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

                               FORM 10-KSB

[x] Annual Report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

For the fiscal year ended June 30, 2006

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

Commission file number 0-6877


                       SANTA FE FINANCIAL CORPORATION
                       ------------------------------
                (Name of Small Business Issuer in Its Charter)

            Nevada                                      95-2452529
   ------------------------------                    ------------------
  (State or Other Jurisdiction of                    (IRS Employer
   Incorporation or Organization)                    Identification No.)


  820 Moraga Drive, Los Angeles, California               90049
  -----------------------------------------             ----------
  (Address of Principal Executive Offices)              (Zip Code)

                               (310) 889-2500
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

                          $.10 Par Value Common Stock
                          ---------------------------
                                (Title of Class)

    Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yes [X]  No

    Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendments to
this Form 10-KSB.  [X]

    Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ]  No [X]

    The issuer's revenues for the year ended June 30, 2006 were $1,056,000.

<PAGE>

The aggregate market value of the common equity held by non-affiliates of
issuer computed by reference to the price at which the stock last sold on or
before September 12, 2006 was $4,802,487.

The number of shares outstanding of issuer's $.10 Par Value Common Stock, as of
September 12, 2006, was 1,241,810.

Transitional Small Business Disclosure Format:  Yes [ ]    No [X]

                     DOCUMENTS INCORPORATED BY REFERENCE: None


                            TABLE OF CONTENTS

PART I                                                               PAGE

    Item  1.  Description of Business.                                 3

    Item  2.  Description of Property.                                10

    Item  3.  Legal Proceedings.                                      14

    Item  4.  Submission of Matters to a Vote of Security Holders.    15

PART II

    Item  5.  Market For Common Equity and Related                    15
              Stockholder Matters.

    Item  6.  Management's Discussion and Analysis of Financial       16
              Condition and Results of Operations.

    Item  7.  Financial Statements and Supplementary Data.            25

    Item  8.  Changes in and Disagreements with Accountants on        42
              Accounting and Financial Disclosure.

    Item  8A. Controls and Procedures.                                42

    Item  8B. Other Information.                                      42

PART III

    Item  9.  Directors, Executive Officers, Promoters and            43
              Control Persons; Compliance with Section 16(a)
              of The Exchange Act.

    Item 10.  Executive Compensation.                                 45

    Item 11.  Security Ownership of Certain Beneficial Owners and     47
              Management.

    Item 12.  Certain Relationships and Related Transactions.         49

    Item 13.  Exhibits, Financial Statement Schedules, and            51
              Reports on Form 8-K.

    Item 14.  Principal Accountant Fees and Services.                 53

SIGNATURES                                                            54

                                    -2-
<PAGE>

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB contains some "forward-looking statements"
within the meaning of the Private Securities Litigation reform Act of 1995.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They contain words such as
"anticipate," "estimate," expect," "project," intend," "plan," "believe" "may,"
"could," "might" and other words or phrases of similar meaning in connection
with any discussion of future operating or financial performance. From time to
time we also provide forward-looking statements in our Forms 10-QSB and 8-K,
Annual reports to Shareholders, press releases and other materials we may
release to the public. These statements are subject to certain risks and
uncertainties, such as the impact of terrorism and war on the national and
international economies, including tourism and securities markets, natural
disasters, general economic conditions and competition in the hotel industry in
the San Francisco area, labor relations and labor disruptions, partnership
distributions, the ability to obtain financing at favorable interest rates and
terms, securities markets, regulatory factors, litigation and other factors
discussed below in this Report. Consequently, no forward looking statement can
be guaranteed and our actual future results may differ materially.

We caution you not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof. We undertake no obligation to publicly
update any forward looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects on our Forms 10-KSB, 10-QSB, and 8-K
reports to the Securities and Exchange Commission.


                                PART I

Item 1.  Description of Business.

GENERAL

Santa Fe Financial Corporation ("Santa Fe" or the "Company") was incorporated
under the name of Tri Financial Corporation in the State of Nevada on July 25,
1967 as a wholly owned subsidiary of Crateo, Inc, a public company.  On October
31, 1969, Crateo issued a one-for-one stock dividend of all of its shares of
Tri Financial to its common shareholders.  On September 17, 1970, the name of
the Corporation was changed to Santa Fe Financial Corporation.

One of the Company's principal sources of operating revenue has been, and
continues to be, derived from the management of its 68.8% owned subsidiary,
Portsmouth Square, Inc. ("Portsmouth"), a public company (OTCBB: PRSI).
Portsmouth is a general and limited partner in Justice Investors, a California
limited partnership ("Justice" or the "Partnership"). Justice owns and operates
a hotel property in San Francisco, California. In April 2006, Portsmouth
purchased an additional 0.20% limited partnership interest in Justice from
another limited partner for $180,000, which brought Portsmouth's limited
partnership interest in Justice to exactly 50.0%. Portsmouth's interest in
Justice is recorded on the equity basis. Portsmouth also serves as one of the
two general partners of Justice.  The other general partner, Evon Garage
Corporation ("Evon"), acts as the managing general partner.

All significant Partnership decisions require the active participation and
approval of both general partners.  The Portsmouth and Evon jointly consult and
determine the amount of Partnership reserves and the amount of cash to be
distributed to the limited partners. As of June 30, 2006, there were
approximately 86 limited partners in Justice (not including multiple family
accounts).

                                    -3-
<PAGE>

Pursuant to the terms of the partnership agreement, voting rights of the
partners are determined according to the partners' entitlement to share in the
net profit and loss of the Partnership.  The Company is not entitled to any
additional voting rights by virtue of its position as a general partner.
The partnership agreement also provides that no portion of the Partnership real
property can be sold without the written consent of the general and limited
partners entitled to more than 72% of the net profit.

The Company owns a controlling 55.4% equity interest in Intergroup Woodland
Village, Inc. ("Woodland Village"), which owns a 27-unit multi-family apartment
complex located in Los Angeles, California.  The Company also owns a 2-unit
apartment building located in Los Angeles, California, through its 100% owned
subsidiary, 614 Acanto Properties, Inc. ("Acanto").


BUSINESS OF ISSUER

The Company's principal business is to purchase, manage and operate real
estate.  The Company's primary real estate operation is conducted through its
subsidiary, Portsmouth, as a general and limited partner in Justice.  Justice
was formed in 1967 to acquire real property for the development and lease of a
hotel located at 750 Kearny Street, San Francisco, California 94108(the
"Hotel") and related facilities, including a five level underground parking
garage.  Historically, the Partnership's most significant source of income was
a lease between Justice and Holiday Inn for the Hotel portion of the property.
That lease was amended in 1995, and ultimately assumed by Felcor Lodging Trust,
Inc. ("Felcor", NYSE: FCH) in 1998. As discussed below, the lease of the Hotel
to Felcor was terminated effective June 30, 2004. The Partnership also derives
income from its lease of the garage portion of the property to Evon and the
lease of approximately 5,400 square feet on the lobby level of the Hotel to Tru
Spa, LLC for the operation of a health and beauty spa.  As a general partner,
Portsmouth takes an active role in monitoring and overseeing the operations of
the Hotel, the lease of the parking garage and the spa. The Company also
derives income from management fees received by its subsidiary as a general
partner in Justice.

The Company's operations also include a controlling interest in a 27-unit
multi-family apartment complex and a 2-unit apartment building located in Los
Angeles, California.  The Company also derives income from the investment of
its cash and securities assets.  The Company has invested in income-producing
instruments, equity and debt securities and will consider other investments if
such an investment will offer growth or profit potential.  For further
information on the Company's investments see Item 2 Investment Policies, Item 6
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to Consolidated Financial Statements.

SAN FRANCISCO HOTEL LEASE

The Hotel portion of the Partnership's San Francisco property was initially
leased to Holiday Inns of America in 1970 and operated as a Holiday Inn brand
hotel.  On March 15, 1995, an amended and restated lease was entered into by
Justice with an effective date of January 1, 1995 (the "Hotel Lease").  The
Hotel Lease was assumed by Felcor, effective July 28, 1998 and continued to be
operated as a Holiday Inn. The initial term of the Hotel Lease was for a 10-
year term expiring on December 31, 2004.  The lessee also had an option to
renew the lease for one additional term of five years, which would extend the
lease to December 31, 2009.  The Hotel Lease required the lessee to pay an
annual rent of the greater of twenty percent (20%) of gross room revenues or
$2,500,000 plus fifty percent (50%) of lessee's cash available as defined by
the Hotel Lease.  Under the terms of the Hotel Lease, the lessee was

                                    -4-
<PAGE>

responsible for all maintenance and repairs to the property, certain capital
improvements, taxes and insurance.  The lessee also had an obligation to
convert the Hotel property to a "Holiday Inn Select" and to maintain the
property to those standards, at its own cost and expense.

In July 2003, Justice delivered to the hotel lessee, a notice citing certain
deficiencies in the physical condition of the hotel property and in its
furniture, fixtures and equipment and requested that those deficiencies be
corrected in accordance with the lessee's obligations under the Hotel Lease.
On May 3, 2004, Justice entered into a Settlement Agreement with Felcor to
resolve disputes regarding certain obligations of Felcor and others under the
terms of the Hotel Lease.  Pursuant to the terms of the Settlement Agreement,
Felcor was required to pay to Justice $5,000,000 towards the costs of capital
repairs, replacements and improvements necessary to place the hotel in the
condition required by the Hotel Lease at the end of its term.  Felcor also
agreed to transfer to Justice and terminate its leasehold estate and its option
right under the Hotel Lease, effective June 30, 2004. In addition, the parties
to the Settlement agreed to mutual releases and to cooperate for a smooth
transition of the operations of the Hotel.  The Settlement Agreement was fully
effectuated as of June 30, 2004.

DOW HOTEL COMPANY MANAGEMENT AGREEMENT

With the termination of the Hotel Lease, Justice assumed the role of an owner
operator of the Hotel on July 1, 2004.  On May 19, 2004, Justice entered into a
third party Management Agreement with Dow Hotel Company, LLC, a Washington
limited liability company ("Dow") to operate and manage the Hotel as an agent
of the Partnership, effective July 1, 2004.  The Management Agreement has an
initial term of 10 years, with an option of Justice to extend the original term
for another 10 year period.  The Management Agreement provides for a base
management fee to Dow of up to 2.5% of annual gross operating revenues of the
Hotel and incentive fees not to exceed, in the aggregate, 4% of gross operating
revenues of the Hotel.  The Management Agreement can be terminated by Justice
upon at least 60 days written notice, subject to certain termination fees
during the first year of the Agreement.

On March 25, 2005, the Partnership entered into an amendment of the Dow
Management Agreement to cover the period of time the Hotel was closed for
renovations. Pursuant to that amendment, Dow was entitled to a fee for services
rendered under the Management Agreement in the amount of $15,000 per month,
which was paid as follows: (i) one half ($7,500) payable monthly and (ii) the
other half ($7,500) earned, but payment deferred until the first month that the
Hotel had a positive net operating income sufficient to make such lump sum
payment, but in no event later than April 1, 2006. Management fees for the
fiscal year ended June 30, 2006 were approximately $193,000 and no incentive
management fees were earned for that period.

HOLIDAY HOSPITALITY FRANCHISING AGREEMENT

Effective July 1, 2004, The Partnership entered into a short term franchise
agreement with Holiday Inn Hospitality Franchising, Inc. to continue to operate
the Hotel as a Holiday Inn Select brand hotel, until such time as the
Partnership was able to secure a replacement hotel brand and operate the Hotel
under a new flag.  Under the terms of that Holiday Inn franchise agreement, the
Partnership paid monthly royalties, marketing and reservation fees of 5%, 1.5%
and 1%, respectively, of the Hotel's gross room revenue for the preceding
calendar month. The Holiday Inn franchise agreement terminated on May 31, 2005,
at which time the Hotel was closed for renovations.

                                    -5-
<PAGE>

HILTON HOTELS FRANCHISE LICENSE AGREEMENT

With the termination of the Hotel Lease to Felcor, the Partnership was able to
actively pursue a franchise agreement with a new nationally recognized brand in
an effort to move the Hotel up-market and become more competitive. After
considering and negotiating with several brands, the Partnership entered into a
Franchise License Agreement with Hilton Hotels Corporation (the "Hilton
Franchise Agreement") on December 10, 2004 for the right to operate the Hotel
as a Hilton brand hotel.  The term of the Hilton Franchise Agreement is for 15
years commencing on the opening date of the Hotel, with an option to extend
that Agreement for another five years, subject to certain conditions.

The Partnership will pay monthly royalty fees for the first two years of three
percent of the Hotel's gross room revenue, as defined, for the preceding
calendar month, the third year will be four percent of the Hotel's gross room
revenue, and the fourth year until the end of the term will be five percent of
the Hotel's gross room revenue.  The partnership will also pay a monthly
program fee of four percent of the Hotel's gross room revenue and an
information technology recapture charge of 0.75% of the Hotel's gross revenue.
The amount of the monthly program fee is subject to change; however, the
monthly fee will not exceed five percent of gross room revenue.

Prior to operating the Hotel as a Hilton hotel, the Partnership was required to
make substantial renovations to the Hotel to meet Hilton standards in
accordance with a product improvement plan ("PIP") agreed upon by Hilton and
the Partnership, as well as comply with other brand standards.  That project
included a complete renovation and upgrade of all of the Hotel's guestrooms,
meeting rooms, common areas and restaurant and bar.  As of January 12, 2006 the
Hotel renovation work was substantially completed, at which time Justice
obtained approval from Hilton to open the Hotel as the "Hilton San Francisco
Financial District". The Hotel opened with a limited number of rooms available
to rent, which increased as the Hotel transitioned into full operations by the
end of February 2006.

The total cost of the construction-renovation project of the Hotel was
approximately $36.4 million, which excludes approximately $630,000 in interest
costs incurred during for the construction phase that were capitalized.
To meet those substantial financial commitments, and the costs of operations
during the renovation period and for the first five months when the Hotel
ramped up its operations, the Partnership has relied on additional borrowings
to meet its obligations.  As discussed in Item 2 herein, the Partnership has
been able to secure financing, collateralized by the Hotel, in the aggregate
amount of up to $46,500,000 to meet those commitments. That amount of leverage
and the associated debt service will create additional risk for the Partnership
and its ability to generate cash flows in the future since the Hotel asset has
been virtually debt free for many years.

TEMPORARY CLOSURE OF HOTEL FOR RENOVATIONS

On March 15, 2005, the Partnership announced its decision to close down its
Hotel operations effective, May 31, 2005, to complete the renovations of the
Hotel as required by the Hilton Franchise Agreement.  The Partnership made this
decision because of, among other things, the scope of the work in the common
areas, engineering factors and potential environmental and safety issues which
made it preferable to temporarily close the Hotel portion of the property. The
Hotel was closed for more than seven months before it reopened as the "Hilton
San Francisco Financial District" on January 12, 2006.  The below ground
parking garage and Tru Spa located on the lobby level of the Hotel, both of
which are lessees of the Partnership, remained open during the renovation work.

                                    -6-
<PAGE>

GARAGE LEASE AND OPERATIONS

The garage lease between the Partnership and Evon provides for a monthly rental
of sixty percent (60%) of gross parking revenues with a minimum rent of $19,764
per month.  That lease expires in November 2010.  The lessee is responsible for
insurance, repairs and maintenance, utilities and all taxes assessed against
the improvements to the leased premises. The garage was operated by Ampco
Systems Parking ("Ampco") pursuant to a sublease agreement.  On August 31,
2005, Evon terminated its sublease with Ampco. Effective September 1, 2005, Ace
Parking Management, Inc. ("Ace Parking") became the new parking garage operator
pursuant to a Parking Facility Management Agreement with the garage lessee,
Evon. That agreement is for a period of sixty two months (62) months and
terminates on October 31, 2010, with a five year option to renew. The agreement
can be terminated upon ten (10) days prior written notice of the termination of
Evon's lease of the garage or upon 90 days written notice without cause. The
agreement provides that Evon will pay a management fee to Ace of $2,000 per
month, plus an accounting fee of $250 per month, plus 3% of the annual net
profit, as defined, from the operations of the garage in excess of $100,000.

