banco Popular) loan to December 2004 and we intend to seek a further extension of
this loan. The approximate $1,060,000 loan secured by our Riverside property matures in
November 2004, and we are in discussions with the lender to extend the maturity date. We
cannot assure you, however, that we will be successful in extending the maturity dates of
these loans.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

As of September 30, 2004, we had
total assets of $53,821,987, total secured indebtedness of $34,838,679, total liabilities
of $35,839,468 and a debt-to-total assets ratio of 67%, calculated on the basis of
generally accepted accounting principles. Because this calculation method reflects
accumulated depreciation and does not reflect any appreciation of the properties beyond
their cost, it may result in assets being valued at less than their fair market values as
determined by the board of directors. Further, this calculation excludes the effects, if
any, of the ground lease on the Northlake Festival property.

# Results of Operations

# Quarter Ended September 30, 2004 Compared to Quarter Ended September 30, 2003

We adopted SFAS No. 144 as of January
1, 2002 and designated seven California properties as held for sale: Fresno; Huntington
Beach; Roseville; Riverside; Vacaville; and two Sacramento properties (717 and 721 West
Del Paso Road). We sold the Huntington Beach property in April 2002 and the Corona
property in September 2002. We sold the Vacaville property in August 2003. On September
30, 2003, we designated the Chino property as held for sale and removed the Roseville
property from the held for sale category. In November and December 2003, we sold our Chino
and Cerritos properties, respectively. In the second quarter of 2004, we determined that
the Fresno and two Sacramento properties (717 and 721 West Del Paso Road) did not meet the
criteria for continued classification as held for sale and we therefore reclassified the
properties to the operating category. During the third quarter of 2004, we sold our Fresno
property. 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 quarters ended
September 30, 2004 and 2003 represented full quarters of rental operations for all of our
properties we classify as continuing operations. The only property designated as held for
sale at September 30, 2004, our Riverside property, and those properties sold prior to
September 30, 2004 are included in the line items under discontinued operations-
income from operations with revenues netted against expenses.

Base rent decreased by $29,374 (2%)
for the quarter ended September 30, 2004, as compared to the quarter ended September 30,
2003, primarily due to the expiration of the lease with AMC Theaters on May 31, 2004,
which was offset in part by higher rents from other tenants in our Northlake Festival
property.

Tenant reimbursements increased by
$96,062 (42%) for the quarter ended September 30, 2004, as compared to the quarter ended
September 30, 2003, primarily due to billing for reimbursable property taxes occurring in
September 2004 and not in the third quarter of 2003.

Interest expense decreased by $81,422
(12%) for the quarter ended September 30, 2004, as compared to the quarter ended September
30, 2003, due to (a) paying off the loan secured by our Ontario property on March 1, 2004,
and for that reason recording no interest expense for that property in the quarter ended
September 30, 2004; and (b) a minor decrease from the sale of our Fresno property. This
decrease in interest expense was offset in part by an increase in interest expense
beginning in June 2003 for the $1,500,000 debt related to the Garden Grove (Banco Popular)
property.

General and administrative costs
increased by $14,567 (4%) for the quarter ended September 30, 2004, as compared to the
quarter ended September 30, 2003. This increase was principally due to slightly higher
legal expenses.

Depreciation expense decreased by
$44,067 (14%) for the quarter ended September 30, 2004, as compared to the quarter ended
September 30, 2003, due largely to reclassifying the Roseville property to the operating
category in September 2003 and charging depreciation of $62,033 for that property in 2003
but not in 2004, to catch up the depreciation that was not expensed in prior
periods as required. This decrease was offset in part by reclassifying the two Sacramento
properties (717 and 721 West Del Paso Road) to the operating category in June 2004 and
charging depreciation for those properties in 2004 but not in 2003.

Ground rent decreased by $509 for the
quarter ended September 30, 2004, as compared to the quarter ended September 30, 2003, due
to lower rental income in the Northlake Festival property in 2004, which in turn reduced
the ground rent payable under our lease with the ground lessor.

Operating expenses decreased by
$63,062 (23%) in the quarter ended September 30, 2004, as compared to the quarter ended
September 30, 2003, due primarily to lower insurance costs at the Northlake Festival
property.

Property tax expense increased by
$6,828 (5%) in the quarter ended September 30, 2004, as compared to the quarter ended
September 30, 2003, primarily due to the higher property tax rates.

Gain on sale of rental real estate
held for sale decreased by $62,414 (15%) for the quarter ended September 30, 2004, as
compared to the quarter ended September 30, 2003, primarily due to the larger gain related
to the sales of Vacaville and Chino properties in 2003, compared to the gain related to
the Fresno sale in 2004 and the fair value adjustment in 2004 on the Riverside property.

