# 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 March 31, 2005

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

For the transition period from ___________ to _____________

Commission file number
001-31514

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

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

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

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

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

Yes X     No

APPLICABLE ONLY TO
CORPORATE ISSUERS

As of May 11, 2005, there were
968,965 shares of the issuers common stock outstanding (net of 8,000 shares held in
treasury).

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

---

# MEREDITH ENTERPRISES,
INC.

# REPORT ON FORM 10-QSB FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2005

# TABLE OF CONTENTS

|                                                                     | 
|-------------------------------------------------------------------- | 
|Part I  Financial Information                                       | 
|Item 1.  Financial Statements                                        | 
|Consolidated Balance Sheet-                                          | 
|As of March 31, 2005 (unaudited)                                     | 
|Consolidated Statements of Income (unaudited)-                       | 
|Three months ended March 31, 2005 and 2004                           | 
|Consolidated Statements of Cash Flows (unaudited)-                   | 
|Three months ended March 31, 2005 and 2004                           | 
|Consolidated Statement of Stockholders Equity (unaudited)-          | 
|Three months ended March 31, 2005                                    | 
|Summary of Accounting Policies                                       | 
|Notes to Consolidated Financial Statements                           | 
|                                                                     | 
|Item 2.  Managements Discussion and Analysis or Plan of Operation   | 
|Item 3.  Controls and Procedures                                     | 
|                                                                     | 
|Part II  Other Information                                          | 
|Item 1.  Legal Proceedings                                           | 
|Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds | 
|Item 3.  Defaults Upon Senior Securities                             | 
|Item 4.  Submission of Matters to a Vote of Security Holders         | 
|Item 5.  Other Information                                           | 
|Item 6.  Exhibits                                                    | 
|Signatures                                                           | 

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

---

# PART I.  FINANCIAL INFORMATION

# ITEM 1.  FINANCIAL
STATEMENTS

# MEREDITH ENTERPRISES,
INC.CONSOLIDATED BALANCE SHEET

|March 31,                                                                            | 2005
|------------------------------------------------------------------------------------ | ----
|
|Assets                                                                               |     
|Rental real estate, less accumulated depreciation (Notes 2, 4 and 6)                 |     
|Rental real estate held for sale, net (Notes 2 and 6)                                |     
|Construction in progress (Notes 2 and 6)                                             |     
|Cash and cash equivalents                                                            |     
|Deferred rent, net of allowance of $346,105 at March 31, 2005                        |     
|Accounts receivable                                                                  |     
|Loan origination fees, net of accumulated amortization of $260,914 at March 31, 2005 |     
|Other assets                                                                         |     
|Other assets related to rental real estate held for sale                             |     
|                                                                                     |     
|Total assets                                                                         |     
|                                                                                     |     
|                                                                                     |     
|Liabilities and Stockholders' Equity                                                 |     
|                                                                                     |     
|Liabilities                                                                          |     
|Notes payable secured by rental real estate (Note 6)                                 |     
|Notes payable secured by rental real estate held for sale (Note 6)                   |     
|Accounts payable and accrued liabilities                                             |     
|Security deposits and prepaid rent                                                   |     
|Other liabilities related to rental real estate held for sale                        |     
|                                                                                     |     
|Total liabilities                                                                    |     
|                                                                                     |     
|Commitments and contingencies (Note 9)                                               |     
|                                                                                     |     
|Stockholders' equity                                                                 |     
|Common stock $.01 par value; 4,000,000 shares authorized; 976,965                    |     
|shares issued and outstanding as of March 31, 2005                                   |     
|Preferred stock; $.01 par value; 1,000,000 shares authorized; 0 shares               |     
|issued and outstanding as of March 31, 2005                                          |     
|Treasury stock at cost; 8,000 shares at March 31, 2005                               |     
|Additional paid-in capital                                                           |     
|Dividends in excess of retained earnings                                             |     
|                                                                                     |     
|Total stockholders' equity                                                           |     
|                                                                                     |     
|Total liabilities and stockholders' equity                                           |     
|                                                                                     |     

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

3



---

# MEREDITH ENTERPRISES,
INC.

# CONSOLIDATED
STATEMENTS OF INCOME

|                                                 | Three months ended
|------------------------------------------------ | ------------------
|
|
|
|
|Revenues                                         |                   
|Rental (Notes 2 and 4)                           |                   
|Tenant reimbursements (Notes 2 and 4)            |                   
|Interest                                         |                   
|                                                 |                   
|                                                 |                   
|                                                 |                   
|Cost and expenses                                |                   
|Interest                                         |                   
|General and administrative                       |                   
|Depreciation                                     |                   
|Ground rent (Note 9)                             |                   
|Other operating                                  |                   
|Property tax                                     |                   
|                                                 |                   
|                                                 |                   
|                                                 |                   
|Income from continuing operations                |                   
|                                                 |                   
|Loss from discontinued operations (Note 3):      |                   
|Loss from discontinued operations                |                   
|                                                 |                   
|Net income                                       |                   
|                                                 |                   
|                                                 |                   
|Net income per share-basic (Note 1):             |                   
|Income from continuing operations                |                   
|Discontinued operations:                         |                   
|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:                         |                   
|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