TRU SPA LEASE

During July 2002, Justice entered into a lease with Tru Spa, LLC, which was
amended effective January 1, 2004.  The lease premises consist of approximately
5,400 square feet of space on the lobby level of the hotel for the construction
and operation of a health and beauty spa.  The term of the lease is for ten
years commencing with the opening of the spa on June 1, 2003, with a five year
option to extend the term.  The spa lease provides for minimum monthly rent of
$11,667, additional rent of $2,072 (up to a total of $250,000 to help defray
certain relocation construction costs) and other tenant fees.  Minimum rental
amounts are subject to adjustment every three years based on any percentage
increase in the Consumer Price Index.  Under the terms of the lease, Justice
was responsible for up to $1,497,586 in leasehold improvements, which were paid
using the partnership's line of credit.  The spa lease is structured to
reimburse the Partnership for those leasehold improvements over the term of the
lease. Due to the certain disruptions of the operations of the spa resulting
from the temporary closing of the Hotel and the renovation work, the
Partnership and Tru Spa entered into lease amendments that would permit Tru Spa
to apply its security deposit of $35,000 to pay its monthly obligations for
June 30, 2005 and July 31, 2005, with the balance to be applied as partial
payment of its August 2005 rent and to provide for a rent free period for the
balance of the August 2005 rent through January 31, 2006.  The Partnership
reserved the right, in its discretion, to require Tru Spa to make an additional
security deposit in the future.  The Partnership believes that the spa
facilities in the Hotel will help it to be more competitive in the future by
providing greater amenities to its guests.

CHINESE CULTURE FOUNDATION LEASE

On March 15, 2005, the Partnership entered into an amended lease with the
Chinese Culture Foundation of San Francisco (the "Foundation") for the third
floor space of the Hotel commonly known as the Chinese Cultural Center. The
amended lease requires the Partnership to pay to the Foundation a monthly event
space fee in the amount of $4,600, adjusted annually based on the local
Consumer Price Index. The term of the amended lease remains the same as the
current lease, expiring on October 17, 2023, with an automatic extension for
another 10 year term if the property continues to be operated as a hotel. This
amendment allowed Justice to incorporate the third floor into the renovation of
the Hotel resulting in a new ballroom for the joint use of the Hotel and new
offices and a gallery for the Chinese Culture Center.

                                    -7-
<PAGE>

COMPENSATION OF GENERAL PARTNERS AND REPOSITIONING FEES

Due to the termination of the Hotel Lease on June 30, 2004, it was necessary
for the Partnership to amend the agreement by which the general partners of
Justice were compensated since the general partners would be taking on new
responsibilities as Justice assumed the role as owner-operator of the Hotel.
Furthermore, the prior agreement was based on a percentage of gross rents,
which the Partnership would no longer be receiving from the Hotel. The expiring
compensation agreement provided that the general partners were entitled to
receive compensation equal to 3% of the annual gross rents of the partnership.
From the first $150,000 of compensation payable to the general partners,
$120,000 was payable to Evon, as the managing general partner, and $30,000 is
payable to Portsmouth as the other general partner.  Any compensation in excess
of the $150,000 was to be split 50/50 between the general partners.

On July 16, 2004, Justice entered into a new General Partner Compensation
Agreement (the "Compensation Agreement"), with an effective date of May 31,
2004. This was done to provide adequate compensation to Evon and Portsmouth and
provide incentives to the general partners to encourage excellence in the
performance of their responsibilities.  The new agreement provides that the
general partners will receive annual base compensation of 1.5% of gross
revenues, with a minimum annual base compensation of $262,500, adjusted for
inflation. From the minimum annual base compensation, 80% will be paid to Evon
for its services as the managing general partner and 20% will be paid to
Portsmouth as the other general partner. Base annual compensation in excess of
the minimum will be payable in equal amounts to Evon and Portsmouth. The
maximum base annual compensation that can be earned by the general partners is
1.5% of $40,000,000 of gross revenues.  The Compensation Agreement also
provides for incentive compensation to the general partners in a sum equal to
the 5.0% of the annual net operating income of Justice, as defined in the Dow
Management Agreement, that is in excess of $7,000,000. Incentive compensation
shall be payable in equal amounts to Evon and Portsmouth.

In addition, the Compensation Agreement provides that the general partners are
to receive a repositioning fee in the aggregate amount of $275,000, to be paid
in equal amounts to Evon and Portsmouth in two installments.  The first
installment of approximately $69,000 to each of Evon and Portsmouth was paid
within 10 days of the execution of the Compensation Agreement with the second
installment to be paid upon the substantial completion of the renovation of the
Hotel.

Due to the expanded scope of the renovation project, the additional time
commitments required of the general partners and the increased value brought to
the Partnership as a result of the repositioning of the Hotel, Justice entered
into an amended and restated compensation agreement with its general partners,
Evon and Portsmouth, effective February 23, 2006. Pursuant to that amended
agreement, Evon and Portsmouth are each to receive a total of $378,000 in
repositioning fees as compensation for their services rendered to Justice with
respect to repositioning the Hotel and restructuring its business and
management subject to certain performance criteria. For fiscal year ended June
30, 2006, a total of $119,000 in repositioning fees was paid to Portsmouth. An
additional $100,000 in repositioning fees has been earned by Portsmouth and
accrued by Justice but not yet paid.

COMPETITION

Until May 31, 2005, the Hotel was operated as a Holiday Inn brand hotel and was
part of Holiday Inn's worldwide reservation system.  The Hotel was designed to
Holiday Inn's specifications to serve both business travelers and tourists and
cater to both individuals and tour groups.  It also handled conferences and
business meetings, having meeting and dining facilities for groups of up to 400

                                    -8-
<PAGE>

people. The hotel had traditionally enjoyed a favorable year-round occupancy
rate, but both occupancy and average daily room rates suffered since fiscal
year ended June 30, 2001.  Newer and more upscale properties opened in or near
the Financial District, which provide greater amenities to its guests, making
it difficult for the Hotel to compete.  Those competitors were better
positioned to attract both the business traveler and tourists. Management
believed that the Hotel could not continue to be competitive under the
conditions it operated under while a Holiday Inn Select brand hotel. The Hotel
was approximately 25 years old, with no major renovations having been made to
the property during that time. By terminating the Hotel Lease with Felcor, and
taking over the operations of the Hotel, the Partnership obtained much greater
ability to direct the future of the Hotel.

The newly opened Hilton San Francisco Financial District hotel has 549 well
appointed guestrooms and luxury suites with bay or city views, featuring large
working desks, ergonomic chairs, wired and wireless high-speed Internet access,
and "The Suite Dreams" beds by Hilton, complete with duvet, down comforter and
jumbo size pillows. The newly redesigned meeting rooms and ballroom will
accommodate meetings and events for up to 500 people with video conferencing
and premium audio/visual equipment. A new business center and fitness center
are additional amenities. The new Hilton hotel also has the only hotel day spa
(Tru Spa) in the Financial District. A redesigned entry way is integrated into
the lobby and management expects the new restaurant "Seven Fifty" and lounge,
with a dramatic fireplace treatment, are expected to bring a new level of
excitement and service to the guests of the hotel. Management believes that the
new Hilton hotel now has the ability to directly compete with all hotels in the
Financial District.

EMPLOYEES

As of June 30, 2006, the Company had three full-time employees.  The employees
of the Company are not part of any collective bargaining agreement, and the
Company believes that its employee relations are satisfactory.

Although the employees of Santa Fe, Portsmouth and Justice are not unionized,
most employees of the Hotel are part of Local 2 of the Hotel Employees and
Restaurant Employees Union ("UNITE HERE"). Following the expiration on August
14, 2004 of the city-wide collective bargaining agreement with Local 2 of UNITE
HERE, the Union voted to authorize a strike against a group of some of the
larger hotels in San Francisco, the San Francisco Multi-Employer Bargaining
Group ("MEG") and negotiations continued with those hotels during a "cooling-
off period". The Hotel is not part of the MEG but is subject to individual
negotiations with Local 2. On September 12, 2006, a tentative agreement was
reached between the MEG and Local 2. That tentative agreement is subject to a
ratification vote by the union members, which is expected to be held before the
end of September 2006.

In conjunction with the temporary closing of the Hotel on May 31, 2005, for
renovation, Dow, acting as an agent for the Hotel, entered into a Memorandum of
Agreement ("MOA") with UNITE HERE on June 17, 2005, regarding certain recall
rights and health and welfare contributions and benefits for existing
employees.  In addition, the MOA provided that all terms of the expired
collective bargaining agreement between the parties were extended through the
closure period of the Hotel and for at least six months following the full
reopening of the Hotel to guests, or until such time as the parties reach a new
contract, whichever is sooner. Based on the Hotel's full formal opening on
February 23, 2006, the terms of the collective bargaining agreement remained in
place through August 13, 2006. Currently there are no discussions between the
Hotel and Local 2 but it is expected that Local 2 will hold up the tentative

                                    -9-
<PAGE>

agreement with the MEG as a model in negotiations with the Hotel. At this time,
it does not appear that UNITE HERE has plans to involve the Hotel in any strike
activity and.  Management has not yet been able to estimate the effect of any
new collective bargaining agreement on the operations of the Hotel.

Certain other employees of the Hotel are members of Stationary Engineers, Local
39 (the "Engineers") or Teamsters, Local 856 (the "Teamsters"). A new
collective bargaining agreement was entered into between the Hotel and the
Engineers on July 16, 2005 and that agreement runs through July 15, 2010. The
Hotel and the Teamsters are covered by a letter of understanding that extends
the existing collective bargaining agreement through August 23, 2006. The
Teamsters have not made a demand for negotiations of the new collective
bargaining agreement and there are currently no outstanding charges or disputes
pending between the parties.

It is expected that the Dow will continue to work with the unions to negotiate
new collective bargaining agreements and to implement any contingency plans, as
may be necessary, to minimize the impact on operations should any union action
be taken against the Hotel in the future.


Item 2. Description of Property

PROPERTIES

As of June 30, 2006, Santa Fe's investments in real property consisted of its
interest in the San Francisco Hotel through its subsidiary Portsmouth, and two
apartment buildings located in Los Angeles, California.

San Francisco, California Hotel.

The newly opened Hilton San Francisco Financial District hotel is owned
directly by the Partnership. The Hotel is centrally located near the Financial
District, one block from the Transamerica Pyramid. The Embarcadero Center is
within walking distance and North Beach is two blocks away.  Chinatown is
directly across the bridge that runs from the hotel to Portsmouth Square Park.
The hotel is a 31-story (including parking garage), steel and concrete, A-frame
building, which has 549 well appointed guest rooms and luxury suites situated
on 22 floors as well as a 5,400 square foot Tru Spa health and beauty spa on
the lobby level.  The third floor houses the Chinese Culture Center and grand
ballroom.  The Hotel has approximately 15,000 square feet of meeting room
space, including the grand ballroom. Other features of the Hotel include a
rooftop swimming pool, 5-storied underground garage and pedestrian bridge
across Kearny Street connecting the hotel and the Chinese Culture Center with
Portsmouth Square Park in Chinatown.  The bridge, built and owned by the
partnership, is included in the lease to the Chinese Culture Center.

The Hotel is located in an area of intense competition from other hotels in the
Financial District. Since the Hotel was just reopened under the Hilton brand
after being closed for more than seven months for a substantial renovation
project, some hotels may be better known to the business and leisure traveler.
It may take some time for the Hotel, now operating as a Hilton, to gain
recognition as a totally upgraded and higher level property after being under
the Holiday Inn brand for almost 25 years.  The Hotel is also somewhat limited
by having only 15,000 square feet of meeting room space. Other hotels, with
greater meeting room space, may have a competitive advantage by being able to
attract larger groups and small conventions. Management, in conjunction with
its management company Dow and Hilton, will make every effort to market the
Hotel as an upscale property to business travelers, leisure customers and small
to medium size groups. While it may take some time for the Hotel to be fully
recognized and reach its full potential, Management believes that the

                                    -10-
<PAGE>

substantial renovations made to the Hotel, coupled with the strength of the
Hilton brand and its Hilton Honors program, have provided the foundation for
the Hotel to meet or exceed all of its competition.

Since the Hotel was just totally renovated, there is no present program for any
further major renovations; however, the Partnership expects to reserve
approximately 3% of gross annual Hotel revenues for calendar year 2006 and 4%
of gross annual Hotel revenues for each year thereafter for future capital
requirements.  In the opinion of management the property is adequately covered
by insurance.

HOTEL FINANCINGS

On July 27, 2005, Justice entered into a first mortgage loan (the "Prudential
Loan") with The Prudential Insurance Company of America in a principal amount
of $30,000,000.  The term of the Loan is for 120 months at a fixed interest
rate of 5.22% per annum. The Loan calls for monthly installments of principal
and interest in the amount of approximately $165,000, calculated on a 360 month
amortization schedule. The Loan is collateralized by a first deed of trust on
the Partnership's Hotel property, including all improvements and personal
property thereon and an assignment of all present and future leases and rents.
The Loan is without recourse to the limited and general partners of Justice.

From the proceeds of the Prudential Loan, the Partnership retired its then
existing line of credit in the approximate amount of $4,500,000, including
accrued interest, and paid off a short term uncollateralized line of credit
from United Commercial Bank in the amount of $2,007,000, including accrued
interest.

On July 27, 2005, Justice also obtained a new $10,000,000 Revolving Line of
Credit ("LOC") from United Commercial Bank. The term of the LOC is for 60
months, expiring on June 30, 2010, at an annual interest rate based on the
index selected by Justice at the time of the request for each advance. The
interest rate will either be a variable rate equal to The Wall Street Journal
Prime Rate or the Libor Rate plus 2%, fixed for the period selected by the
Partnership. The LOC is collateralized by a second deed of trust on the Hotel
property. Interest only is payable monthly with principal and accrued interest
due at maturity. On January 20, 2006, the Partnership obtained a $4,500,000
increase in its LOC, raising the total amount available to the Partnership to
$14,500,000. The increase in the credit line is on the same terms as the
existing line of credit with additional loan and documentation fees of $4,000.
On May 23, 2006, Justice obtained a short term increase of its LOC of an
additional $2,000,000, raising the total amount available to the Partnership to
$16,500,000.  If the short term increase is not paid off by December 31, 2006,
UCB has the right to record a lien on the Hotel property for the additional
$2,000,000. That increase is also on the same terms as the existing LOC, with
additional documentation fees of $1,000. As of June 30, 2006, approximately
$16,000,000 of the LOC was utilized.

The Prudential Loan and the LOC have provided Justice with sufficient financial
resources for the Partnership to complete the substantial renovations to the
Hotel required by its Franchise License Agreement with Hilton and to meet its
debt service requirements and operating capital needs through the reopening of
the Hotel and the period of time necessary to ramp up operations. The Hotel
started to generate net operating income in June 2006.  The Partnership also
believes that there is sufficient equity in the Hotel assets to support future
borrowings if necessary. The Partnership believes that the revenues expected to
be generated from the Hotel operations for the fiscal year beginning July 1,
2006, and in the future, will be sufficient to meet all of its current and
future obligations and financial requirements.

                                    -11-
<PAGE>

Los Angeles, California Apartment Buildings

The property owned by the Company's 55.4% subsidiary, Woodland Village, is a
27-unit apartment complex located Los Angeles, California. The Company's equity
interest in Woodland Village was acquired on September 29, 1999 at a cost of
$4,075,000.  For the year ended June 30, 2006, real estate property taxes were
approximately $51,000.  Depreciation is recorded on the straight-line method
based upon an estimated useful life of 40 years. As of June 30, 2006, the
outstanding mortgage balance was $1,811,000.  The mortgage carries a fixed
interest rate of 7.73% and matures in October 2029.  Woodland Village also has
a $365,000 note from the Company.  The interest rate on the note is fixed at
7.75% and matures in October 2009.  The note was eliminated in consolidation.