Loss from discontinued operations
decreased by $41,315 (72%) for the quarter ended September 30, 2004, as compared to the
quarter ended September 30, 2003, primarily due to a net loss from the Vacaville and Chino
properties, which are not included in our 2004 results.

Net income for the quarter ended
September 30, 2004 was $563,313 compared to $347,595 for the quarter ended September 30,
2003. This increase was due primarily to higher revenues and lower operating and interest
expense in 2004, higher income from discontinued properties in 2004, offset in part by
higher general and administrative expenses.

The diluted weighted average number
of shares outstanding was 999,798 and 985,262 for quarters ended September 30, 2004 and
2003, respectively. For the reasons explained in the preceding paragraph, net income per
share assuming dilution increased to $0.56 for the quarter ended September 30, 2004 from
$0.35 for the quarter ended September 30, 2003.

18

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# Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

We adopted SFAS No. 144 as of January
1, 2002 and designated seven California properties as held for sale: Fresno; Huntington
Beach; Roseville; Riverside; Vacaville; and two Sacramento properties (717 and 721 West
Del Paso Road). We sold the Huntington Beach property in April 2002 and the Corona
property in September 2002. We sold the Vacaville property in August 2003. On September
30, 2003, we designated the Chino property as held for sale and removed the Roseville
property from the held for sale category. In November and December 2003, we sold our Chino
and Cerritos properties, respectively. In the second quarter of 2004, we determined that
the Fresno and two Sacramento properties (717 and 721 West Del Paso Road) did not meet the
criteria for continued classification as held for sale and we therefore reclassified the
properties to the operating category. During the third quarter of 2004, we sold our Fresno
property. 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 nine months ended
September 30, 2004 and 2003 represented full periods of rental operations for all of our
properties we classify as continuing operations. The one property designated as held for
sale at September 30, 2004 and those properties sold prior to September 30, 2004 are
included in the line items under discontinued operations- income from
operations with revenues netted against expenses.

Base rent increased by $136,380 (3%)
for the nine months ended September 30, 2004, as compared to the nine months ended
September 30, 2003, primarily due to higher rents in our Northlake Festival property ,
which was offset in part by the expiration of the lease with AMC Theaters on May 31, 2004.

Tenant reimbursements increased by
$151,765 (21%) for the nine months ended September 30, 2004, as compared to the nine
months ended September 30, 2003, primarily due to billing for reimbursable property taxes
occurring in September 2004 and not in 2003 and higher reimbursable expenses on our Folsom
property.

Interest expense decreased by
$182,334 (9%) for the nine months ended September 30, 2004, as compared to the nine months
ended September 30, 2003, due to capitalized interest in 2004 on the Garden Grove Festival
development property we acquired on March 26, 2003 and lower interest expense on the debt
secured by our Ontario property, which we paid off on March 1, 2004. These decreases in
interest expense were offset in part by an increase in interest expense beginning in June
2003 for the $1,500,000 debt related to the Garden Grove (Banco Popular) property.

General and administrative costs
decreased by $141,775 (12%) for the nine months ended September 30, 2004, as compared to
the nine months ended September 30, 2003. This decrease was principally due to lower legal
expenses in 2004 than in 2003. The 2003 costs included costs related to our defense of the
claim by James Prock settled in 2003, higher corporate legal fees than in 2004 and the
costs of relocating our corporate office in 2003.

Depreciation expense increased by
$170,719 (22%) for the nine months ended September 30, 2004, as compared to the nine
months ended September 30, 2003, due largely to:

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

| | (b) | an increase from the addition of the Banco Popular property in 2004; and offset
          by a
| | --- | ----------------------------------------------------------------------------------------------

| | (c) | a decrease from reclassifying the Roseville property to the operating category
          in September 2003 and charging depreciation of $62,033 for that property in 2003
          but not in 2004, to catch up the depreciation that was not expensed
          in prior periods as required.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ground rent increased by $9,632 (1%)
for the nine months ended September 30, 2004, as compared to the nine months ended
September 30, 2003, due to higher rental income in the Northlake Festival property in
2004, which in turn increased the ground rent payable under our lease with the ground
lessor.

Operating expenses decreased by
$119,363 (16%) in the nine months ended September 30, 2004, as compared to the nine months
ended September 30, 2003, due primarily to lower insurance costs at the Northlake Festival
property.

Property tax expense increased by
$17,014 (5%) in the nine months ended September 30, 2004, as compared to the nine months
ended September 30, 2003, primarily due the addition of the Banco Popular property in June
2003.

Gain on sale of rental real estate
held for sale decreased by $62,414 (15%) for the nine months ended September 30, 2004, as
compared to the nine months ended September 30, 2003, primarily due to the larger gain
related to the sales of Vacaville and Chino properties in 2003, compared to the gain
related to the Fresno sale in 2004 and the fair value adjustment in 2004 on the Riverside
property.