|Three months ended March 31,                                          | 2005 | 2004
|--------------------------------------------------------------------- | ---- | ----
|
|Cash flows from operating activities                                  |      |     
|Net income                                                            |      |     
|Adjustments to reconcile net income to net cash                       |      |     
|provided by operating activities:                                     |      |     
|Depreciation expense                                                  |      |     
|Fair value adjustment to property carrying value                      |      |     
|Interest expense due to amortization of loan origination fees         |      |     
|Increase (decrease) in cash flows from changes in                     |      |     
|operating assets and liabilities:                                     |      |     
|Deferred rent                                                         |      |     
|Accounts receivable                                                   |      |     
|Other assets                                                          |      |     
|Other assets related to rental real estate held for sale              |      |     
|Accounts payable and accrued liabilities                              |      |     
|Security deposits and prepaid rent                                    |      |     
|Other liabilities related to rental real estate held for sale         |      |     
|                                                                      |     
|Net cash provided by operating activities                             |      |     
|                                                                      |     
|Cash flows from investing activities                                  |      |     
|Proceeds released from escrow prior to sale                           |      |     
|Expenditures on construction in progress                              |      |     
|Capital expenditures on rental real estate                            |      |     
|                                                                      |     
|Net cash used in investing activities                                 |      |     
|                                                                      |     
|Cash flows from financing activities                                  |      |     
|Dividends paid                                                        |      |     
|Proceeds from notes payable                                           |      |     
|Payments on notes payable secured by rental real estate               |      |     
|Payments on notes payable secured by rental real estate held for sale |      |     
|                                                                      |     
|Net cash provided by (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

|                                                   | Common Stock | Treasury Stock |  |         | 
|-------------------------------------------------- | ------------ | -------------- |  | ------- | 
|
|
|
|
|
|Balance,  December 31, 2004                        |              |                |  | 976,965 | 
|                                                   |              |               
|Net income for the period                          |              |                |  | -       | 
|Dividends declared ($0.25 per shares)     (Note 1) |              |                |  | -       | 
|                                                   |             
|Balance, March 31, 2005                            |              |                |  | 976,965 | 
|                                                   |             

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

6



---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Business

Meredith Enterprises, Inc. (formerly
West Coast Realty Investors, Inc.) was originally organized in October 1989 under the laws
of the State of Delaware. We have elected tax status as a Real Estate Investment Trust
(REIT) for federal and state income tax purposes since 1991. Our portfolio
consists of light industrial, retail, suburban office properties and a restaurant
property. As of March 31, 2005, all of our properties were located in California and
Georgia, and we did not own any residential properties. Most of our leases are
triple-net leases where the tenant is responsible for maintenance, taxes and
insurance, either by directly paying such costs or reimbursing us for those costs through
additional rental payments.

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

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

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

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

In the normal course of business, we
may receive solicited or unsolicited offers to purchase our properties. For the offers we
accept, the prospective buyer will usually require a due diligence period before
consummation of the transaction. It is not unusual for matters to arise that result in the
withdrawal or rejection of the offer during this process. As a result, real estate is not
classified as held for sale until it is likely, in the opinion of management,
that a property will be disposed of in the near term, even if sales negotiations for such
property are currently under way. Properties classified as held for sale are segregated
from rental real estate in our financial statement presentation. As of March 31, 2005, one
property was classified as held for sale, as it was listed for sale with real
estate brokers and we believed there was a high likelihood of sale in the near term. There
can be no assurance that a property held for sale will be sold in the near term, at a
price we consider acceptable, or at all.

# Rental Income, Operating
Expense and Capitalized Costs

We recognize rental revenue on a
straight-line basis to the extent that rental revenue is deemed collectible. Percentage
rents in the three months ended March 31, 2005 and 2004 were immaterial, and recognized
when received. We capitalize improvements and betterments that increase the value of the
property or extend its useful life.

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

# Acquisition Costs

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

# Loan Origination Fees

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

7



---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Cash and Cash Equivalents

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

# Consolidation

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

# Use of Estimates

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

# Net Income Per Share

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

# Comprehensive Income

Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, as promulgated by the
Financial Accounting Standards Board (FASB), establishes standards for
reporting and display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is comprised of net income and
all changes to stockholders equity except those due to investments by owners and
distributions to owners. Other than net income, we do not have any components of
comprehensive income in the three months ended March 31, 2005, and 2004.

# Reclassifications

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

# Descriptive Information
About Reportable Segments

Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information requires certain descriptive information to be provided about an
enterprises reportable segments. We have determined that we have one operating and
reportable segment, rental real estate and rental real estate held for sale, which
comprised 93% of our total assets at March 31, 2005 and over 99.8% of our total revenues
(including discontinued operations) for the three months ended March 31, 2005 and 2004.
All the rental real estate we own is located in California and Georgia. We do not use
reporting by geographic region.

All revenues are from external
customers, and there are no revenues from transactions with other segments. See Note 2 for
tenants that contributed 10% or more of our total revenues for the three months ended
March 31, 2005 and 2004. Interest expense on debt is not allocated to individual
properties, even if such debt is secured by a specific property. Because we are organized
as a REIT, we owe no federal or state income taxes and have accordingly made no provision
for those taxes; see Note 7.