The second Los Angeles property, Acanto, which is wholly owned by the Company,
is a two-story apartment building with 2 units.  The property was acquired on
February 1, 2002 at an initial cost of $785,000.  For the period ended June 30,
2006, real estate property taxes were approximately $10,000.  Depreciation
is recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $437,000 at June
30, 2006 and the maturity date of the mortgage is January 2032.  The interest
rate is 6.45%.

Effective August 1, 2005, the Company entered into a Management Agreement with
Century West Properties, Inc. ("Century West") to act as an agent of the
Company to rent and manage both of the Company's residential rental properties
in the Los Angeles, California area. The Management Agreement with Century
West is for a term of twelve months ending on July 31, 2006 and will continue
thereafter on a month-to-month basis, unless terminated upon 30 days prior
written notice. The Management Agreements provide for a monthly fee equal to 4%
of the monthly gross receipts from the properties with resident managers and a
fee of 4 1/2% of monthly gross receipts for properties without resident
mangers.

Woodland Village and Acanto lease units in the apartment buildings on a short-
term basis, with no lease extending beyond one year.  For the year ended June
30, 2006, the economic occupancy (gross potential less rent below market,
vacancy loss, bad debt, discounts and concessions divided by gross potential
rent) for Woodland Village and Acanto was 68% and 91%, respectively.  The
physical occupancy(gross potential rent less vacancy loss divided by gross
potential rent) for the year ended June 30, 2006 for Woodland Village and
Acanto was 95% and 93% respectively.

In the opinion of management, both rental properties are adequately covered by
insurance.


INVESTMENT POLICIES

The most significant real estate investment of the Company is the San Francisco
Hotel through its control of Portsmouth.  The Company will continue to explore
ways to increase the value of Justice Investors and to improve operations of
the Hotel.  The Company has also invested in multifamily residential properties
through its controlling interest in Woodland Village and its 100% owned
subsidiary Acanto.

The Company may also look for new real estate investment opportunities in
hotels, apartments, office buildings and shopping centers.  The acquisition of
any new real estate investments will depend on the Company's ability to find

                                    -12-
<PAGE>

suitable investment opportunities and the availability of sufficient financing
to acquire such investments.  To help fund any such acquisition, the Company
would plan to borrow funds to leverage its investment capital.  The amount of
any such debt will depend on a number of factors including, but not limited to,
the availability of financing and the sufficiency of the acquisition property's
projected cash flows to support the operations and debt service.

The Company also invests from time to time in income producing instruments,
corporate debt and equity securities, mortgage backed securities, and
securities issued by REIT's, where financial benefit could inure to its
shareholders through income and/or capital gain.

The Company's securities investments are made under the supervision of a
Securities Investment Committee of the Board of Directors. The Committee
currently has three members and is chaired by the Company's Chairman of the
Board and President, John V. Winfield.  The Committee has delegated authority
to manage the portfolio to the Company's Chairman and President together with
such assistants and management committees he may engage.  The Committee has
established investment guidelines for the Company's investments.  These
guidelines presently include: (i) corporate equity securities should be listed
on the New York or American Stock Exchanges or the Nasdaq NMS Market; (ii)
securities should be priced above $5.00 per share; and (iii) investment in a
particular issuer should not exceed 5% of the market value of the total
portfolio. The investment policies do not require the Company to divest itself
of investments, which initially meet these guidelines but subsequently fail to
meet one or more of the investment criteria.  Non-conforming investments
require the approval of the Securities Investment Committee.  The Committee has
in the past approved non-conforming investments and may in the future approve
non-conforming investments.  The Securities Investment Committee may modify
these guidelines from time to time.

The Company may also invest, with the approval of the Securities Investment
Committee, in unlisted securities, such as convertible notes, through private
placements including private equity investment funds.  Those investments in
non-marketable securities are carried at cost on the Company's balance sheet as
part of other investments and reviewed for impairment on a periodic basis.  As
of June 30, 2006, the Company had other investments of $2,400,000.

The Company's investment portfolio is diversified with 42 different equity
positions.  The portfolio contains seven individual equity security positions
that are more than 5% of the total equity value of the portfolio, with the
largest representing approximately 12.6% of the total equity value of the
entire portfolio.  The amount of the Company's investment in any particular
issuer may increase or decrease, and additions or deletions to its securities
portfolio may occur, at any time.  While it is the internal policy of the
Company to limit its initial investment in any single equity to less than 5% of
its total portfolio value, that investment could eventually exceed 5% as a
result of equity appreciation or reduction of other positions.  Marketable
securities are stated at market value as determined by the most recently
traded price of each security at the balance sheet date.  As of June 30, 2006,
the market value of the Company's marketable securities was $18,616,000.

As part of its investment strategies, the Company may assume short positions in
marketable securities.  Short sales are used by the Company to potentially
offset normal market risks undertaken in the course of its investing activities
or to provide additional return opportunities.  As of June 30, 2006, the
Company had obligations for securities sold (equities short) of $3,192,000.
The Company has no naked short positions.

                                    -13-
<PAGE>

In addition, the Company may utilize margin for its marketable securities
purchases through the use of standard margin agreements with national brokerage
firms.  The use of available leverage is guided by the business judgment of
management and is subject to any internal investment guidelines, which may be
imposed by the Securities Investment Committee.  The margin used by the Company
may fluctuate depending on market conditions.  The use of leverage could be
viewed as risky and the market values of the portfolio may be subject to large
fluctuations.  As of June 30, 2006, the Company had a margin balance of
$7,629,000.

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO,
John V. Winfield, to keep and retain his services as a direct and active
manager of the Company's securities portfolio.  The terms of that compensation
arrangement is discussed in detail in Item 10 "Executive Compensation" of this
Report.  During the year ended June 30, 2006, no performance based compensation
was earned by the Company's CEO.  During the year ended June 30, 2005, the
Company paid $61,000 to the Company's CEO as performance based compensation
related to the management of the securities portfolio.

As Chairman of the Securities Investment Committee, the Company's President and
Chief Executive Officer, John V. Winfield, directs the investment activity of
the Company in public and private markets pursuant to authority granted by
the Board of Directors.  Mr. Winfield also serves as Chief Executive Officer
and Chairman of Portsmouth and InterGroup and oversees the investment activity
of those companies.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family, Portsmouth and InterGroup
may, at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of the
Chief Executive Officer and his family members, and the resources of Portsmouth
and InterGroup, at risk in connection with investment decisions made on behalf
of the Company.


Item 3.  LEGAL PROCEEDINGS

There are several pending claims against Justice Investors arising out of the
renovation work done on its San Francisco Hotel property. Justice has disputed
the requests for payment submitted by one of its general contractors, Allied
Construction Management, Inc. ("Allied"), in the sum of $2,061,554. Allied has
recorded a mechanic's lien in that amount against the Hotel property, which
lien includes amounts due its subcontractors.

Allied has failed to timely pay a number of its subcontractors and eight of
those subcontractors have also filed mechanics liens in the aggregate amount of
approximately $1,756,016 against the Hotel property. Four of the subcontractors
have filed suit, in San Francisco County Superior Court, against Allied,
Justice and Dow to foreclose their mechanics liens. In one of those actions,
Bacon Plumbing Co., Inc. and Golden Electric Company v. Allied Construction, et
al., Case No. 06-455440, Allied filed a cross-complaint on September 13, 2006,
against Justice, seven sub-contactors and others for breach of contract, open
book account, account stated, quantum meruit, indemnity, declaratory relief and
foreclosure of mechanics lien, alleging damages in the sum of $2,677,432 or
according to proof. The cross-complaint also named Evon and Portsmouth as
general partners of Justice. Allied has also filed a Notice of Related Cases to
consolidate the other actions filed by the subcontractors and has served
Justice with a Demand for Arbitration before the American Arbitration
Association pursuant to the terms of its contract with Justice.

Justice, Evon and Portsmouth dispute the amounts of the claims asserted by
Allied and its subcontractors and will vigorously defend these actions and will
seek indemnification from Allied for the amounts alleged to be due its

                                    -14-
<PAGE>

subcontractors. Since the actions were recently filed and no discovery has
commenced, the outcome of such actions cannot be predicted at this time.
Management believes that there are good and meritorious defenses to these
actions and, based on the documentation submitted to date, that Justice has
established reserves for these contingencies consistent with the terms and
requirements of its contract with Allied. Management also believes that
Portsmouth will not have any individual liability as a result of these actions.


Item 4.  Submission of Matters to a Vote of Shareholders.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.


                             PART II

Item 5.  Market For Common Equity and Related Stockholder Matters.

MARKET INFORMATION

Santa Fe's common stock is quoted on the OTC Bulletin Board under the symbol:
SFEF.OB.  The following table sets forth the range of high and low sales prices
for Santa Fe's common stock for each full quarterly period for the fiscal years
ended June 30, 2006 and June 30, 2005.

Fiscal 2006                             High            Low
-----------                             -----          -----
First Quarter (7/1 to 9/30)            $18.00         $15.35
Second Quarter (10/1 to 12/31)         $18.70         $18.00
Third Quarter (1/1 to 3/31)            $20.00         $18.35
Fourth Quarter (4/1 to 6/30)           $22.00         $16.50


Fiscal 2005                             High            Low
-----------                             -----          -----
First Quarter (7/1 to 9/30)            $13.50         $11.00
Second Quarter (10/1 to 12/31)         $12.00         $11.00
Third Quarter (1/1 to 3/31)            $13.25         $11.46
Fourth Quarter (4/1 to 6/30)           $17.55         $13.40


As of September 12, 2006 the number of holders of record of the Company's
Common Stock was 284.  Such number of owners was determined from the Company's
shareholders records and does not include beneficial owners of the Company's
Common Stock whose shares are held in the names of various brokers, clearing
agencies or other nominees.  There are approximately 405 beneficial
shareholders of the Company's Common Stock.

DIVIDENDS

On February 1, 2000, the Board of Directors of the Company determined that it
did not foresee the Company paying any cash dividends on its Common Stock in
the immediate future.  Instead, it is the intent of the Company to deploy its
capital in a manner to increase its operating activities.

On December 31, 1997, the Company issued 31,800 shares of 6% cumulative,
convertible voting preferred stock (the "Preferred Stock") in exchange for a
55.4% interest in Woodland from InterGroup.  As a result of the Company's two-
for-one stock split, the number of Preferred Shares was adjusted to 63,600.
Each share of Preferred Stock had a liquidation preference of $13.50 and was

                                    15-
<PAGE>

convertible into one share of restricted common stock of the Company at an
exercise price of $13.50 per share, with an eight-year conversion exercise
period.  The preferred stock had voting rights as if converted into common
stock.  On December 31, 2005, InterGroup converted the 63,600 shares of
preferred stock into 63,600 shares of common stock. During the years ended June
30, 2006 and 2005, the Company paid Preferred Stock dividends of $26,000 and
$52,000, respectively.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Santa Fe has no securities authorized for issuance under equity compensation
plans.

PURCHASES OF EQUITY SECURITIES

Santa Fe did not repurchase any of its own securities during the last quarter
of its fiscal year ending June 30, 2006 and does not have any publicly
announced repurchase program.


Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

The Company may from time to time make forward-looking statements and
projections concerning future expectations.  When used in this discussion, the
words "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," "may," "could," "might" and similar expressions, are intended to
identify forward-looking statements.  These statements are subject to certain
risks and uncertainties, such as the impact of terrorism and war on the
national and international economies, including tourism and securities markets,
natural disasters, general economic conditions and competition in the hotel
industry in the San Francisco area, labor relations and labor disruptions,
partnership distributions, the ability to obtain financing at favorable
interest rates and terms, securities markets, regulatory factors, litigation
and other factors discussed below in this Report that could cause actual
results to differ materially from those projected.  Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as to the date hereof.  The Company undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements, which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.


RESULTS OF OPERATIONS

The Company's principal sources of revenue continue to be derived from the
investment of its 68.8% owned subsidiary, Portsmouth, in the Justice Investors
limited partnership ("Justice" or the "Partnership"), rental income from its
investments in multi-family real estate properties and income received from
investment of its cash and securities assets.  Portsmouth has a 50.0% ownership
interest in the Justice and serves as one of the general partners. Justice owns
the land, improvements and leaseholds at 750 Kearny Street, San Francisco,
California, now known as the Hilton San Francisco Financial District hotel (the
"Hotel"). Historically, Justice's most significant income source was derived
from a lease between the Partnership and Felcor Lodging Trust, Inc. ("Felcor")
for the Hotel portion of the property, which Felcor operated as a Holiday Inn
Select brand hotel. Pursuant to a Settlement Agreement entered into on May 3,
2004, Felcor agreed to terminate its lease and surrender possession of the
Hotel to Justice, effective June 30, 2004.

                                    -16-
<PAGE>

Effective July 1, 2004, Justice became the owner-operator of the Hotel, with
the assistance of a Management Agreement with Dow Hotel Company, LLC. ("Dow")
to perform the day-to-day management functions of the Hotel. Effective July 1,
2004, The Partnership entered into a short term franchise agreement with
Holiday Inn Hospitality Franchising, Inc. to continue to operate the Hotel as a
Holiday Inn Select brand hotel, until such time as the Partnership was able to
secure a replacement hotel brand and operate the Hotel under a new flag.

The Partnership also derives income from the lease of the garage portion of the
property to Evon Corporation ("Evon") and from a lease with Tru Spa for a
portion of the lobby level of the Hotel.  Portsmouth also receives management
fees from Justice for actively managing the hotel as a general partner.

On December 10, 2004, Justice entered into a Franchise License Agreement for
the right to operate the Hotel property as a Hilton brand hotel. Prior to
operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards.  The Agreement required that
those renovations be complete and the Hotel commence operations as a Hilton
hotel no later than June 1, 2006. The term of the Agreement is for a period of
15 years commencing on the opening date, with an option to extend the license
term for another five years, subject to certain conditions.

Effective May 31, 2005, the Partnership temporarily closed down its Hotel
operations to complete the renovations of the Hotel as required by the Hilton
Agreement.  The below ground parking garage and Tru Spa located on the lobby
level of the Hotel, both of which are lessees of the Partnership, remained open
during the renovation work.

As of January 12, 2006 the Hotel renovation work was substantially completed,
at which time the Partnership obtained approval from Hilton to open the Hotel
as the "Hilton San Francisco Financial District". The Hotel opened with a
limited number of rooms available to rent, which increased as the Hotel
transitioned into full operations by the end of February 2006.

The newly opened Hilton hotel has 549 well appointed guestrooms and luxury
suites with bay or city views, featuring large working desks, ergonomic chairs,
wired and wireless high-speed Internet access, and "The Suite Dreams" beds by
Hilton, complete with duvet, down comforter and jumbo size pillows. The newly
redesigned meeting rooms and ballroom will accommodate meetings and events for
up to 500 people with video conferencing and premium audio/visual equipment. A
new business center and fitness center are additional amenities. The new Hilton
hotel also has the only hotel day spa (Tru Spa) in the Financial District. A
redesigned entry way is integrated into the lobby and management expects the
new restaurant "Seven Fifty" and lounge, with a dramatic fireplace treatment,
will bring a new level of excitement and service to the guests of the hotel.
Management believes that the new Hilton hotel will now be able to directly
compete with all hotels in the Financial District.

As discussed more fully in the "Financial Condition and Liquidity" section
herein, the Partnership has expended significant amounts of money to renovate
and reposition the Hotel as Hilton. The total cost of the construction-
renovation project of the Hotel was approximately $36.4 million, which excludes
approximately $630,000 in interest costs incurred during for the construction
phase that were capitalized.