Loss from discontinued operations
increased by $4,666 (7%) for the nine months ended September 30, 2004, as compared to the
nine months ended September 30, 2003, primarily due to the fair value adjustment in 2004
on the Riverside property.

Net income for the nine months ended
September 30, 2004 was $866,716 compared to $398,036 for the nine months ended September
30, 2003. This increase was due primarily to higher revenues and lower general and
administrative, operating and interest expense in 2004.

The diluted weighted average number
of shares outstanding was 1,002,966 and 985,262 for nine months ended September 30, 2004
and 2003, respectively. For the reasons explained in the preceding paragraph, net income
per share assuming dilution increased to $0.86 for the nine months ended September 30,
2004 from $0.40 for the nine months ended September 30, 2003.

# Inflation

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

# Liquidity and Capital
Resources

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

19

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The following table presents our
contractual cash obligations as of September 30, 2004:

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

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

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

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

At September 30, 2004, our total
investments in rental real estate and rental real estate held for sale totaled $46,507,400
for the eleven properties we own. In addition, we own a parcel of land held for
development valued at $3,487,066. Depending upon the availability and cost of external
capital, we anticipate making additional investments in suburban office, retail shopping
center and light industrial properties, although we may invest in other types of real
estate. We intend to fund new investments from (a) existing cash balances (subject to
maintaining reasonable cash reserves), (b) proceeds from refinancing selected notes
payable to higher balances and (c) the net proceeds from asset sales. We may consider
other sources of possible funding, including joint ventures. To increase our financial
flexibility, we may seek to obtain a revolving line of credit, although there can be no
assurance we will be successful.

Two of our loans, totaling
approximately $2,564,000, are scheduled to mature in the fourth quarter of 2004 and the
first quarter of 2005. On November 8, 2004 we extended the maturity date of the note
secured by our Riverside property to March 8, 2005. Although we believe we will be able to
extend the maturity dates on these loans; we may be unable 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, if at all), and we do not
believe that a formal acceptance or rejection of the lease will occur in 2004. Further, we
anticipate the following significant needs for cash during the remainder of 2004 and 2005:

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

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

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

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

We may use our funds to purchase our
common stock from time to time. In October of 2004, we purchased 20,000 shares of common
stock for approximately $270,000.

# Cash Flows in 2004

Our cash resources decreased
$2,920,206 during the nine months ended September 30, 2004. Cash provided by operating
activities in this period was $1,419,728, primarily from net income adjusted for non-cash
items such as depreciation and amortization. Investing activities in 2004 provided $23,214
of cash resources, primarily from the sale of our Fresno property, offset by
predevelopment costs on our Garden Grove Festival property. For the nine months ended
September 30, 2004, financing activities used $4,363,058 in cash resources, due largely to
paying off the loan on our Ontario and Fresno properties.

# Cash Flows in 2003

Our cash resources decreased
$2,909,996 during the nine months ended September 30, 2003. During 2003, cash provided by
operating activities was $1,147,860, primarily from the net loss adjusted for non-cash
items such as depreciation and amortization. Investing activities in 2003 used $2,622,322
of cash resources, primarily for purchase of the Garden Grove Festival and Banco Popular
properties. For the nine months ended September 30, 2003, financing activities used
$1,435,534, due largely to proceeds from the loan secured by our Banco Popular property
and offset in part by: dividends, the payoff of the loan secured by our Java City, 721
West Del Paso Road property; and principal payments on notes payable secured by rental
real estate and notes payable secured by rental real estate held for sale.

20

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# Critical Accounting
Policies and Estimates

# General

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

# Critical Accounting
Policies

Revenue Recognition. We
recognize minimum rents on the straight-line method over the terms of the leases, as
required under SFAS No. 13. Certain of the leases also provide for additional revenue
based on contingent percentage income, which is recorded on an accrual basis once the
specified target that triggers this type of income is achieved. The leases also typically
provide for tenant recoveries of common area maintenance, real estate taxes and other
operating expenses. These recoveries are recognized as revenue in the period the
applicable costs are incurred, except for several tenants where the revenue is recognized
when the revenue is billable to the tenant under the lease. Rents due, but not yet
collected, are recognized to the extent determined by management to be collectible. We
believe that the likelihood of collection of amounts over six months past due is low. As
of September 30, 2004, we had approximately $80,000 in receivables over six months old,
and accordingly we have provided approximately $80,000 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. We state the property we classify as held for sale at the lower of its
carrying amount or its 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 that our critical
accounting estimates relate to the valuation of our properties for impairment and legal
and other contingencies. We believe these estimates are judgmental and not subject to
strict, quantifiable analysis. As appropriate, we engage counsel and other parties to
assist us in making these estimates.

# New Accounting
Pronouncements

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

# RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS

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

# Risks Due to Investment
in Real Estate

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

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

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

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

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

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

Our tenants may go bankrupt.