8



---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# Stock-Based Compensation

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

Pro forma information regarding net
income and earnings per share required by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, which amended SFAS No.
123, was determined as if we had accounted for the employee and non-employee director
stock options granted in the periods indicated under the fair value method described in
SFAS No. 148. The fair value for these options was estimated as of the date of grant using
a Black-Scholes option pricing model, with the following weighted average assumptions for
the three months ended March 31, 2004 (all of our outstanding options are fully vested as
of March 31, 2005, therefore there is no pro-forma stock-based compensation expense during
the quarter ended March 31, 2005):

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

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

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

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

9



---

# MEREDITH ENTERPRISES,
INC.

# SUMMARY OF ACCOUNTING POLICIES

# New Accounting Pronouncements

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

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

10



---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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

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

Our stockholders approved and adopted
the 2002 Stock Incentive Plan in September 2002, and it provides for the issuance of
incentive stock options, non-qualified stock options, restricted shares and other grants.
The maximum number of shares that may be issued under the plan is 150,000. Generally, the
option price may not be less than the fair market value of a share on the date that the
option is granted, and the options generally vest either immediately or over two years.
There were no changes in options outstanding during the three months ended March 31, 2005:

| |  |  | Weighted                   
| |  |  | ---------------------------
|
|
|
|
| |  |  | Balance at the beginning of
| |  |  | the period                 
| |  |  | Granted                    
| |  |  | Exercised                  
| |  |  | Cancelled                  
| |  | 
| |  |  | Balance at end of period   
| |  | 
| |  |  | Exercisable                
| |  |  |                            
| |  |  | Shares available for future
| |  |  | grants at March 31, 2005   
| |  |  |                            

The options expire in 2013 and 2014,
and the weighted average remaining contractual life of these options is approximately nine
years.

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

|                                              | Three months ended March 31,
|--------------------------------------------- | ----------------------------
|
|
|Numerator:                                    |                             
|Income from continuing operations             |                             
|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:                      |                             
|Loss from discontinued operations             |                             
|                                              |                             
|Net income per share- basic                   |                             
|                                              |                             

11



---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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

|                                        | 
|--------------------------------------- | 
|
|
|Diluted earnings per share:             | 
|Income from continuing operations       | 
|Discontinued operations:                | 
|Loss from discontinued operations       | 
|                                        | 
|Net income per share- assuming dilution | 
|                                        | 

Anti-dilutive items are excluded from
this calculation.

# NOTE 2RENTAL REAL
ESTATE

Our major categories of rental real
estate are:

| |  | March 31, 2005
| |  | --------------
|
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               

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

| |  | March 31, 2005
| |  | --------------
|
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               
| |  |               

During 2004, we began the development
of our Garden Grove Festival Center, a multi-tenant shopping center. As of March 31, 2005,
we had construction in progress of $4,961,127, which includes land valued at its cost plus
development expenditures, capitalized interest and accrued interest. We estimate that we
will incur approximately $1,500,000 of additional development expenditures, until the
project is complete in late 2005 or early 2006. We expect to fund the development cost
from the construction loan secured by our Garden Grove property (Banco Popular), our
Garden Grove Festival Center and our 717 West Del Paso Road property.

During the three months ended March
31, 2005, one tenant represented 10% or more of our total rental revenue including
discontinued operations and another one tenant represented approximately 8%. For the three
months ended March 31, 2004, no one tenant represented 10% of our total rental revenue
including discontinued operations, although two tenants represented approximately 8% each.

12



---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 3DISCONTINUED
OPERATONS

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

During the second quarter of 2004, we
determined that the two Sacramento properties (717 and 721 West Del Paso Road) and the
Fresno property no longer met the required criteria for classification as held for sale.
Accordingly, we removed them from that category in our financial statements. In September
2004, we sold our Fresno property for a net gain of $344,314.

In accordance with SFAS No. 144, we
have reclassified the results of two Sacramento properties (717 and 721 West Del Paso
Road) from discontinued operations to continuing operations, for all periods presented. As
required, we computed depreciation expense on those properties as if they have never been
classified as held for sale, catching up the depreciation that was not
expensed in prior periods. Further, results for the properties we have sold (including the
Riverside property that we sold on May 9, 2005 and had previously agreed to sell) are
included in discontinued operations for the three months ended March 31, 2005 and 2004 as
follows:

|                                      | Three Months Ended
|------------------------------------- | ------------------
|
|
|
|Revenues                              |                   
|Rental                                |                   
|Tenant Reimbursements                 |                   
|                                      |                   
|                                      |                   
|                                      |                   
|Cost and expenses                     |                   
|Interest                              |                   
|General and administrative            |                   
|Operating                             |                   
|Property tax                          |                   
|Impairment loss                       |                   
|                                      |                   
|                                      |                   
|                                      |                   
|Net loss from discontinued operations |                   
|                                      |                   

In the three months ended March 31,
2004, we recorded impairment write-downs on the Riverside property that totaled $51,570.
As of March 31, 2005, we believe the Riverside property is properly valued in our
accounts. This value is based on both the value of the property itself and the value of
the future lease payments. On May 9, 2005, we sold the Riverside property for a gain of
approximately $600,000.

During 2004, we recorded a fair value
adjustment that 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. The tenant of our Riverside property failed to make rent
payments from January 31, 2005 to present, and we recognized no operating income from our
Riverside property for the three months ended March 31, 2005.