                                    -17-
<PAGE>

To meet its substantial financial commitments for the renovation project and
transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet
its obligations. On July 27, 2005, the Partnership obtained a first mortgage
loan from The Prudential Insurance Company of America in a principal amount of
$30,000,000 (the "Prudential Loan"). The term of the Prudential Loan is for 120
months at a fixed interest rate of 5.22% per annum with monthly installments of
principal and interest approximately $165,000.

On July 27, 2005, Justice also obtained a $10,000,000 Revolving Line of Credit
("LOC") from United Commercial Bank ("UCB"). The term of the LOC is for 60
months at an annual interest rate, based on an index selected by Justice at the
time of the advance, equal to the Wall Street Journal Prime Rate or the Libor
Rate plus 2%, fixed for the period selected by the Partnership. The Loc is
collateralized by a second deed of trust on the Hotel property. Interest only
is payable monthly with principal and accrued interest due a maturity. On
January 20, 2006, the Partnership obtained a $4,500,000 increase in its LOC,
raising the total amount available to the Partnership pursuant to $14,500,000.
The increase in the credit line is on the same terms as the existing line of
credit with additional loan and documentation fees of $4,000. On May 23, 2006,
Justice obtained a short term increase of its LOC of an additional $2,000,000,
raising the total amount available to the Partnership to $16,500,000.  If the
short term increase is not paid off by December 31, 2006, UCB has the right to
record a lien on the Hotel property for the additional $2,000,000. That
increase is also on the same terms as the existing LOC, with additional
documentation fees of $1,000. As of June 30, 2006, approximately $16,000,000 of
the LOC was utilized.

Justice does not anticipate paying any partnership distributions until some
time after Hotel operations are fully stabilized under the Hilton brand and net
income and capital requirements warrant such distributions. As a result, the
Company will continue to depend more on the revenues generated from the
investment of its cash and securities assets during that transition period.

Effective February 23, 2006, Justice Investors entered into an amended and
restated compensation agreement with its general partners, Evon and Portsmouth.
Pursuant to that agreement, Evon and Portsmouth are each to receive a total of
$378,500 in repositioning fees as compensation for their services rendered to
Justice with respect to repositioning the Hotel and restructuring its business
and management subject to certain performance criteria. For fiscal year ended
June 30, 2006, a total of $119,000 in repositioning fees was paid to
Portsmouth. An additional $100,000 in repositioning fees has been earned by
Portsmouth and accrued by Justice but not yet paid.

In April 2006, Portsmouth purchased a 0.20% limited partnership interest in
Justice from another limited partner for $180,000, which brought its limited
partnership interest in Justice to exactly 50.0%.

                                    -18-
<PAGE>

Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005

The Company had a net loss of $602,000 for the year ended June 30, 2006
compared to a net loss of $2,300,000 for the year ended June 30, 2005.  The
decrease in the net loss was primarily attributable to a significant change in
the net gains(losses) on marketable securities to net gains of $2,666,000 for
the year ended June 30, 2006 from net losses of $2,188,000 for the year ended
June 30, 2005. The Company's net gains on marketable securities were offset by
an increase in equity in net loss of Justice Investors to $4,373,000 for the
year ended June 30, 2006 from a loss $2,188,000 for the year ended June 30,
2005 and the change in the income(loss) from real estate operations to a loss
of $11,000 from income of $47,000. The Company's net loss was also reduced by
the increase in management fees earned by Portsmouth from Justice Investors to
$271,000 from $121,000.

The Company's equity in net loss of Justice Investors increased to $4,373,000
for year ended June 30, 2006 from $2,188,000 for the year ended June 30, 2005.
For the year ended June 30, 2006, the Justice Investors sustained a total net
loss of $8,601,000 compared to a net loss of $4,221,000 for the year ended June
30, 2005. The increase in that net loss was primarily attributable to greater
losses from the operations of the Hotel, increased general and administrative
expenses for professional services and other costs associated with the
repositioning and reopening of the Hotel, higher interest costs, insurance
costs, property taxes and greater depreciation and amortization expenses
resulting from the renovation of the Hotel.

For the year ending June 30, 2006, Justice had a net loss from Hotel operations
of approximately $3,787,000 on revenues of approximately $9,054,000 compared to
a net operating loss of approximately $1,734,000 on revenues of approximately
$12,930,000 in fiscal 2005. Effective, May 31, 2005, the Partnership elected to
close down its Hotel operations to complete the renovations of the Hotel as
required by the Hilton Franchise Agreement. Since the Hotel did not reopen
until January 12, 2006, less than six months of operating results from the
Hotel are included in fiscal 2006, while for the 2005 fiscal year eleven months
of Hotel operating results were included. The increase in the net loss from
Hotel operations was primarily due to approximately $1,230,000 in start up
costs incurred for the reopening of the Hotel and higher operating expenses,
including property taxes and sales and marketing costs as the Hotel ramped up
its operations.  Garage rent decreased to $945,000 from $1,005,000 primarily
due to the Hotel being closed for almost seven months in fiscal 2006.

Average daily room rates for the Hotel increased to approximately $148 for
fiscal 2006 (for five months of operations) from approximately $90 for fiscal
2005 (for 11 months of operations), while average monthly occupancy rates
decreased to 52% in fiscal 2006 from approximately 65% in fiscal 2005. The
increase in average daily room rates is primarily attributable to the
renovation and repositioning of the Hotel as a Hilton making it possible to
achieve higher room rates. The decrease in average monthly occupancy rates is
primarily attributable to the fact that the Hotel opened with a limited number
of rooms available in January 2006 and did not transition into full operations
until the end of February 2006 and it took several months until the Hotel was
able to reach a level where it began generating net operating income in June
2006. Management understands that such a ramp up period is typical in the
industry for hotels that shut down operations for major renovations, especially
for those hotels that reopen with a different brand.  As a general partner of
Justice, Portsmouth will continue to work diligently with Evon, Dow and Hilton
to improve the operations of the Hotel.

                                    -19-
<PAGE>

As the result of management's increased involvement in overseeing Justice
Investors and the Hotel, management fees from Justice Investors increased to
$271,000 for the year ended June 30, 2006 as compared to $121,000 for the year
ended June 30, 2005.  The increase in the management fees is primarily related
to an additional $150,000 in repositioning fees earned by the Company during
the year ended June 30, 2006.

Net gains(losses) on marketable securities improved significantly to net gains
of $2,666,000 for the year ended June 30, 2006 from net losses of $2,188,000
for the year ended June 30, 2005.  The change was due to the significant
improvement in the performance of Company's investment portfolio during the
year ended June 30, 2006.  For the year ended June 30, 2006, the Company had
net unrealized gains of $2,198,000 and net realized gains $468,000.  For the
year ended June 30, 2005, the Company had net unrealized losses of $3,271,000
and realized gains of $1,083,000.  Gains and losses on marketable securities
and other investments may fluctuate significantly from period to period in the
future and could have a significant impact on the Company's net income.
However, the amount of gain or loss on marketable securities and other
investments for any given period may have no predictive value and variations in
amount from period to period may have no analytical value.  For a more detailed
description of the composition of the Company's marketable securities please
see the Marketable Securities section below.

Dividend and interest income decreased to $344,000 for the year ended June 30,
2006 from $430,000 for the year ended June 30, 2005 as a result of the
decreased investment in income yielding securities during the current fiscal
year 2006.

Margin interest and trading expenses increased to $689,000 for the year ended
June 30, 2006 from $587,000 for the year ended June 30, 2005.  The increase is
primarily due to the increase in margin interest expense to $352,000 for fiscal
2006 as compared to $260,000 for fiscal year 2005.  The increase in margin
interest expense was due to the higher margin interest rates and the higher
average daily margin balances.

Income(loss) from real estate operations changed to a loss of $11,000 for the
year ended June 30, 2006 from income of $47,000 for the year ended June 30,
2006.  During fiscal 2006, rental revenues stayed consistent while operating
expenses increased to $203,000 for the year ended June 30, 2006 from $147,000
for the year ended June 30, 2005.  The increase in property operating expenses
was the result of management's concerted effort to improve the condition of its
apartments and to provide a higher quality service to the current and potential
tenants.

General and administrative expenses increased to $956,000 from $830,000
primarily as the result of the increase in accounting audit fees to $254,000
for fiscal year 2006 from $99,000 for fiscal year 2005.

The provision for income tax benefit decreased to $1,656,000 for the year ended
June 30, 2006 from $2,207,000 for the year ended June 30, 2005 as the result of
the decrease in the loss before income taxes to $2,764,000 from $5,279,000 for
the respective comparable years.

Minority interest benefit decreased to $506,000 for the year ended June 30,
2006 from $772,000 for the year ended June 30, 2005 as a result of the lower
loss incurred by the Company's subsidiary, Portsmouth during the year ended
June 30, 2006 as compared to the year ended June 30, 2005.

                                    -20-
<PAGE>

MARKETABLE SECURITIES

As of June 30, 2006, the Company had investments in marketable equity
securities of $18,616,000.  The following table shows the composition of the
Company's marketable securities portfolio by selected industry groups as of
June 30, 2006.

                                                             % of Total
                                                              Investment
   Industry Group                      Market Value           Securities
   --------------                      ------------           ----------
   Insurance, banks and brokerages     $ 3,249,000               17.4%
   Telecommunications and media          2,849,000               15.3%
   Newspapers and paper mills            2,515,000               13.5%
   Consumer goods and retail             2,161,000               11.6%
   Services                              2,146,000               11.5%
   Technology, internet and computers    1,847,000                9.9%
   REITs and building materials          1,473,000                7.9%
   Pharmaceuticals and healthcare        1,212,000                6.5%
   Automobiles and motor vehicle parts     419,000                2.2%
   Utilities and energy                    306,000                1.6%
   Other                                   439,000                2.6%
                                        ----------              ------
                                       $18,616,000              100.0%
                                        ==========              ======

The Company's investment portfolio is diversified with 42 different equity
positions.  The portfolio contains seven individual equity security positions
that are more than 5% of the total equity value of the portfolio, with the
largest representing approximately 12.6% of the total equity value of the
entire portfolio.  The amount of the Company's investment in any particular
issuer may increase or decrease, and additions or deletions to its securities
portfolio may occur, at any time.  While it is the internal policy of the
Company to limit its initial investment in any single equity to less than 5% of
its total portfolio value, that investment could eventually exceed 5% as a
result of equity appreciation or reduction of other positions.  Marketable
securities are stated at market value as determined by the most recently
traded price of each security at the balance sheet date.

The Company's securities investments are made under the supervision of a
Securities Investment Committee of the Board of Directors. The Committee
currently has three members and is chaired by the Company's Chairman of the
Board and President, John V. Winfield.  The Committee has delegated authority
to manage the portfolio to the Company's Chairman and President together with
such assistants and management committees he may engage.  The Committee has
established investment guidelines for the Company's investments.  These
guidelines presently include: (i) corporate equity securities should be listed
on the New York or American Stock Exchanges or the Nasdaq NMS Market; (ii)
securities should be priced above $5.00 per share; and (iii) investment in a
particular issuer should not exceed 5% of the market value of the total
portfolio. The investment policies do not require the Company to divest itself
of investments, which initially meet these guidelines but subsequently fail to
meet one or more of the investment criteria.  Non-conforming investments
require the approval of the Securities Investment Committee.  The Committee has
in the past approved non-conforming investments and may in the future approve
non-conforming investments.  The Securities investment Committee may modify
these guidelines at any time from time to time.

As part of its investment strategies, the Company may assume short positions in
marketable securities.  Short sales are used by the Company to potentially
offset normal market risks undertaken in the course of its investing activities

                                    -21-
<PAGE>

or to provide additional return opportunities.  As of June 30, 2006, the
Company had obligations for securities sold (equities short) of $3,192,000.
The Company has no naked short positions.

In addition, the Company may utilize margin for its marketable securities
purchases through the use of standard margin agreements with national brokerage
firms.  The use of available leverage is guided by the business judgment of
management and is subject to any internal investment guidelines, which may be
imposed by the Securities Investment Committee.  The margin used by the Company
may fluctuate depending on market conditions.  The use of leverage could be
viewed as risky and the market values of the portfolio may be subject to large
fluctuations.  As of June 30, 2006, the Company had a margin balance of
$7,629,000.

The following table shows the net gain or loss on the Company's marketable
securities and the associated margin interest and trading expenses for the
respective years.


For the year ended June 30,                      2006              2005
                                            -------------     -------------

Net gains(losses) on marketable securities   $ 2,666,000      $ (2,188,000)
Impairment loss on other investments             (16,000)          (84,000)
Dividend and interest income                     344,000           430,000
Margin interest expense                         (352,000)         (260,000)
Trading and management expenses                 (337,000)         (327,000)
                                              ----------        ----------
                                             $ 2,305,000      $ (2,429,000)
                                              ==========        ==========


FINANCIAL CONDITION AND LIQUIDITY

Prior to July 1, 2004, the Company's cash flows were primarily generated
through Portsmouth's general and limited partnership interest in the Justice
Investors limited partnership, which derived its income from its lease with
Felcor and a lease with Evon.  Portsmouth also received monthly limited
partnership distributions from Justice Investors as well as monthly management
fees as a general partner. The Company also receives revenues generated from
the investment of its cash and securities assets and from its rental
properties.  Since the Partnership closed down the operations of the Hotel on
May 31, 2005 and has expended significant amounts of money to renovate and
reposition the Hotel as a Hilton, it will not be paying any monthly limited
partnership distributions until some time after operations commence and
stabilize under the Hilton brand.  As a result, the Company has had to depend
more on the revenues generated from the investment of its cash and securities
assets during that transition period.

Prior to operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards. The total cost of the
construction-renovation project of the Hotel was approximately $36.4 million,
which excludes approximately $630,000 in interests costs incurred during for
the construction phase that were capitalized.

To meet its substantial financial commitments for the renovation project and
transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet
its obligations. On July 27, 2005, Justice entered into a first mortgage loan
(the "Prudential Loan") with The Prudential Insurance Company of America in a

                                    -22-
<PAGE>

principal amount of $30,000,000. The term of the Loan is for 120 months at a
fixed interest rate of 5.22% per annum. The Loan calls for monthly installments
of principal and interest in the amount of approximately $165,000, calculated
on a 360 month amortization schedule. The Loan is collateralized by a first
deed of trust on the Partnership's Hotel property, including all improvements
and personal property thereon and an assignment of all present and future
leases and rents. The Loan is without recourse to the limited and general
partners of Justice.

On July 27, 2005, Justice also obtained a $10,000,000 Revolving Line of Credit
("LOC") from United Commercial Bank ("UCB"). The term of the LOC is for 60
months at an annual interest rate, based on an index selected by Justice at the
time of the advance, equal to the Wall Street Journal Prime Rate or the Libor
Rate plus 2%, fixed for the period selected by the Partnership. The Loc is
collateralized by a second deed of trust on the Hotel property. Interest only
is payable monthly with principal and accrued interest due a maturity. On
January 20, 2006, the Partnership obtained a $4,500,000 increase in its LOC,
raising the total amount available to the Partnership pursuant to $14,500,000.
The increase in the credit line is on the same terms as the existing line of
credit with additional loan and documentation fees of $4,000. On May 23, 2006,
Justice obtained a short term increase of its LOC of an additional $2,000,000,
raising the total amount available to the Partnership to $16,500,000.  If the
short term increase of is not paid off by December 31, 2006, UCB has the right
to record a lien on the Hotel property for the additional $2,000,000. That
increase is also on the same terms as the existing LOC, with additional
documentation fees of $1,000. As of June 30, 2006, approximately $16,000,000 of
the LOC was utilized.

The Prudential Loan and the LOC have provided Justice with sufficient financial
resources for the Partnership to complete the substantial renovations to the
Hotel required by its Franchise License Agreement with Hilton and to meet its
debt service requirements and operating capital needs through the reopening of
the Hotel and the period of time necessary to ramp up operations. The Hotel
started to generate net operating income from its operations in June 2006.  The
Partnership also believes that there is sufficient equity in the Hotel assets
to support future borrowings if necessary. The Partnership believes that the
revenues expected to be generated from the Hotel operations after July 1, 2006
will be sufficient to meet all of its current and future obligations and
financial requirements.