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

21

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# Our tenants may not
renew their leases.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

All of our properties are located in
developed areas where we face substantial competition from other properties and from other
real estate companies that may develop or renovate competing properties. The number of
competitive properties and real estate companies could have a material adverse effect on
our ability to rent our properties, the rents we charge and our acquisition opportunities.
The activities of these competitors 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.

22

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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 September 30, 2004, the tenant in our
Tustin property, Safeguard Business Systems, Inc., accounted for approximately 10% 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 7% of our total rental revenue, including discontinued operations. That
tenant also subleases space from another tenant in our Folsom property that accounted for
another 4% of our total rental revenue, including discontinued operations. A tenant may
attempt to terminate its lease before its scheduled term, or we may be unable to renew the
lease with the tenant. In that event, we may be unable to re-lease the space to another
anchor tenant of similar or better quality upon expiration of the current lease on similar
or better terms, and we could experience material adverse consequences such as higher
vacancy rates, re-leasing on less favorable economic terms and reduced net income.
Similarly, if one or more of our single tenants goes bankrupt, we could experience
material adverse consequences like those described above. There can be no assurance that
our sole tenants will renew their leases when they expire or will be willing to renew on
similar economic terms.

# Northlake Festival
represents approximately 50% of our revenues.

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

Construction and development risks
could adversely affect our profitability.

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

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

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

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

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

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

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

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

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

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

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

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

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

23

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

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

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

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

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

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

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

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

# Our environmental due
diligence may be inadequate.

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

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

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

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

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

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

These liabilities can include:

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

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

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

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

# Risks Due to Real
Estate Financing

We have a significant amount of
indebtedness. As of September 30, 2004, we had total assets of $53,821,987, total secured
indebtedness of $34,838,679, total liabilities of $35,839,468 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, and other forms of secured or unsecured financing or through our
issuing additional debt or equity. We expect to review periodically our financing options
regarding the appropriate mix of debt and equity financing. If we use equity, rather than
debt, to finance future acquisitions, it could have a dilutive effect on the interests of
our existing stockholders.

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

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

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

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

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

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

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

We are subject to the normal risks
associated with debt financing, including the risk that our cash flow will be insufficient
to meet required payments of principal and interest, the risk that we will not be able to
renew, repay or refinance our debt when it matures or that the terms of any renewal or
refinancing will not be as favorable as the existing terms of that debt. Two of our loans,
totaling approximately $2,564,000, are scheduled to mature in the fourth quarter of 2004
and the first quarter of 2005.

24

---

On November 8, 2004 we extended the
maturity date of the loan secured by our Riverside property to March 8, 2005. 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 September 30, 2004,
we have a $1,500,000 loan that bears interest at a variable rate. If we are successful in
obtaining a construction loan for the development and construction of our Garden Grove
Festival shopping center, that loan may bear interest at a variable rate. Accordingly,
increases in interest rates would increase our interest costs, which could have a material
adverse effect on us and our ability to pay dividends to stockholders. In addition, an
increase in market interest rates may lead holders of our common shares to expect a higher
dividend yield, which could adversely affect the market price of our common stock.

# We may incur additional
debt and related debt service.

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

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

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

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

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

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

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

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

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

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

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

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

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

# Risks Related to our
Stock

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

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

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

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

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

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

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

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

25

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We have entered into change of
control agreements with Mr. Meredith, our President, Chairman and Chief Executive Officer,
and Mr. Wingard, our Vice President and Chief Financial Officer, providing for the payment
of money to them upon the occurrence of a change of control, as defined in these
agreements. If, within one year following a change of control, either Mr. Meredith or Mr.
Wingard resigns or is terminated, we will make a severance payment equal to a portion of
the executives base salary, his average bonus over last three years and medical and
other benefits. Based upon their current salaries and benefit levels, this provision would
result in payments totaling at least $200,000 to Mr. Meredith and $127,500 to Mr. Wingard.
The agreements with Mr. Meredith and Mr. Wingard may deter changes of control because of
the increased cost for a third party to acquire control of us, thus limiting the
opportunity for stockholders to receive a premium for our common stock over
then-prevailing market prices.

# Tax Risks

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

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

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

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

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

26

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# ITEM 3.   CONTROLS AND PROCEDURES

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

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

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

27

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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. The
DOJ has sued Sanborn only, and preliminary discussions have been held between the DOJ and
Sanborn. We understand that Sanborn intends to vigorously defend against the DOJ.

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

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

None.

# ITEM 3.   DEFAULTS UPON
SENIOR SECURITIES

None.

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

None.

# ITEM 5.   OTHER INFORMATION

None.

# 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

None

# SIGNATURES

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

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

|Dated:   November 12, 2004 |  | /s/ Charles P. Wingard
Charles P. WingardChief Financial Officer(principal financial and accounting officer)
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------

28