13



---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 4FUTURE
MINIMUM RENTAL INCOME

As of March 31, 2005, future minimum
rental income under the existing leases for rental real estate and rental real estate held
for sale that have remaining noncancelable terms in excess of one year are as follows:

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

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

# NOTE 5RELATED
PARTY TRANSACTIONS

We acquired 2.5 acres of land in
March 2003 and are building an approximate 30,000 square foot shopping center on the land.
A firm owned by Mr. Gary Coursey, one of our directors, provides architectural services
for this project. During the three-month periods ended March 31, 2005 and 2004, we
paid $0 and $54,847 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 $75,387 and
$45,902, respectively, to Isakson-Barnhart Properties in the three months ended March 31,
2005 and 2004. The agreement is renewable annually, and either party is allowed to
terminate the agreement upon 30 days prior written notice to the other. In addition,
Mr. Isakson owns a 50% interest in a retail shopping center that is located adjacent to
our retail shopping center.

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

14



---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

# NOTE 6NOTES PAYABLE

Notes payable consist of the
following:

|March 31,                                                               | 2005
|----------------------------------------------------------------------- | ----
|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), land we have begun to develop in Garden       |     
|Grove and our 717 West Del Paso Road property.  The note bears          |     
|interest rate at prime plus 1.25% (7.00% at March 31, 2005), is due     |     
|November 29, 2005 and is a construction loan for the improvements on    |     
|the land we hold in Garden Grove under which we may borrow up to        |     
|$6,500,000                                                              |     
|6.97% promissory note secured by our Irvine property, monthly principal |     
|and interest payments of $25,105 due September 1, 2009 with a balloon   |     
|payment of $3,453,364                                                   |     
|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 are $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                                                   |     
|                                                                        |     
|                                                                        |     
|Subtotal - notes payable secured by rental real estate                  |     
|                                                                        |     
|Notes payable secured by rental real estate held for sale:              |     
|                                                                        |     
|8.25% promissory note secured by our Riverside property, monthly        |     
|principal and interest payments of $9,116, due March 8, 2005.  On       |     
|April 28, 2005, we agreed with the lender to extend the maturity date   |     
|of the note from March 8, 2005 to May 31, 2005, made an additional      |     
|$50,000 principal payment and agreed to a new interest rate of 8.50%    |     
|On May 9, 2005, we sold this property and paid off the loan             |     
|                                                                        |     
|Total notes payable                                                     |     
|                                                                        |     

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

During the three months ended March
31, 2005 and 2004, we incurred interest expense of $568,144 and $628,722, respectively,
and capitalized interest of $60,983 and $47,756, respectively.

15



---

The aggregate annual future
maturities at March 31, 2005 of notes payable secured by rental real estate and notes
payable secured by rental real estate held for sale are as follows:

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

# NOTE 7TAXES ON
INCOME

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

# NOTE 8SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash
flow information follows:

|Three months ended March 31,             | 2005 | 2004
|---------------------------------------- | ---- | ----
|Cash paid during the period for interest |      |     

# NOTE 9COMMITMENTS
AND CONTINGENCIES

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

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

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

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

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

16



---

# MEREDITH ENTERPRISES,
INC.

# NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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

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

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

# NOTE 10 
SUBSEQUENT EVENTS

# Sale of Riverside
Property

On April 28, 2005, we extended the maturity
date of the note secured by our Riverside property to May 31, 2005, under the same terms,
except that we made a $50,000 principal payment and agreed to a new interest rate of
8.50%. On May 9, 2005, we sold our Riverside property for a gross sales price of
approximately $2,340,000 and a gain of approximately $600,000. Our net cash proceeds after
repaying the debt secured by the property and paying closing costs were approximately
$1,129,000.

# Contract to Sell 721
West Del Paso Road Property in Sacramento

On May 3, 2005, pursuant to a sales
agreement, the buyers $150,000 in escrow became non refundable on our 721 West Del
Paso Road property in Sacramento. The gross sales price under the agreement is
approximately $825,000 and the sale is scheduled to close on June 15, 2005.

# Reduction in Quarterly
Dividend to $0.20 Per Share

On May 12, 2005, our board of
directors declared a dividend of $0.20 per share to the stockholders of record on May 26,
2005, payable on June 7, 2005. This represents a reduction of $0.05 per share from our
previous quarters dividend of $0.25 per share.

17



---

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

# Special Note Regarding
Forward-Looking Statements

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

| | 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 the loan that matures in 2005 that is secured by our
         Garden Grove Festival property;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | 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 Quarterly Report on Form 10-QSB.

# Overview

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

Dividends are declared by the board
of directors and are based on a variety of factors, including the previous quarters
net income (loss) from operations before depreciation and amortization, cash requirements
to meet REIT distribution tests, other cash requirements and other factors as the board of
directors deems appropriate. During the quarter ended March 31, 2005, cash provided from
operating activities was less than the dividends we paid. On May 12, 2005, the board of
directors declared a dividend of $0.20 per share, payable on June 7, 2005. This dividend
rate represents a $.05 per share reduction from the per share dividend level of the prior
quarter. We cannot assure stockholders that we will maintain the quarterly dividend at
that level or that we will in fact pay dividends in any future period.