The additional amount of leverage related to the Prudential Loan and the
utilization of the LOC and the associated debt service will create additional
risk for the Partnership and its ability to generate cash flows in the future
since the Hotel asset has been virtually debt free for many years. The
Partnership does not anticipate paying any partnership distributions until some
time after operations stabilize under the Hilton brand and net income and
capital requirements warrant such distributions.  As a result, the Company may
have to depend more on the revenues generated from the investment of its cash
and securities assets during that transition period.

The Company has invested in short-term, income-producing instruments and in
equity and debt securities when deemed appropriate.  The Company's marketable
securities are classified as trading with unrealized gains and losses recorded
through the statement of operations.

Although the Company has suffered a significant decline in hotel revenues and
may be facing a significant period of time without partnership distributions,
management believes that its cash, securities assets, and the cash flows
generated from those assets, will be adequate to meet the Company's current and
future obligations.

                                    -23-
<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off balance sheet arrangements.


CONTRACTUAL OBLIGATIONS

The Company's only contractual obligations and commercial commitments are its
mortgage notes payable.  The annual principal payments on the mortgage notes
payable for the five-year period commencing July 1, 2006 are approximately as
follows:

          Year ending June 30,
          --------------------
                   2007                 $   36,000
                   2008                     38,000
                   2009                     41,000
                   2010                     45,000
                   2011                     48,000
                   Thereafter            2,040,000
                                         ---------
                            Total       $2,248,000
                                         =========


IMPACT OF INFLATION

Hotel room rates are typically impacted by supply and demand factors, not
inflation, since rental of a hotel room is usually for a limited number of
nights.  Room rates can be, and usually are, adjusted to account for
inflationary cost increases.  To the extent that the Hotel is able to adjust
room rates, there should be minimal impact on partnership revenues due to
inflation.  Partnership revenues are also subject to interest rate risks, which
may be influenced by inflation.  For the two most recent fiscal years, the
impact of inflation on the Company's income is not viewed by management as
material.

The Company's residential rental properties provide income from short-term
operating leases and no lease extends beyond one year.  Rental increases are
expected to offset anticipated increased property operating expenses.


CRITICAL ACCOUNTING POLICIES

The Company reviews its long-lived assets, including its investments in rental
properties, and other investments for impairment when circumstances indicate
that a potential loss in carrying value may have occurred.  To the extent that
projected future undiscounted cash flows from the operation of the Company's
hotel property and rental properties are less than the carrying value of the
assets, the carrying value of the assets are reduced to their fair value.  For
other investments, the Company reviews the investment's operating results,
financial position and other relevant factors to determine whether the
estimated fair value of the asset is less than the carrying value of the asset.

Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  Marketable
securities are classified as trading with net change in unrealized gains or
losses included in the statement of operations.

                                    -24-
<PAGE>

Item 7. Financial Statements

INDEX TO FINANCIAL STATEMENTS                                     PAGE

Report of Independent Registered Public Accounting Firm            25

Consolidated Balance Sheet -June 30, 2006                          26

Consolidated Statements of Operations - For
  Year Ended June 30, 2006 and
  Year Ended June 30, 2005                                         27

Consolidated Statements of Shareholders' Equity - For
  Year Ended June 30, 2006 and
  Year Ended June 30, 2005                                         28

Consolidated Statements of Cash Flows - For
  Year Ended June 30, 2006 and
  Year Ended June 30, 2005                                         29

Notes to Consolidated Financial Statements                         30



          REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of Santa Fe Financial Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Santa Fe
Financial Corporation at June 30, 2006, and the results of its operations and
its cash flows for each of the two years in the period ended June 30, 2006 in
conformity with accounting principles generally accepted in the United States
of America.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.  We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP

Irvine, California
September 27, 2006


                                    -25-
<PAGE>

                       SANTA FE FINANCIAL CORPORATION
                         CONSOLIDATED BALANCE SHEET


As of June 30,                                                  2006
                                                            ------------
Assets
  Cash and cash equivalents                                 $    262,000
  Investment in marketable securities                         18,616,000
  Other investments                                            2,400,000
  Investment in Justice Investors                              1,605,000
  Rental properties                                            4,547,000
  Deferred tax asset                                           2,018,000
  Other assets                                                   540,000
                                                              ----------
    Total assets                                            $ 29,988,000
                                                              ==========


Liabilities and Shareholders' Equity

Liabilities
  Due to securities broker                                  $  7,629,000
  Obligations for securities sold                              3,192,000
  Mortgage notes payable                                       2,248,000
  Accounts payable and accrued expenses                          404,000
                                                              ----------
    Total liabilities                                         13,473,000
                                                              ----------
  Minority interest                                            4,611,000
                                                              ----------

Shareholders' equity:
  6% Cumulative, convertible, redeemable at
    the option of the holder, voting preferred
    stock, par value $.10 per share
    Authorized shares - 1,000,000                                      -
  Common stock, par value $.10 per share
    Authorized shares - 2,000,000
    1,339,638 shares issued and 1,241,810 outstanding            134,000
  Additional paid-in-capital                                   8,808,000
  Retained earnings                                            3,913,000
  Treasury stock, at cost, 97,828 shares                        (951,000)
                                                              ----------
    Total shareholders' equity                                11,904,000
                                                              ----------

    Total liabilities and shareholders' equity              $ 29,988,000
                                                              ==========

The accompanying notes are an integral part of the consolidated financial
statements.

                                    -26-
<PAGE>

                      Santa Fe Financial Corporation
                   Consolidated Statements of Operations

For the year ended June 30,                         2006            2005
                                                ----------      ----------
Real estate operations:
  Rental income                                $   441,000    $    440,000
  Property operating expense                      (203,000)       (147,000)
  Mortgage interest expense                       (173,000)       (173,000)
  Depreciation expense                             (76,000)        (73,000)
                                                ----------      ----------
    Income(loss) from real estate operations       (11,000)         47,000
                                                ----------      ----------

  General and administrative expense              (956,000)       (830,000)
                                                ----------      ----------

  Equity in net loss of Justice Investors       (4,373,000)     (2,188,000)
  Management fees from Justice Investors           271,000         121,000
                                                ----------      ----------
                                                (4,102,000)     (2,067,000)
                                                ----------      ----------

  Net gains(losses) on marketable securities     2,666,000      (2,188,000)
  Impairment loss on other investments             (16,000)        (84,000)
  Dividend and interest income                     344,000         430,000
  Margin interest and trading expenses            (689,000)       (587,000)
                                                ----------      ----------
    Total other income(loss)                     2,305,000      (2,429,000)
                                                ----------      ----------
Loss before income taxes and
 minority interest                              (2,764,000)     (5,279,000)

Income tax benefit                               1,656,000       2,207,000
                                                ----------      ----------
Loss before minority interest                   (1,108,000)     (3,072,000)

Minority interest benefit                          506,000         772,000
                                                ----------      ----------
Net loss                                       $  (602,000)    $(2,300,000)

Preferred stock dividend                           (26,000)        (52,000)
                                                ----------      ----------
Loss available to common shareholders          $  (628,000)    $(2,352,000)
                                                ==========      ==========
Basic loss per share                          $      (0.52)    $     (2.00)
                                                ==========      ==========
Weighted average number of shares
  outstanding                                    1,210,187       1,178,210
                                                ==========      ==========


The accompanying notes are an integral part of the consolidated financial
statements.

                                    -27-
<PAGE>

                       SANTA FE FINANCIAL CORPORATION
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
                   Preferred Stock     Common Stock
                   ---------------   --------------------
                                                            Additional
                                                            Paid-In      Retained     Treasury
                   Shares   Amount    Shares     Amount     Capital      Earnings     Stock          Total
                   ------  -------   ---------  ---------   ----------   ----------   ---------   -----------
<S>               <C>       <C>      <C>        <C>        <C>          <C>          <C>         <C>
Balance at
June 30, 2004      63,600   $6,000   1,276,038  $128,000   $8,808,000   $6,893,000   $(951,000)  $14,884,000

Net loss                                                                (2,300,000)               (2,300,000)

Dividend paid
to preferred
shareholders                                                               (52,000)                  (52,000)

                   ------  -------   ---------  ---------  ----------   ----------   ---------   -----------
Balance at
June 30, 2005      63,600   $6,000   1,276,038  $128,000   $8,808,000   $4,541,000   $(951,000)  $12,532,000

Net loss                                                                  (602,000)                 (602,000)

Conversion of     (63,600)  (6,000)     63,600     6,000                                                   -
Preferred Stock
To Common Stock

Dividend paid
to preferred
shareholders                                                               (26,000)                  (26,000)

                   ------  -------   ---------  ---------  ----------   ----------   ---------   -----------
Balance at
June 30, 2006           -        -   1,339,638  $134,000   $8,808,000   $3,913,000   $(951,000)  $11,904,000
                   ======   ======   =========  ========   ==========   ==========   =========   ===========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements
                                    -28-
<PAGE>

                        Santa Fe Financial Corporation
                     Consolidated Statements of Cash Flows


For the year ended June 30,                            2006          2005
                                                    ----------    ----------
Cash flows from operating activities:
  Net loss                                         $  (602,000)  $(2,300,000)
  Adjustments to reconcile net loss
   to net cash provided by(used in) operating
   activities:
    Equity in net loss of Justice Investors          4,373,000     2,188,000
    Net unrealized (gains)losses on marketable
     securities                                     (2,198,000)    3,271,000
    Impairment loss on other investments                16,000        84,000
    Minority interest                                 (506,000)     (772,000)
    Depreciation expense                                76,000        73,000
    Changes in operating assets and liabilities:
      Investment in marketable securities           (3,472,000)   10,530,000
      Other investments                             (1,585,000)       81,000
      Other assets                                     254,000      (478,000)
      Accounts payable and accrued expenses            201,000      (678,000)
      Deferred income tax                           (1,603,000)   (1,260,000)
      Due to securities broker                       4,524,000    (7,097,000)
      Obligations for securities sold                  951,000    (3,672,000)
                                                    ----------    ----------
  Net cash provided by(used in) operating
   Activities                                          429,000       (30,000)
                                                    ----------    ----------
Cash flows from investing activities:
  Investment in Justice Investors                     (180,000)            -
                                                    ----------    ----------
  Net cash used in investing activities               (180,000)            -
                                                    ----------    ----------
Cash flows from financing activities:
  Principal payments on mortgage payable               (33,000)      (31,000)
  Dividends paid to preferred shareholders             (26,000)      (52,000)
                                                    ----------    ----------
  Net cash used in financing activities                (59,000)      (83,000)
                                                    ----------    ----------
Net increase(decrease) in cash and cash
  equivalents                                          190,000      (113,000)

Cash and cash equivalents at beginning of period        72,000       185,000
                                                    ----------    ----------
Cash and cash equivalents at end of period         $   262,000   $    72,000
                                                    ==========    ==========
Supplemental information
  Net income tax refunds                           $   467,000   $     4,000
                                                    ==========    ==========
  Interest paid                                    $   524,000   $   461,000
                                                    ==========    ==========


The accompanying notes are an integral part of the consolidated financial
statements.

                                    -29-

                           SANTA FE FINANCIAL CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Santa Fe Financial Corporation ("Santa Fe" or the "Company") was incorporated
under the name of Tri Financial Corporation in the State of Nevada on July 25,
1967 as a wholly owned subsidiary of Crateo, Inc, a public company.  On October
31, 1969, Crateo issued a one-for-one stock dividend of all of its shares of
Tri Financial to its common shareholders.  On September 17, 1970, the name of
the Corporation was changed to Santa Fe Financial Corporation.

The Company's operations primarily consist of managing a hotel property through
the interest of its 68.8%-owned subsidiary, Portsmouth Square, Inc.
("Portsmouth"), in Justice Investors ("Justice" or the "Partnership") and its
rental properties. The Company also derives income from the investment of its
cash and securities assets.  On December 31, 1997, the Company acquired a
controlling 55.4% interest in Intergroup Woodland Village, Inc. ("Woodland
Village") from a related party, The InterGroup Corporation ("InterGroup"),
which controls approximately 78% of the voting stock of the Company.  Woodland
Village's major asset is a 27-unit apartment complex located in Los Angeles,
California. The Company also owns a two-unit apartment building in Los Angeles,
California.

Portsmouth's primary business is conducted through its general and limited
partnership interest in Justice Investors, a California limited partnership
("Justice" or the "Partnership") In April 2006, Portsmouth purchased a 0.20%
limited partnership interest in Justice from another limited partner for
$180,000, which brought Portsmouth's limited partnership interest in Justice to
exactly 50.00%. Justice owns the land, improvements and leaseholds at 750
Kearny Street, San Francisco, California, formerly known as the Holiday Inn
Select Downtown & Spa.  Historically, Justice's most significant income source
was a lease between the Partnership and Felcor Lodging Trust, Inc.("Felcor")
for the Hotel portion of the property.  Pursuant to a Settlement Agreement
entered into on May 3, 2004, Felcor agreed to terminate its lease and surrender
possession of the Hotel to Justice, effective June 30, 2004.

With the termination of the Hotel Lease, Justice assumed the role of an owner
operator of the Hotel on July 1, 2004.  On May 19, 2004, Justice entered into a
third party Management Agreement with Dow Hotel Company to operate and manage
the Hotel as an agent of the Partnership, effective July 1, 2004. On December
10, 2004, the Partnership entered into a Franchise License Agreement with
Hilton Hotels Corporation (the "Hilton Franchise Agreement") for the right to
operate the Hotel as a Hilton brand hotel.  Prior to operating as a Hilton, the
Partnership was required to make substantial renovations to the Hotel. The
Partnership elected to shut down the operations of the Hotel, effective May 31,
2005, to complete those renovations. The Hotel renovation work was
substantially completed on January 12, 2006 at which time the Partnership
obtained approval from Hilton to open the Hotel as the "Hilton San Francisco
Financial District". The Hotel opened with a limited number of rooms available
to rent, which increased as the Hotel transitioned into full operations by the
end of February 2006.

The Partnership also derives income from the lease of the garage portion of the
property to Evon Corporation and from a lease of a portion of the lobby of the
Hotel to Tru Spa.  Portsmouth also derives revenue from management fees from
Justice for actively managing the hotel as a general partner and from the
investment of its cash and securities assets.

                                    -30-
<PAGE>

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all controlled subsidiaries. All significant inter-company transactions and
balances have been eliminated.

Cash Equivalents

Cash equivalents consist of highly liquid investments with an original maturity
of three months or less when purchased and are carried at cost, which
approximates fair value.

Investment in Marketable Securities

Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  Marketable
securities are classified as trading securities with all unrealized gains and
losses on the Company's investment portfolio recorded through the statement of
operations.

Other Investments

Other investments in non-marketable securities are carried at cost on the
Company's balance sheet as part of other investments and reviewed for
impairment on a periodic basis.

Due to Securities Broker

Various securities brokers have advanced funds to the Company for the purchase
of marketable securities under standard margin agreements. These advanced funds
are recorded as a liability.

Obligations for Securities Sold

Obligation for securities sold represents the fair market value of shares sold
with the promise to deliver that security at some future date and the fair
market value of shares underlying the written call options with the obligation
to deliver that security when and if the option is exercised.  The obligation
may be satisfied with current holdings of the same security or by subsequent
purchases of that security.  Unrealized gains and losses from changes in the
obligation are included in the statement of operations.

Rental Properties

Rental properties are stated at cost.  Depreciation of rental property is
provided on the straight-line method based upon estimated useful lives of 5 to
40 years for buildings and improvements and 5 to 10 years for equipment.
Expenditures for repairs and maintenance are charged to expense as incurred and
major improvements are capitalized.

In accordance with Statement of Financial Accounting Standards No. 144 (SFAS
144), "Accounting for Impairment or Disposal of Long-Lived Assets", the Company
reviews its rental property assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  If expected future cash flows (undiscounted and excluding
interest costs) are less than the carrying value of the rental asset, the asset
is written down to its fair value.  The estimation of expected future net cash
flows is inherently uncertain and relies to a considerable extent on
assumptions regarding current and future economic and market conditions, and

                                    -31-
<PAGE>

the availability of capital. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis, the
changes could result in an adjustment to the carrying amount of the long-lived
asset. No impairment losses on the investment in real estate have been recorded
for the year ended June 30, 2006 and 2005.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, marketable securities,
amounts due to securities broker and obligations for securities sold
approximates fair value.  The fair value of mortgage notes payable is estimated
using discounted cash flows of future payments based on the borrowing rates
available to the Company for debt with similar terms and maturities.

Treasury Stock

The Company records the acquisition of treasury stock under the cost method.

Revenue Recognition

The major source of the Company's revenue was through its 50% interest in
Justice Investors, a limited partnership which owns and leases a hotel in San
Francisco, California in which the Company's subsidiary, Portsmouth, is both a
limited and general partner.  Portsmouth and the Company account for the
investment under the equity method.  Portsmouth records 50% of any loss or
income from Justice Investors on a quarterly basis and this amount is disclosed
on the statement of operations under equity in net income(loss) of Justice
Investors.

Rental income is recognized when earned.  Revenue recognition from apartment
rentals commences when an apartment unit is placed in service and occupied by a
rent-paying tenant.  Apartment units are leased on a short-term basis, with no
lease extending beyond one year.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.  The
computation of diluted earnings per share is similar to the computation of
basic earnings per share except that the weighted-average number of common
shares is increased to include the number of additional common shares that
would have been outstanding if potential dilutive common shares had been
issued.  The Company's only potentially dilutive common shares are the 6%
cumulative, convertible, voting preferred stock.  On December 31, 2005, the
63,600 shares of preferred stock were converted to 63,600 shares of common
stock.  As of June 30, 2006, the Company did not have any potentially dilutive
common shares.  As of June 30, 2005, the voting preferred stock was considered
dilutive, however, the Company had a net loss, and accordingly the basic and
diluted earnings per share for the year were the same.

Use of Estimates

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

                                    -32-
<PAGE>

of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.  Actual results could differ from
those estimates.

Income Taxes

Deferred income taxes are determined using the liability method.  A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates, which will be in effect when these differences reverse.

Environmental Remediation Costs

Liabilities for environmental remediation costs are recorded and charged to
expense when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.  Recoveries of such costs are recognized when
received. As of June 30, 2006, there were no liabilities for environmental
remediation.

The Company adopted Interpretation No. 47, "Accounting for Conditional Asset
Retirement Obligations - an Interpretation of FASB Statement No. 143" ("FIN
47") during the fiscal year ended June 30, 2006.  FIN 47 clarifies that the
term conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the Company.  The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the timing and
(or) method of settlement. Accordingly, the Company is required to recognize a
liability for the fair value of a conditional asset retirement obligation if
the fair value of the liability can be reasonably estimated.  The adoption of
FIN 47 did not have any impact on the Company's balance sheet as of June 30,
2006 or its statements of operations or its statements of cash flows for the
years ended June 30, 2006 and June 30, 2005.

Reclassifications

Certain prior year balances have been reclassified to conform with the current
year presentation.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes." This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's financial
statements in accordance with FASB Statement No. 109, "Accounting for Income
Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Guidance is also provided on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is in the process of evaluating
the impact, if any, of FIN 48 on its consolidated financial statements.

                                    -33-
<PAGE>

NOTE 2 - INVESTMENT IN JUSTICE INVESTORS

One of the Company's principal sources of revenue is derived from the
management of its 68.8%-owned subsidiary Portsmouth.  Portsmouth has a 50%
interest in Justice Investors, a California limited partnership ("Justice" or
the "Partnership") and also serves as one of the two general partners. The
Company's  investment in Justice is recorded on the equity basis. The other
general partner, Evon Corporation ("Evon"), serves as the managing general
partner of Justice.  Justice owns the land, improvements and leaseholds now
known as the Hilton San Francisco Financial District, a 549-room hotel in San
Francisco, California (the "Hotel").

All significant partnership decisions require the active participation and
approval of both general partners.  The Company and Evon jointly consult and
determine the amount of partnership reserves and the amount of cash to be
distributed to the limited partners. Pursuant to the terms of the partnership
agreement, voting rights of the partners are determined according to the
partners' entitlement to share in the net profit and loss of the partnership.
The Company is not entitled to any additional voting rights by virtue of its
position as a general partner.

The partnership agreement also provides that no portion of the partnership real
property can be sold without the written consent of the general and limited
partners entitled to more than 72% of the net profit.

Historically, Justice's most significant income source was a lease between the
Partnership and Felcor Lodging Trust, Inc. ("Felcor") for the Hotel portion of
the property.  Pursuant to a Settlement Agreement entered into on May 3, 2004,
Felcor agreed to terminate its lease and surrender possession of the Hotel to
Justice, on June 30, 2004.  Effective July 1, 2004, Justice became the owner-
operator of the Hotel, with the assistance of a Management Agreement with Dow
Hotel Company, LLC. ("Dow") to perform the day-to-day management functions of
the Hotel. The Partnership also derives income from the lease of the garage
portion of the property to Evon and from a lease on the lobby level of the
Hotel to Tru Spa.  The Company also derives revenue from management fees from
Justice for actively managing the hotel as a general partner.

On December 10, 2004, Justice entered into a Franchise License Agreement for
the right to operate the Hotel property as a Hilton brand hotel. Prior to
operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards.  The Agreement required that
those renovations be complete and the Hotel commence operations as a Hilton
hotel no later than June 1, 2006. The term of the Agreement is for a period of
15 years commencing on the opening date, with an option to extend the license
term for another five years, subject to certain conditions.

On March 15, 2005, the Partnership announced its decision to close down its
Hotel operations on or about June 1, 2005 to complete renovations of the Hotel
as required by the Hilton Agreement.  The below ground parking garage and Tru
Spa located on the lobby level of the Hotel, both of which are lessees of the
Partnership, remained open during the renovation work. The Hotel renovation
work was substantially completed on January 12, 2006 at which time the
Partnership obtained approval from Hilton to open the Hotel as the "Hilton San
Francisco Financial District". The Hotel opened with a limited number of rooms
available to rent, which increased as the Hotel transitioned into full
operations by the end of February 2006.

The total cost of the construction-renovation project of the Hotel was
approximately $36.4 million, which excludes approximately $630,000 in interest
costs incurred during for the construction phase that were capitalized.

                                    -34-
<PAGE>

The Company amortizes on a straight line basis the step up in the asset values
which represents the excess purchase price over the underlying book value and
is allocable to the depreciable assets of its investment in Justice Investors
over 40 years, which approximates the remaining life of the primary asset, the
hotel building.

On July 14, 2005, the Financial Accounting Standards Board directed Staff
Position (FSP) SOP 78-9-1, "Interaction of AICPA Statement of Position 78-9 and
EITF Issue No. 04-5" to amend the guidance in AICPA Statement of Position 78-9,
"Accounting for Investments in Real Estate Ventures" (SOP 78-9) to be
consistent with the consensus in Emerging Issues Task Force Issue No. 04-5
"Determining Whether a General Partner, or General Partners as a Group,
Controls a Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights" (Issue 04-5). FSP SOP 78-9-1 eliminated the concept of
"important rights" in paragraph .09 of SOP 78-9 and replaces it with the
concepts of "kick out rights" and "substantive participating rights" as defined
in Issue 04-5.

Under the amendment to paragraph .09 of SOP 78-9 the general partners of a
limited partnership should be deemed to control a limited partnership; however,
the rights of the limited partners may overcome that presumption of control.
The guidance in EITF Issue No. 04-5 should be used to determine whether the
rights of the limited partners overcome the presumption of control by the
general partners. The presumption of control is not overcome by the rights of
the limited partners and if a single general partner controls the limited
partnership, that general partner should consolidate the limited partnership
and apply the principles of accounting applicable for investments in
subsidiaries. For existing partnership agreements such as Justice Investors,
the guidance should be applied in financial statements issued for the first
reporting period in the fiscal years beginning after December 15, 2005 and
early application is encouraged.

During the fiscal quarter ended March 31, 2006, Portsmouth conducted an
assessment of its general and limited interest in Justice Investors under the
new guidance provided by SOP 78-9-1. The Company determined that, under the
limited partnership agreement, the limited partners of Justice do not have
either "kick out rights" to remove Portsmouth as a general partner or
"substantive participating rights" to direct the business of the Partnership.
Significant in that assessment is the fact that the limited partners of Justice
do not have the ability to dissolve (liquidate) the Partnership and effectively
remove the general partners without the participation and consent of
Portsmouth's 50.0% limited partnership interest since any action to sell the
Partnership real property and dissolve the Partnership requires the approval of
partners entitled to more than 72% of the net profit of the Partnership. Based
on its assessment, Portsmouth has concluded that rights of the limited partners
under the Partnership agreement do not overcome the presumption that
Portsmouth, as a general partner and a significant limited partner, controls
the Partnership in accordance with guidance set forth in FSP SOP 78-9-1. Thus,
Portsmouth should consolidate Justice and apply the principles of accounting
applicable for investments in subsidiaries due to its substantial limited
partnership interest and general partnership rights.

                                    -35-
<PAGE>

Condensed financial statements for Justice Investors are as follows:

                            JUSTICE INVESTORS
                         CONDENSED BALANCE SHEET

As of June 30,                                                 2006
                                                            ----------
Assets
Cash                                                      $  2,352,000
Other assets                                                 2,057,000
Property, plant and equipment, net of
  accumulated depreciation of $14,814,000                   42,146,000
Land                                                         1,124,000
                                                            ----------
    Total assets                                          $ 47,679,000
                                                            ==========
Liabilities and partners' capital
Total current liabilities                                 $  6,647,000
Long term debt                                              45,719,000
Partners' capital deficit                                   (4,687,000)
                                                            ----------
    Total liabilities and partners' capital               $ 47,679,000
                                                            ==========


                                 JUSTICE INVESTORS
                        CONDENSED STATEMENTS OF OPERATIONS

For the year ended June 30,                    2006            2005
                                            ----------      ----------
Hotel revenue                            $   9,054,000    $ 12,930,000
Garage rent                                    945,000       1,005,000
Other income(loss)                          (2,195,000)         53,000
Operating expenses                         (16,405,000)    (16,218,000)
Loss on disposition of assets                        -      (1,991,000)
                                            ----------      ----------
Net loss                                 $  (8,601,000)   $ (4,221,000)
                                            ==========      ==========


NOTE 3 - INVESTMENT IN MARKETABLE SECURITIES AND OTHER INVESTMENTS

The Company's investment portfolio consists primarily of corporate equities.
The Company has also invested in income producing securities, which may include
interests in real estate based companies and REITs, where financial benefit
could inure to its shareholders through income and/or capital gain.

At June 30, 2006, all of the Company's marketable securities are classified as
trading securities.  In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the change in the unrealized gains
and losses on these investments are included in the statement of operations.
Trading securities are summarized as follows:

<TABLE>
As of June 30, 2006
                             Gross         Gross             Net             Market
Investment   Cost        Unrealized Gain Unrealized Loss  Unrealized Gain     Value
---------- -----------   --------------- ---------------  ---------------  ------------
<S>        <C>            <C>             <C>               <C>            <C>
Corporate
Equities   $15,295,000    $ 4,044,000     ($  723,000)      $3,321,000     $18,616,000

</TABLE>

                                    -36-
<PAGE>

As of June 30, 2006, the Company had $348,000 of unrealized losses related to
securities held for over one year.

As part of the investment strategies, the Company may assume short positions
against its long positions in marketable securities.  Short sales are used by
the Company to potentially offset normal market risks undertaken in the course
of its investing activities and/or to provide additional return opportunities.
The Company has no naked short positions.  As of June 30, 2006, the Company had
obligations for securities sold (equities short) of $3,192,000.

Net gains on marketable securities on the statement of operations are comprised
of realized and unrealized gains.  Below is the composition of the two
components for the year ended June 30, 2006 and 2005, respectively.

For the year ended June 30,                           2006             2005
                                                  -----------      -----------
Realized gains on marketable securities           $   468,000      $ 1,083,000
Unrealized gains(losses) on marketable securities   2,198,000       (3,271,000)
                                                  -----------      -----------
Net gains(losses) on marketable securities          2,666,000      $(2,188,000)
                                                  ===========      ===========

NOTE 4 - RENTAL PROPERTIES

The Company owns and operates a 27-unit and 2-unit multi-family apartment
complex located in Los Angeles, California. Units are leased on a short-term
basis, with no lease extending beyond one year.  At June 30, 2006, rental
properties included the following:

  Land                                      $ 2,430,000
  Buildings, improvements and equipment       2,566,000
  Accumulated depreciation                    (449,000)
                                              ---------
                                             $4,547,000
                                              =========


NOTE 5 - MORTGAGE NOTES PAYABLE

At June 30, 2006, the balance on mortgage notes payable was $2,248,000.
Included in mortgage notes payable balance are two mortgages in the amounts of
$1,811,000 and $437,000.  The mortgages are collateralized by trust deeds on
the respective apartment complexes. The fixed interest rates on the $1,811,000
note and the $437,000 note are 7.73% and 6.45% respectively.  The notes mature
in October 2029 and February 2032, respectively.

The annual principal payments on the mortgages for the five-year period
commencing July 1, 2006 are approximately as follows:

          Year ending June 30,
          --------------------
                   2007                 $   36,000
                   2008                     38,000
                   2009                     41,000
                   2010                     45,000
                   2011                     48,000
                   Thereafter            2,040,000
                                         ---------
                            Total       $2,248,000
                                         =========

                                    -37-
<PAGE>

NOTE 6 - INCOME TAXES

The Company and Portsmouth file separate tax returns for both federal and state
purposes.  The provision for income tax benefit (expense) consists of the
following:

For the year ended June 30,             2006          2005
                                     ----------    ----------
 Federal
   Current                          $    (1,000)  $         -
   Deferred                           1,463,000     1,712,000
                                     ----------    ----------
                                      1,462,000     1,712,000
                                     ----------    ----------
State
   Current                               53,000        38,000
   Deferred                             141,000       457,000
                                     ----------    ----------
                                        194,000       494,000
                                     ----------    ----------
                                    $ 1,656,000   $ 2,207,000
                                     ==========    ==========


A reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:

For the year ended June 30,               2006          2005
                                         ------        ------
  Statutory federal tax rate              34.0%         34.0%
  State income taxes, net of
   federal tax benefit                     5.3%          5.7%
  Other                                   20.6%          2.1%
                                         ------        ------
                                          59.9%         41.8%
                                         ======        ======


The components of the Company's deferred tax assets and (liabilities) as of
June 30, 2006 are as follows:

  Deferred tax assets
    Net operating loss carryforwards                $ 4,610,000
    Capital loss carry-over                             295,000
    Constructive sales                                  295,000
    Wash sales                                           47,000
    Other                                                 9,000
                                                     ----------
                                                      5,256,000
  Deferred tax liability
    Unrealized gains on marketable securities        (1,423,000)
    Deferred gains on real estate sale                 (912,000)
    Book/tax basis difference in the investment
     in Justice Investors                              (831,000)
    State taxes                                         (72,000)
                                                     ----------
                                                     (3,238,000)
                                                     ----------
  Net deferred tax asset                            $ 2,018,000
                                                     ==========

                                    -38-
<PAGE>

As of June 30, 2006, the Company had net operating loss carryforwards of
$11,445,000 and $8,132,000 for federal and state purposes, respectively.  These
carryforwards begin to expire in varying amounts through 2026.  The Company
also has capital loss carry-overs for federal and state purposes of $660,000
and $802,000, respectively.  These carry-overs expire in varying amounts
through 2011.