At March 31, 2005, we had a real
estate portfolio of 11 properties, including:

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

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

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

18



---

| | o | five suburban office properties totaling 114,606 square feet; and
| | - | -----------------------------------------------------------------

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

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

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

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

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

| | o | Existing and Anticipated Vacancies. At present, our portfolio is approximately 91%
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. AMC Theaters has not occupied the space since 2002, and we do
not expect to be able to lease this space in 2005. We are exploring options to reconfigure
the space to be suitable for other uses, and we may incur significant costs to complete
such a renovation, including the lack of income during a construction and lease up period.
Another two tenants have vacated approximately 16,000 and 13,500 square feet but are still
liable under leases through September 2005 and January 2019, respectively. Our lease of
19,800 square feet of space in two Sacramento properties expired in July 2004, although
the tenant paid rent on a month-to-month basis through September 30, 2004 and continues to
lease 1,575 square feet on a month-to-month basis. We may incur significant costs as we
attempt to re-lease these spaces, and we may be unable to re-lease the space in a timely
manner. The lease for approximately 38,000 square feet on our Tustin property expires on
September 30, 2005, and we may not be able to re-lease the space at the same rent level,
or for the square footage.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Loss of Revenues from Disposed Properties. We sold our Fresno property in September
2004 and our Riverside property in May 2005. We will no longer receive any revenues from
the properties we sell or other properties we may potentially sell.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. We
purchased a 2.5-acre parcel of undeveloped land in Garden Grove and we have begun the
construction of a multi-tenant shopping center comprising approximately 30,000 square feet
on this parcel. We believe that our cash flow from operations will begin to improve as we
finish the development and complete the lease  up of this shopping center.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Debt maturities.Our construction loan secured by our Garden Grove property is
scheduled to mature in fourth quarter of 2005, with a balloon payment equal to the amount
outstanding on the construction loan. We may borrow up to $6,500,000, and as of March 31,
2005, the total amount outstanding on this loan was $2,743,727. We are planning to pay off
or extend the maturity date of the loan as described in Liquidity and Capital Resources
below, but we may not be able to do so as we expect. In the event we are unable to pay off
or extend the maturity date of the loan, we have an option to roll the loan into a 5-year
promissory note, secured by our Garden Grove property.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, the payments to the creditors from the bankruptcy proceedings are
less than their claims and the liens are indeed valid, then we would be responsible for
the obligations. Recently, Time Warner and Comcast have agreed to buy the assets of
Adelphia. We do not know, however if this transaction will have an effect on our lease.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of March 31, 2005, we had total
assets of $54,392,014, total secured indebtedness of $35,841,110, total liabilities of
$36,844,939 and a debt-to-total assets ratio of 66%, 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

19



---

effects, if any, of the ground lease
on the Northlake Festival property.

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

During the second quarter of 2004, we
determined that the two Sacramento properties (717 and 721 West Del Paso Road) and the
Fresno property no longer met the required criteria for classification as held for sale.
Accordingly, we removed them from that category in our financial statements. In September
2004, we sold our Fresno property for a net gain of $344,314.

In accordance with SFAS No. 144, we
have reclassified the results of two Sacramento properties (717 and 721 West Del Paso
Road) from discontinued operations to continuing operations, for all periods presented. As
required, we computed depreciation expense on those properties as if they have never been
classified as held for sale, catching up the depreciation that was not
expensed in prior periods. Further, results for the properties we have sold (including the
Riverside property that we sold on May 9, 2005 and had previously agreed to sell) are
included in discontinued operations for the three months ended March 31, 2005 and 2004.
Operations for the three months ended March 31, 2005 and 2004 represented full quarters of
rental operations for all of our properties we classify as continuing operations.

# Results of Operations

# Quarter Ended March 31, 2005 Compared to Quarter Ended March 31, 2004

Rental revenue decreased by $139,666
(8%) for the quarter ended March 31, 2005, compared to the quarter ended March 31, 2004,
primarily due to:

| | (a) | the expiration in May 2004 of the 26,900 square feet lease with AMC Theaters at
               our Northlake Festival property, which provided approximately $90,000 of
               additional revenue for the three months ended March 31, 2004 and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | our receiving rent on only 1,575 square feet of space in our 717 West Del Paso
               Road property in 2005 period compared to our receiving rent on 19,800 square
               feet of space at our 717 and 721 West Del Paso Road properties in the 2004
               period, which provided approximately $50,000 of additional revenue for the three
               months ended March 31, 2004.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tenant reimbursements decreased by
$11,186 (4%) for the quarter ended March 31, 2005, compared to the quarter ended March 31
2004, primarily due to vacancies at our Northlake Festival property and lower common area
charges at our Folsom property.

Interest expense decreased by $60,578
(10%) for the quarter ended March 31, 2005, compared to the quarter ended March 31, 2004,
primarily due to paying off the loan secured by our Ontario property on March 1, 2004.

General and administrative costs
increased by $24,846 (8%) for the quarter ended March 31, 2005, compared to the quarter
ended March 31, 2004. This increase was principally due to slightly higher accounting,
salary and rent expenses.