NOTE 7 - SEGMENT INFORMATION

The Company operates in three reportable segments, the operations of its multi-
family residential properties, the operation of Justice Investors, and the
investment of its cash and securities assets. These three operating segments,
as presented in the financial statements, reflect how management internally
reviews each segment's performance.  Management also makes operational and
strategic decisions based on this same information.

Information below represents reporting segments for the year ended June 30,
2006 and 2004.  Operating income for rental properties consist of rental
income.  Operating income from Justice Investors consists of the operations of
the hotel and garage included in the equity in net income of Justice Investors.
Operating income for investment transactions consist of net investment gains
and dividend and interest income.

<TABLE>
                                 REAL ESTATE
                           -------------------------
YEAR ENDED                    RENTAL       JUSTICE     INVESTMENT
JUNE 30, 2006              PROPERTIES     INVESTORS   TRANSACTIONS     OTHER          TOTAL
                           -----------   -----------   -----------   -----------   ------------
<S>                        <C>           <C>          <C>           <C>            <C>
Operating income           $   441,000   $(4,102,000) $  2,994,000  $          -   $   (667,000)
Operating expenses            (203,000)            -      (689,000)            -       (892,000)
                           -----------   -----------   -----------   -----------   ------------
                               238,000    (4,102,000)    2,305,000             -     (1,559,000)
Mortgage interest expense     (173,000)            -             -             -       (173,000)
Depreciation                   (76,000)            -             -             -        (76,000)
General and administrative
  expenses                           -             -             -      (956,000)      (956,000)
Income tax benefit                   -             -             -     1,656,000      1,656,000
Minority interest                    -             -             -       506,000        506,000
                           -----------   -----------   -----------   -----------   ------------
Net income(losses)         $   (11,000)  $(4,102,000) $  2,305,000   $ 1,206,000   $   (602,000)
                           ===========   ===========   ===========   ===========   ============
Total Assets               $ 4,547,000   $ 1,605,000  $ 21,016,000   $ 2,820,000   $ 29,988,000
                           ===========   ===========   ===========   ===========   ============
</TABLE>

                                    -39-
<PAGE>

<TABLE>
                                 REAL ESTATE
                           -------------------------
YEAR ENDED                   RENTAL        JUSTICE     INVESTMENT
JUNE 30, 2005              PROPERTIES     INVESTORS   TRANSACTIONS     OTHER          TOTAL
                           -----------   -----------   -----------   -----------   ------------
<S>                        <C>           <C>           <C>          <C>            <C>
Operating income           $   440,000   $(2,067,000) $ (1,842,000) $          -   $ (3,469,000)
Operating expenses            (147,000)            -      (587,000)            -       (734,000)
                           -----------   -----------   -----------   -----------   ------------
                               293,000    (2,067,000)   (2,429,000)            -     (4,203,000)

Mortgage interest expense     (173,000)            -             -             -       (173,000)
Depreciation                   (73,000)            -             -             -        (73,000)
General and administrative
  expenses                           -             -             -      (830,000)      (830,000)
Income tax benefit                   -             -             -     2,207,000      2,207,000
Minority interest                    -             -             -       772,000        772,000
                           -----------   -----------   -----------   -----------   ------------
Net income(losses)         $    47,000   $(2,067,000) $ (2,429,000)  $ 2,149,000   $ (2,300,000)
                           ===========   ===========   ===========   ===========   ============
Total Assets               $ 4,623,000   $ 5,798,000  $ 13,777,000   $ 1,281,000   $ 25,479,000
                           ===========   ===========   ===========   ===========   ============
</TABLE>


NOTE 8 - SHAREHOLDERS' EQUITY

On December 31, 1997, the Company issued 31,800 shares of 6% cumulative,
convertible voting preferred stock (the "Preferred Stock")in exchange for a
55.4% interest in Woodland Village from InterGroup.  As a result of the
Company's two-for-one stock split, the number of Preferred Shares was adjusted
to 63,600.  Each share of Preferred Stock has a liquidation preference of
$13.50 and is convertible into one share of restricted common stock of the
Company at an exercise price of $13.50 per share, with an eight-year conversion
exercise period.  The preferred stock has voting rights as if converted into
common stock.  On December 31, 2005, the 63,600 shares of preferred stock were
converted to 63,600 shares of common stock.


NOTE 9 - RELATED PARTY TRANSACTIONS

As of June 30, 2006, InterGroup owned approximately 74% of the Company's
outstanding common stock.  In addition, the Chairman and Chief Executive
Officer of InterGroup, who is also the Company's Chairman and Chief Executive
Officer, owned approximately 4% of the Company's outstanding voting stock as of
June 30, 2006.  Effective June 30, 1998, the Company's Chairman and Chief
Executive Officer entered into a voting trust agreement with InterGroup, giving
InterGroup the power to vote the shares that he owns in the Company.  As a
result of that agreement, InterGroup has the power to vote approximately 78% of
the voting shares of the Company.

The InterGroup Corporation allocates corporate expenses to the Company and its
subsidiary based on management's estimate of the pro rata utilization of
resources.  During the years ended June 30, 2006 and 2005, the Company and
Portsmouth made payments to InterGroup of approximately $160,000 and $167,000,
respectively, for administrative costs and reimbursement of direct and indirect
costs associated with the management of the Companies and their investments,
including the partnership asset.

For the years ended June 30, 2006 and 2005, the Company paid preferred stock
dividends of $26,000 and $52,000, respectively, to InterGroup.

                                    -40-
<PAGE>

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO to
keep and retain his services as a direct and active manager of the Company's
securities portfolio.  Pursuant to the criteria established by the Board, Mr.
Winfield is entitled to performance based compensation for his management of
the Company's securities portfolio equal to 20% of all net investment gains
generated in excess of the performance of the S&P 500 Index.  Compensation
amounts are calculated and paid quarterly based on the results of the Company's
investment portfolio for that quarter.  Should the Company have a net
investment loss during any quarter, Mr. Winfield would not be entitled to any
further performance-based compensation until any such investment losses are
recouped by the Company.  On February 26, 2004, the Board of Directors amended
the performance threshold to require an annualized return equal to the Prime
Rate of Interest (as published in the Wall Street Journal) plus 2% instead of
the S&P 500 Index, effective with the quarterly period commencing January 1,
2004.  During the year ended June 30, 2006, Mr. Winfield did not receive any
performance based compensation.  During the year ended June 30, 2005, Mr.
Winfield was paid performance based compensation of $61,000. This performance
based compensation program may be further modified or terminated at the
discretion of the Board.

All of the Company's Directors serve as directors of InterGroup and all three
of the Company's Directors serve on the Board of Portsmouth.

                                     -41-
<PAGE>


Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.


Item 8A. Controls and Procedures.

(a) Disclosure Controls and Procedures.

The Company's management, with the participation of the Company's Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
fiscal period covered by this Annual Report on Form 10-KSB.  Based upon such
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Company's disclosure controls
and procedures are effective in ensuring that information required to be
disclosed in this filing is accumulated and communicated to management and is
recorded, processed, summarized and reported in a timely manner and in
accordance with Securities and Exchange Commission rules and regulations.

(b) Internal Control Over Financial Reporting.

There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this Annual Report on
Form 10-KSB that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.


Item 8B. Other Information.

None.

                                    -42-
<PAGE>

                               PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act.

<TABLE>

The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company as of June 30, 2006:


                                  Present
                                  Position           Director
     Name             Age      With the Company        Since       Term to Expire
--------------------------------------------------------------------------------------
<S>                   <C>      <C>                     <C>         <C>
John V. Winfield      59       Chairman, President     1995        2006 Annual Meeting
                               and Chief Executive
                               Officer (1)

William J. Nance      62       Director (1)(2)         1996        2006 Annual Meeting

John C. Love          65       Director (1)(2)         1998        2006 Annual Meeting

Michael G. Zybala     54       Vice President,
                               Secretary, and
                               General Counsel         N/A         N/A

David T. Nguyen       33       Treasurer and           N/A         N/A
                               Controller
---------------------------
</TABLE>
(1)  Member of Securities Investment Committee
(2)  Member of Audit Committee

BUSINESS EXPERIENCE:

The principal occupation and business experience during the last five years
for each of the Directors and Executive Officers of the Company are as
follows:

John V. Winfield - Mr. Winfield was first elected to the Board in May of 1995
and currently serves as the Company's Chairman of the Board, President and
Chief Executive Officer, having been appointed as such in April 1996.  Mr.
Winfield is also the Chairman of the Board, President and Chief Executive
Officer of the Company's subsidiary Portsmouth, having held those positions
since May of 1996.  Mr. Winfield is Chairman of the Board, President and Chief
Executive Officer of The InterGroup Corporation ("InterGroup"), a public
company, and has held those positions since 1987.

William J. Nance - Mr. Nance was first elected to the Board in May of 1996.
Mr. Nance is also a director of Portsmouth.  Mr. Nance is the President and CEO
of Century Plaza Printers, Inc., a company he founded in 1979.  He has also
served as a consultant in the acquisition and disposition of multi-family and
commercial real estate.  Mr. Nance is a Certified Public Accountant and, from
1970 to 1976, was employed by Kenneth Leventhal & Company where he was a
Senior Accountant specializing in the area of REITS and restructuring of real
estate companies, mergers and acquisitions, and all phases of real estate
development and financing.  Mr. Nance is also Director of InterGroup, a public
company, and has held such position since 1984. Mr. Nance also serves as a
director of Goldspring, Inc., a public company.

                                    -43-
<PAGE>

John C. Love - Mr. Love was appointed a Director of the Company on March 5,
1998.  Mr. Love is an international hospitality and tourism consultant and a
hotel broker.  He was formerly a partner in the national CPA and consulting
firm of Pannell Kerr and Forster.  Mr. Love has extensive experience in hotel
development, acquisition and development.  He is Chairman Emeritus of Golden
Gate University in San Francisco.  Mr. Love is also a Director of Portsmouth,
having first been appointed in March 1998 and a Director of InterGroup, having
first been appointed in January 1998.

Michael G. Zybala - Mr. Zybala was appointed as Vice President and Secretary of
the Company on February 20, 1998 and was appointed Treasurer on May 16, 2000,
which was a position he held until February 27, 2003.  He is also Vice
President, Secretary and General Counsel of Portsmouth.  Mr. Zybala has served
as the Company's General Counsel since 1995 and has represented the Company as
its corporate counsel since 1978.  Mr. Zybala also serves as Assistant
Secretary and counsel to InterGroup and served as its Vice President Operations
from January 1999 to July 15, 2002.

David T. Nguyen - Mr. Nguyen was appointed as Treasurer of the Company on
February 27, 2003.  Mr. Nguyen also serves as Treasurer of InterGroup and
Portsmouth, having been appointed to those positions on February 26, 2003 and
February 27, 2003, respectively.  Mr. Nguyen is a Certified Public Accountant
and, from 1995 to 1999, was employed by PricewaterhouseCoopers LLP where he was
a Senior Accountant specializing in real estate.  Mr. Nguyen has also served as
the Company's Controller from 1999 to December 2001 and from December 2002 to
present.


Family Relationships:  There are no family relationships among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.


Involvement in Certain Legal Proceedings:  No director or executive officer, or
person nominated or chosen to become a director or executive officer, was
involved in any legal proceeding requiring disclosure.


BOARD AND COMMITTEE INFORMATION

Santa Fe is an unlisted company and a small business issuer under the rules and
regulations of the Securities and Exchange Commission ("SEC").  The majority of
its Board of Directors consists of "independent" directors as independence is
defined by the applicable rules of the SEC and the National Association of
Securities Dealers' ("NASD").

AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

Santa Fe is an unlisted company and small business issuer under SEC rules.  The
Company's Audit Committee is currently comprised of Messrs. Nance (Chairperson)
and Love, each of whom are independent directors as independence is defined by
the applicable rules of the SEC and the NASD, and as may be modified or
supplemented.  Each of these directors also meets the audit committee financial
expert test.

                                    -44-
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and each beneficial owner of more than ten percent of
the Common Stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission.  Officers, directors and
greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by the Company,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during fiscal 2006 all
filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.

Code of Ethics.

The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.  A copy of the Code of
Ethics is filed as Exhibit 14 to this Report.  The Company will provide to any
person without charge, upon request, a copy of its code of ethics by sending
such request to: Santa Fe Financial Corporation, Attn: Treasurer, 820 Moraga
Drive, Los Angeles 90049. The Company does not maintain an Internet website.
The Company will promptly disclose any amendments or waivers to its Code of
Ethics on Form 8-K.


Item 10.   Executive Compensation

The following table provides certain summary information concerning
compensation awarded to, earned by, or paid to the Chief Executive Officer and
any other qualifying Executive Officers and any employees who earned more than
$100,000 for all services rendered to the Company and its subsidiary for fiscal
years ended June 30, 2006, 2005 and 2004.

<TABLE>

                            SUMMARY COMPENSATION TABLE

                                 Annual Compensation
                              --------------------------------------------
                                                              Other Annual      All Other
Name and Principal Position    Year    Salary       Bonus     Compensation    Compensation
---------------------------    ----   --------    --------    ------------   ------------
<S>                            <C>   <C>          <C>           <C>             <C>
John V. Winfield               2006  $255,000(1)  $      -(2)   $12,000(3)      $42,500(4)
Chairman, President and        2005  $255,000(1)  $ 61,000(2)   $12,000(3)      $42,500(4)
Chief Executive Officer        2004  $240,000(1)  $618,000(2)   $12,000(3)      $42,500(4)
</TABLE>
-----------------------

(1) Includes salary received from the Company's subsidiary, Portsmouth, in the
amounts of $128,000, $128,000 and $92,000 for the fiscal years 2006, 2005 and
2004 and respectively. Does not include compensation (including performance
bonuses) received from Santa Fe's parent corporation, InterGroup, of $255,000,
$514,000 and $1,729,000 for fiscal years ended June 30, 2006, 2005 and 2004,
respectively.

(2) Amounts shown reflect a performance bonus, approved by the disinterested
members of the Board of Directors of the Company and its subsidiary Portsmouth
based on the results of Mr. Winfield's management of the Company's securities
portfolio for the fiscal years ended June 30, 2005 and 2004. Of the total
amount of the bonus, $4,000 was paid by Portsmouth in fiscal 2005 and $407,000
was paid in fiscal 2004. No bonus was earned or paid for fiscal 2006.

                                    -45-
<PAGE>

(3) Amounts shown reflect regular annual director's fees paid by Santa Fe and
Portsmouth, each in the amount of $6,000.

(4) During fiscal 2006, 2005 and 2004, the Company and Portsmouth also paid
combined annual premiums of $42,500, for each respective year, for split dollar
whole life insurance policies, owned by, and the beneficiary of which is, a
trust for the benefit of Mr. Winfield's family.  These policies were obtained
in December 1998 and provide for an aggregate death benefit of $2,500,000. The
Company has a secured right to receive, from any proceeds of the policy,
reimbursement of all premiums paid prior to any payments to the beneficiary.


As a small business issuer, Santa Fe has no compensation committee. Executive
Officer compensation is set by disinterested members of the Board of Directors.
Santa Fe has no stock option plan or stock appreciation rights for its
executive officers.  The Company has no pension or long-term incentive plans.
There are no employment contracts between Santa Fe and any executive officer,
nor is there any termination-of-employment or change-in-control arrangements.