Depreciation expense decreased by
$77,575 (22%) for the quarter ended March 31, 2005, compared to the quarter ended March
31, 2004, due largely to reclassifying the Roseville property to the operating category in
the first quarter of 2004 and charging depreciation of $90,000 for that property in 2004
but not in 2005, 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 of approximately $6,500 for those properties in 2005 but not in
2004.

Ground rent decreased by $14,051 (6%)
for the quarter ended March 31, 2005, compared to the quarter ended March 31, 2004, due to
lower rental income in the Northlake Festival property in 2005, which in turn reduced the
ground rent payable under our lease with the ground lessor.

Operating expenses decreased by
$41,278 (16%) in the quarter ended March 31, 2005, compared to the quarter ended March 31,
2004, due primarily to lower insurance and utility costs at our Northlake Festival
property.

Property tax expense increased by
$10,584 (8%) in the quarter ended March 31, 2005, compared to the quarter ended March 31,
2004, primarily due to the vacant space at our 717 and 721 West Del Paso Road, for which
we no longer can be reimbursed for property taxes owed.

20



---

Loss from discontinued operations
increased by $16,209 for the quarter ended March 31, 2005, compared to the quarter ended
March 31, 2004, primarily due to (a) the sale of our Fresno property during September 2004
and (b) the failure of our Riverside tenant to pay any rent in the period ended March 31,
2005.

Net income for the quarter ended
March 31, 2005 was $140,197 compared to $150,787 for the quarter ended March 31, 2004.
This slight decrease was due primarily to lower revenues and a higher loss from
discontinued operations, offset in part by lower interest, depreciation and operating
expenses.

The diluted weighted average number
of shares outstanding was 1,005,566 and 1,002,167 for the quarters ended March 31, 2005
and 2004, respectively. For the reasons explained in the preceding paragraph, net income
per share assuming dilution decreased to $0.14 for the quarter ended March 31, 2005 from
$0.15 for the quarter ended March 31, 2004.

# Liquidity and Capital
Resources

Our primary source of liquidity to
fund distributions, principal payments on notes payable and minor capital expenditures is
our cash flows from operating activities. To qualify as a REIT for federal income tax
purposes, among other requirements, we must distribute annually at least 90% of our REIT
taxable income (excluding capital gains). Accordingly, we currently intend to continue to
make, but have not contractually bound ourselves to make, regular quarterly distributions
to holders of our common stock. On May 12, 2005, the board of directors declared a
dividend of $0.20 per share, a reduction of $0.05 per share from prior quarterly
dividends. 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 entering into joint ventures or issuing additional equity in
the form of common or preferred stock.

The following table presents our
contractual cash obligations as of March 31, 2005:

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

|(1) | See Note 6 Notes Payable of the notes to the financial statements included
                    in this report for a detailed description of our notes payable. The amounts
                    shown under Total and Less than 1 year columns include the $1,053,423 Riverside
                    loan that we repaid on May 9, 2005 out of the proceeds from the sale of that
                    property.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 March 31, 2005, our total
investments in rental real estate and rental real estate held for sale totaled $45,812,064
for eleven properties. In addition, we own a parcel of land valued at $4,961,127 on which
we are building the Garden Grove Festival shopping center. Depending upon the availability
and cost of external capital, we anticipate making additional investments in suburban
office, retail shopping center and light industrial properties, although we may invest in
other types of real estate. We intend 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 entering into joint ventures or
issuing additional equity in the form of common or preferred stock. To increase our
financial flexibility, we may seek to obtain a revolving line of credit, although there
can be no assurance we will be successful.

Our $2,743,727 loan secured by our
Garden Grove Festival shopping center (under which we may borrow up to $6,500,000) is
scheduled to mature in November 2005. Although we believe we will be able to extend the
maturity date for this loan or refinance it

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with a permanent mortgage loan, we
may be unable to do so. In the event we are unable to pay off or extend the maturity date
of the loan, we have an option to roll the loan into a 5-year promissory note, secured by
our Garden Grove property. We do not believe we will be able to use our Ontario property
as security for a loan until the bankruptcy court accepts our lease with the tenant (if
the lease is accepted, if at all), and we cannot estimate when the bankruptcy court may
act. Further, we anticipate the following significant needs for cash during the remainder
of 2005 and 2006:

| | 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. On May 12, 2005, the board of directors
declared a dividend of $0.20 per share, payable on June 7, 2005. This dividend rate
represents a $.05 per share reduction from the per share dividend level of the prior
quarter. We cannot assure stockholders that we will maintain the quarterly dividend level
or that we will pay dividends in any future period. Further, on May 9 2005, we sold our
Riverside property for a gross sales price of approximately $2,300,000, and the
companys total cost for the property was approximately $3,900,000. After accumulated
depreciation of approximately $600,000 and write-downs to fair market value of
approximately $1,600,000, the company recognized a gain of approximately $600,000 and
received proceeds of approximately $1,129,000. We believe our properties are in good
condition without significant deferred maintenance obligations, and many are leased under
triple-net leases, which reduce our risk pertaining to excessive maintenance
and operating costs. However, we anticipate we will continue to require outside sources of
financing to meet our liquidity needs beyond 2005, such as scheduled debt repayments
(including balloon payments on our debt) and property acquisitions.

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

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

# Cash Flows in 2005

Our cash resources decreased $287,573
during the three months ended March 31, 2005. Cash provided by operating activities in
this period was $98,380, primarily from net income adjusted for non-cash items such as
depreciation and amortization. Investing activities in 2005 used $494,726 of cash
resources, primarily from expenditures for the development of our Garden Grove Festival
property and improvements at our Northlake Festival property. For the three months ended
March 31, 2005, financing activities provided $108,773 in cash resources, due largely to
proceeds from our construction loan for the improvements on the land we hold in Garden
Grove, offset by dividends of $242,241 and scheduled payments on our other outstanding
notes.

# Cash Flows in 2004

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

# Critical Accounting
Policies and Estimates

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

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

Revenue Recognition. We
recognize minimum rents on the straight-line method over the terms of the leases, as
required under Statement of Financial Accounting Standard No. 13. Some of our leases also
provide for additional revenue based on contingent percentage income. We record this
revenue on an accrual basis once the tenant achieves the targeted percentage of income.
The leases also typically provide for tenant recoveries of common area maintenance, real
estate taxes and other operating expenses. These recoveries are recognized as revenue in
the period the applicable costs are incurred, except for several tenants where the revenue
is recognized when the revenue is billable to the tenant under the lease. Rents due, but
not yet collected, are recognized to the extent determined by management to be
collectible. While we believe that the likelihood of collection of amounts over six months
past due is low, we reserve for uncollectible accounts on a case-by-case basis. As of
March 31, 2005, we had approximately $108,000 in receivables over 90 months old and we
have provided approximately $166,200 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.

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

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

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

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

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

# New Accounting
Pronouncements

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

In December 2004, the FASB issued
SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of APB Opinion No.
29. The amendments made by SFAS No. 153 are based on the principle that exchanges of
nonmonetary assets should be measured on the fair value of assets exchanged. The statement
eliminates the exception for nonmonetary exchanges of similar productive assets and
replaces it with a broader exception for exchanges of nonmonetary assets that do not have
commercial substance. The statement is

23



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effective for nonmonetary exchanges
occurring in fiscal periods beginning after June 15, 2005, and we do not expect the
adoption of SFAS No. 153 to have a material effect on our financial statements.

# Off-Balance Sheet
Arrangements

We have no off-balance sheet
arrangements

# Inflation

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

# RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS

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

Risks Related to our Stock

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

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

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

| | o | The space previously occupied by Cucina Holdings, Inc., as to a total of 19,800 square
feet in our two Sacramento properties will produce revenue only on the 1,575 square feet
they continue to rent on a month-to-month basis.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | o | The tenant in our Riverside property did not pay rent for any period in 2005. We sold this
property on May 9, 2005.
| | - | -------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

# 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. For example, the
bankruptcy court rejected our lease with one tenant in our Fresno property, and the tenant
vacated the premises in November 2003. When a lease is terminated by the bankruptcy court,
our claim against the bankrupt tenant for unpaid, future rent is subject to a statutory
cap that can be substantially less than the remaining rent actually owed under the lease,
and, even so, our claim for unpaid rent will likely not be paid in full.

# Our tenants may not
renew their leases.

We cannot predict whether current
tenants will renew their leases when they expire or attempt to terminate their leases
before they expire. Because the tenants in our Irvine and Tustin properties are either
subletting the property or not fully using the property for their operations, they may be
less likely to re-lease the properties when the leases expire in December 2007 and
September 2005, respectively, or they may seek to re-lease a smaller space from us.
Further, our lease on two Sacramento properties (717 and 721 West Del Paso Road) expired
in July 2004, and the tenant continued to lease the space through September 30, 2004 on a
month-to-month basis. On October 1, 2004, the tenant vacated the 721 West Del Paso
property. Although the tenant continues to lease a small portion of the 717 West Del Paso
property on a month-to-month basis, the tenant could move out at any time. We may incur
significant costs to re-lease 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,

25



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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, our ability to rent our properties, the rents we
charge and acquisition opportunities could cause us to pay a higher price for a new
property than we otherwise would have paid or may prevent us from purchasing a desired
property at all,

26



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which could have a material adverse
effect on us and our ability to pay dividends to stockholders and to pay amounts due on
our debt.

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

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

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

Many of our properties are leased to
a single tenant, and some of these single tenant properties are individually significant
to our total revenue. During the three months ended March 31, 2005, the tenant in our
Tustin property, Safeguard Business Systems, Inc., accounted for approximately 11% of our
total rental revenue, including discontinued operations. Further, Tycom Corporation, a
tenant in our Irvine property, directly accounted for over 8% 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.

In the first quarter of 2005, the
Northlake Festival property accounted for approximately 50% of our total rental revenues,
including discontinued operations. At March 31, 2005, the occupancy for Northlake Festival
was 88.8% compared to 97.6% at March 31, 2004. The decrease was primarily due to the
expiration of the lease with AMC Theaters for 26,900 square feet. We do not expect to
re-lease this space in 2005. If economic conditions in the area of Northlake Festival
become depressed and the performance of that center is adversely affected, our overall
financial condition and results of operations will be adversely affected as well.

Construction and development risks
could adversely affect our profitability.

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

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

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

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

We carry (or require our tenants to
carry on our behalf) liability, fire, extended coverage and rental loss insurance on our
properties. This insurance has policy specifications, limits and deductibles. We do not
carry flood and earthquake insurance for our properties. In

27



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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.
| | - | ------------------------------------------------------------------------------------------------------------------------

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

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allow others to seek recovery from
owners or operators for personal injury associated with exposure to asbestos fibers. Some
of our properties are located in urban, industrial and previously developed areas where
fill or current or historic industrial uses of the areas may have caused site
contamination.

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

# Our environmental due
diligence may be inadequate.

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

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

| | 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 March 31, 2005, we had total assets of $54,392,014, total secured
indebtedness of $35,841,110, total liabilities of $36,844,939 and a debt-to-total assets
ratio of 66%, 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:

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| | 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, particularly our construction loan for our Garden Grove
Festival shopping center, which matures in November 2005.

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. Our $2,743,727
construction loan for our Garden Grove shopping center (under which we may borrow up to
$6,500,000), is scheduled to mature in November 2005. For this loan, as with many of the
mortgage notes on our properties, the mortgage payment terms do not fully amortize the
loan balance, and a balloon payment of the balance will be due upon its maturity. If we
are unable to refinance our indebtedness on acceptable terms, or at all, we might be
forced to dispose of one or more of the properties on disadvantageous terms, which might
result in losses to us. Those losses could have a material adverse effect on us and our
ability to pay dividends to stockholders and pay amounts due on our debt. Furthermore, if
a property is mortgaged to secure payment of indebtedness and we are unable to meet
mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and
receive an assignment of rents and leases or pursue other remedies, all with a consequent
loss of our revenues and asset value. Foreclosures could also create taxable income
without accompanying cash proceeds, thereby hindering our ability to meet the REIT
distribution requirements of the Internal Revenue Code.

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

We have incurred and may in the
future again incur debt that bears interest at a variable rate. As of March 31, 2005, we
have a $2,743,727 loan that bears interest at a variable rate. Accordingly, increases in
interest rates would increase our interest costs, which could have a material adverse
effect on us and our ability to pay dividends to stockholders. In addition, an increase in
market interest rates may lead holders of our common shares to expect a higher dividend
yield, which could adversely affect the market price of our common stock.

# We may incur additional
debt and related debt service.

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

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

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

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

30



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

# Risk Related to SEC
Regulation

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

To comply with Section 404 of
the Sarbanes-Oxley Act of 2002, we must furnish a report by our management on our internal
control over financial reporting with our annual report on Form 10-KSB for our fiscal
year ending December 31, 2006. The report will contain, among other matters, an
assessment of the effectiveness of our internal control over financial reporting as of the
end of that fiscal year, including a statement as to whether or not our internal control
over financial reporting is effective. This assessment must include disclosure of any
material weaknesses in our internal control over financial reporting. Material weakness in
internal controls over financial reporting is defined as a significant deficiency,
or a combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected. The report will also contain a statement that our
auditors have issued an attestation report on managements assessment of our internal
controls. We currently expect to begin testing of our internal controls during the second
quarter of fiscal 2006. This testing includes documenting our procedures and an analysis
of the segregation of duties. Because we currently have only four employees we may not be
able to achieve an adequate segregation of duties without hiring additional personnel and
incurring additional costs. In the course of our evaluation and testing of internal
controls, we may identify areas for improvement in the documentation, design and
effectiveness of our internal controls, and these areas of improvement may be material. We
may elect or be required to disclose those weaknesses before we have remediated them. Any
disclosure of this nature may adversely affect our stock price Given the risks inherent in
the design and operation of internal controls over financial reporting, we can provide no
assurance at this time regarding our conclusions, or regarding the conclusions of our
independent auditor, as of December 31, 2006 with respect to the effectiveness of our
internal controls over financial reporting. In any event, we expect to incur material
costs in complying with Section 404.

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

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

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

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

| | 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
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# Tax Risks

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

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

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

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

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

32



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# ITEM 3.  CONTROLS AND PROCEDURES

As of March 31, 2005, we carried out
an evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our current disclosure controls and procedures are effective as of March
31, 2005.

There was no change in our internal
control over financial reporting that occurred during the quarter ended March 31, 2005
that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

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

33



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# PART II  OTHER INFORMATON

# ITEM 1.  LEGAL PROCEEDINGS

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

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

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

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

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

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

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

None.

# ITEM 3.  DEFAULTS
UPON SENIOR SECURITIES

None.

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

None.

# ITEM 5.  OTHER
INFORMATION

On May
16, 2005, we issued the press release appended hereto at Exhibit 99.1.   The press release reported
that our board of directors approved a dividend of $0.20 per share on our common stock for the quarter ended March 31,
2005. The dividend is $0.05 less than the prior quarters dividend. The dividend will
be payable on June 8, 2005 to stockholders of record as of May 27, 2005. The press release also
explained some of the reasons for the decrease in the dividend and described some of the risks
we are facing.   For further information, please see the text of the press release.

# ITEM
6.  EXHIBITS

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

34



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# 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:   May 12, 2005 |  | /s/ Charles P. Wingard
Charles P. WingardChief Financial Officer(principal financial and accounting officer)
|--------------------- |  | ------------------------------------------------------------------------------------------------------------

35