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO,
John V. Winfield, to keep and retain his services as a direct and active
manager of the Company's securities portfolio.  The Company's previous
experience and results with outside money managers was not acceptable.
Pursuant to the criteria established by the Board, Mr. Winfield was be entitled
to performance compensation for his management of the Company's securities
portfolio equal to 20% of all net investment gains generated in excess of the
performance of the S&P 500 Index.  Compensation amounts will be calculated and
paid quarterly based on the results of the Company's investment portfolio for
that quarter.  Should the Company have a net investment loss during any
quarter, Mr. Winfield would not be entitled to any further performance-based
compensation until any such investment losses are recouped by the Company.  On
February 26, 2004, the Board of Directors amended the performance threshold to
require an annualized return equal to the Prime Rate of Interest (as published
in the Wall Street Journal) plus 2% instead of the S&P 500 Index, effective
with the quarterly period commencing January 1, 2004. This change was made to
make the Company's plan be consistent with that established by its parent
company, InterGroup.  This performance based compensation program may be
further modified or terminated at the discretion of the Board.


Internal Revenue Code Limitations

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, in the case of a publicly held corporation, the corporation is
not generally allowed to deduct remuneration paid to its chief executive
officer and certain other highly compensated officers to the extent that such
remuneration exceeds $1,000,000 for the taxable year. Certain remuneration,
however, is not subject to disallowance, including compensation paid on a
commission basis and, if certain requirements prescribed by the Code are
satisfied, other performance based compensation.  No compensation paid by the
Company to its CEO or other executive officers was subject the deduction
disallowance prescribed by Section 162(m) of the Code.


                          DIRECTOR COMPENSATION

The bylaws of Santa Fe permit directors to be paid a fixed sum for attendance
at each meeting of the Board or a stated salary as director.  Each director is
paid a fee of $1,500 per quarter for a total annual compensation of $6,000.
This policy has been in effect since July 1, 1985. Members of the Company's
Audit Committee also receive a fee of $500 per quarter.

                                    -46-
<PAGE>

Item 11.    Security Ownership of Certain Beneficial Owners and Management

(a) Security ownership of Certain Beneficial Owners

The following table sets forth, as of September 12, 2006, certain information
with respect to the beneficial ownership of the Company's voting securities
owned by those persons or groups known by the Company to own more than five
percent of any class of the Company's voting securities.


Name and Address of                 Amount and Nature            Percent of
Beneficial Owner                   of Beneficial Owner (1)        Class (2)
-------------------                ----------------------        ----------
Guinness Peat Group plc ("GPG")          93,058(3)                   7.5%
Allied Mutual Insurance
  Services ("AMI")
First Floor, Times Place,
45 Pall Mall
London SW1Y 5GP, UK

The InterGroup Corporation              919,164                     74.0%
820 Moraga Drive
Los Angeles, CA 90049

John V. Winfield                         49,400                      4.0%
820 Moraga Drive
Los Angeles, CA 90049

The InterGroup Corporation and          968,564(4)                  78.0%
  John V. Winfield as a group
------------------------------

(1) Unless otherwise indicated, and subject to applicable community property
    laws, each person has sole voting and investment power with respect to the
    shares beneficially owned.

(2) Percentages are calculated on the basis of 1,241,810 shares of Common
    Stock issued and outstanding as of September 12, 2006, plus any securities
    that person has the right to acquire within 60 days pursuant to options,
    warrants, conversion privileges or other rights.

(3) Based on their Statement on Schedule 13D (Amendment No. 6) dated June 13,
    2001, GPG and its wholly-owned subsidiary AMI claim shared power to vote,
    or to direct the vote, and to dispose of, or to direct the disposition of,
    the shares of Santa Fe's Common Stock owned of record by AMI.

(4) Pursuant to Voting Trust Agreement dated June 30, 1998, InterGroup has the
    power to vote the 49,400 shares of Common Stock owned by Mr. Winfield.  As
    President, Chairman of the Board and a 62.5% shareholder of InterGroup,
    Mr. Winfield has voting and dispositive power over the shares owned
    of record and beneficially by InterGroup.

                                    -47-
<PAGE>

 (b) Security Ownership of Management

The following table sets forth, as of September 12, 2006, certain
information with respect to the beneficial ownership as to each class of the
Company's equity securities beneficially owned by all directors, each of the
named executive officers and directors and executive officers as a group.


Name and Address of                 Amount and Nature            Percent of
Beneficial Owner                   of Beneficial Owner(1)         Class (2)
-------------------                -------------------           ----------

John V. Winfield                        968,564(3)                  78.0%
820 Moraga Drive
Los Angeles, CA 90049

John C. Love                                  0(4)                      *
820 Moraga Drive
Los Angeles, CA 90049

William J. Nance                              0(4)                      *
820 Moraga Drive
Los Angeles, CA 90049

Michael G. Zybala                             0                         *
820 Moraga Drive
Los Angeles, CA 90049

David T. Nguyen                               0                         *
820 Moraga Drive
Los Angeles, CA 90049

All of the above as a group             968,164                     78.0%
---------------------------
* Ownership does not exceed 1%

(1) Unless otherwise indicated, and subject to applicable community property
    laws, each person has sole voting and investment power with respect to the
    shares beneficially owned.

(2) Percentages are calculated on the basis of 1,241,810 shares of Common
    Stock issued and outstanding as of September 12, 2006, plus any securities
    that person has the right to acquire within 60 days pursuant to options,
    warrants, conversion privileges or other rights.

(3) John V. Winfield is the sole beneficial owner of 49,400 shares of Common
    Stock.  InterGroup is the beneficial owner of 919,164 shares of Common
    Stock.  As the President, Chairman of the Board and a 62.5% shareholder of
    InterGroup, Mr. Winfield has voting and dispositive power with respect to
    the shares of Santa Fe owned of record and beneficially by InterGroup.

(4) William J. Nance is a 3.3% shareholder of InterGroup as well as a
    Director thereof.  John C. Love is also a Director of InterGroup and a
    1.1% shareholder.

                                    -48-
<PAGE>



Security Ownership of Management in Subsidiary

As of September 12, 2006, Santa Fe was the record and beneficial owner of
505,437 shares of its subsidiary, Portsmouth, and 77,500 shares are owned by
Santa Fe's parent company InterGroup. The President and Chairman of the Board
of Santa Fe and InterGroup has voting power with respect to common shares of
Portsmouth owned by Santa Fe and InterGroup which represent 79.4% of the voting
power of Portsmouth.  No other director or executive officer of Santa Fe has a
beneficial interest in Portsmouth's shares.


(c) Changes in Control

There are no arrangements that may result in a change in control of the
Company.

Securities Authorized for Issuance Under Equity Compensation Plans.

Santa Fe has no securities authorized for issuance under any equity
compensation plans.


Item 12. Certain Relationships and Related Transactions

As of September 12, 2006, Santa Fe and InterGroup owned 79.4% of the common
stock of Portsmouth, and InterGroup and John V. Winfield, in the aggregate,
owned approximately 78.0% of the voting stock of Santa Fe.  All of the
Company's Directors serve as directors of InterGroup and all three of the
Company's Directors serve on the Board of Portsmouth.

Certain costs and expenses, primarily administrative salaries, rent and
insurance, are allocated among the Company, its subsidiary, Portsmouth, and
parent InterGroup based on management's estimate of the pro rata utilization of
resources.  During the fiscal years ended June 30, 2006 and 2005, the Company
and Portsmouth made payments to InterGroup of approximately $160,000 and
$167,00,0 respectively, for administrative costs and reimbursement of direct
and indirect costs associated with the management of the Companies and their
investments, including the partnership asset.

During the fiscal years 2006 and 2005, the Company paid $26,000 and $52,000,
respectively in preferred stock dividends to InterGroup.

As Chairman of the Securities Investment Committee, the Company's President and
Chief Executive officer, John V. Winfield, directs the investment activity of
the Company in public and private markets pursuant to authority granted by the
Board of Directors.  Mr. Winfield also serves as Chief Executive Officer and
Chairman of Portsmouth and InterGroup and oversees the investment activity
of those companies.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family, Portsmouth and InterGroup
may, at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of the
Chief Executive Officer and his family members, and the resources of Portsmouth
and InterGroup, at risk in connection with investment decisions made on behalf
of the Company.

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO to
keep and retain his services as a direct and active manager of the Company's

                                    -49-
<PAGE>


securities portfolio.  Pursuant to the criteria established by the Board, Mr.
Winfield is entitled to performance compensation for his management of the
Company's securities portfolio equal to 20% of all net investment gains
generated in excess of the performance of the S&P 500 Index.  Compensation
amounts are calculated and paid quarterly based on the results of the Company's
investment portfolio for that quarter.  Should the Company have a net
investment loss during any quarter, Mr. Winfield would not be entitled to any
further performance-based compensation until any such investment losses are
recouped by the Company.  On February 26, 2004, the Board of Directors amended
the performance threshold to require an annualized return equal to the Prime
Rate of Interest (as published in the Wall Street Journal) plus 2% instead of
the S&P 500 Index, effective with the quarterly period commencing January 1,
2004.  For the fiscal year ended June 30, 2005, Mr. Winfield was paid
performance based compensation of $61,000. No such compensation was paid for
fiscal 2006. This performance based compensation program may be further
modified or terminated at the discretion of the Board.

In December 1998, Board of Directors authorized the Company to obtain whole
life insurance and split dollar insurance policies covering the Company's
President and Chief Executive Officer, Mr. Winfield.  During fiscal years 2006
and 2005, the Company paid annual premiums of $25,500 for the split dollar
whole life insurance policy, owned by, and the beneficiary of which is, a trust
for the benefit of Mr. Winfield's family.  The Company has a secured right to
receive, from any proceeds of the policy, reimbursement of all premiums paid
prior to any payments to the beneficiary.  During fiscal 2006 and 2005,
Portsmouth paid annual premiums of $17,000 for a split dollar policy also
covering Mr. Winfield. The premiums associated with that spilt dollar policy
are considered additional compensation to Mr. Winfield.

There are no other relationships or related transactions between the Company
and any of its officers, directors, five-percent security holders or their
families which require disclosure.

                                    -50-
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K

(a) Listing of Exhibits by Table Number
    -----------------------------------

Set forth below is an index of applicable exhibits filed with this report
according to exhibit table number.

           Exhibit                                                 Page
           -------                                                 ----

   3.(i)  Articles of Incorporation                                 ***
     (ii) Bylaws (Amended February 15, 2000)                        ****

   4.     Instruments defining he rights of Security Holders,       *
          including indentures (see Articles of Incorporation
          and Bylaws)

   10.    Material Contracts
          (a) Securities Purchase Agreement dated December 20,      **
              1994 between Santa Fe Financial Corporation and
              The InterGroup Corporation

   14.    Code of Ethics

   21.    Subsidiaries:

          (1) Portsmouth Square, Inc. (68.8%)
              Incorporated on July 6, 1967 in California

          (2) Intergroup Woodland Village, Inc. (55.4%)
              Incorporated on August 5, 1993 in Ohio

          (3) 614 Acanto Properties, Inc. (100%)
              Incorporated on November 7, 2001 in California

  31.1    Certification of Chief Executive Officer of Periodic Report
          Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

  31.2    Certification of Chief Financial Officer of Periodic Report
          Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

  32.1    Certification of Chief Executive Officer Pursuant to 18
          U.S.C. Section 1350.

  32.2    Certification of Chief Financial Officer Pursuant to 18
          U.S.C. Section 1350.

*   All exhibits marked by an asterisk have been previously filed with other
    documents, including Registrant's Form 10 filed on October 27, 1967, and
    subsequent filings on forms 8-K, 10-K and 10-Q which are incorporated
    herein by reference.

**  Securities Purchase Agreement dated December 20, 1994 between Santa Fe
    Financial Corporation and The InterGroup Corporation was previously filed
    on March 31, 1995 with Registrant's Form 10-K Annual Report for the year
    ended December 31, 1994 and is incorporated herein by reference.

                                    -51-
<PAGE>

*** Restated Articles of Incorporation, dated August 12, 1997, were previously
    filed on March 31, 1998 with Registrant's Form 10-KSB Annual Report for
    the year ended December 31, 1997 and is incorporated herein by reference.

**** Amendment to Bylaws are incorporated herein by reference to the Company's
     Form 10-KSB filed with the Commission March 29, 2000.


 (b) Reports on Form 8-
     -------------------

No Reports on Form 8-K were filed by the Company during the last quarter of the
period covered by this Report.


 (c) Financial Statements and Schedules Required by Regulation S-X

The following financial statements of Justice Investors are included in
Item 13:
                                                              PAGE
(1) Report on Audit of Financial Statements of
    Justice Investors for the twelve months ended
    June 30, 2006:

Report of Independent Registered Public                        F-1
  Accounting Firm dated August 4, 2006

Consolidating Balance Sheet - June 30, 2006                    F-2

Consolidating Statement of Operations and Partners'            F-3
  Capital for the twelve months ended June 30, 2006

Consolidating Statement of Cash Flows for the                  F-4
  twelve months ended June 30, 2006

Notes to the Consolidating Financial Statements                F-5

Supplemental Schedules                                         F-17


(2) Report on Audit of Financial Statements of
    Justice Investors for the six months ended June 30,
    2005 with the consolidated totals for the year
    ended December 31, 2004:

Report of Independent Registered Public                        F-21
  Accounting Firm dated August 1, 2005

Consolidating Balance Sheets - June 30, 2005 and               F-22
  December 31, 2004

Consolidating Statements of Income and Partners'               F-23
  Capital - six months ended June 30, 2005 and
  year ended December 31, 2004

Consolidating Statement of Cash Flow - six months              F-24
  ended June 30, 2005 and year ended December 30, 2004

Notes to the Consolidating Financial Statements                F-25

Supplemental Schedules                                         F-37

                                    -52-
<PAGE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.


Item 14.  Principal Accountant Fees and Services.

Audit Fees - The aggregate fees billed for each of the last two fiscal years
ended June 30, 2006 and 2005 for professional services rendered by
PricewaterhouseCoopers LLP, the principal accountant for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's Form 10-QSB or services normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years, were as follows:


                                            Fiscal Year
                                       --------------------
                                         2006        2005
                                       --------    --------
        Audit Fees                     $254,000    $ 99,000
        Audit-Related Fees             $      -    $      -
        Tax Fees                       $      -    $      -
        All Other Fees                 $      -    $      -


Audit Committee Pre-Approval Policies

The Audit Committee shall pre-approve all auditing services and permitted non-
audit services (including the fees and terms thereof) to be performed for the
Company by its independent auditor, subject to any de minimus exceptions that
may be set for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act which are approved by the Committee prior to the completion of the
audit.  The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant pre-approvals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant pre-approvals shall be presented to the
full Committee at its next scheduled meeting.

All of the services described herein were approved by the Audit Committee
pursuant to its pre-approval policies.

None of the hours expended on the principal accountant's engagement to audit
the Company's financial statements for the most recent fiscal year were
attributed to work performed by persons other than the principal accountant's
full-time permanent employees.

                                    -53-
<PAGE>

                                SIGNATURES
                                ----------

   Pursuant to the requirements of Section 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.

                                               SANTA FE FINANCIAL CORPORATION
                                                        (Registrant)

Date: September 28, 2006                      by /s/ John V. Winfield
      ------------------                         ---------------------------
                                                 John V. Winfield, President,
                                                 Chairman of the Board and
                                                 Chief Executive Officer

Date: September 28, 2006                      by /s/ Michael G. Zybala
      ------------------                         ---------------------------
                                                 Michael G. Zybala,
                                                 Vice President and Secretary

Date: September 28, 2006                      by /s/ David T. Nguyen
      ------------------                         ---------------------------
                                                 David T. Nguyen, Treasurer
                                                 and Controller
                                                 (Principal Financial Officer)


   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


Date: September 28, 2006              /s/ John V. Winfield
      ------------------              ---------------------------------------
                                      John V. Winfield, Chairman of the Board


Date: September 28, 2006              /s/ John C. Love
      ------------------              ---------------------------------------
                                      John C. Love
                                      Director


Date: September 28, 2006              /s/ William J. Nance
      ------------------              ---------------------------------------
                                      William J. Nance,
                                      Director

                                    -54-
<PAGE>

                         REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM

To the Partners
Justice Investors
San Francisco, California

We have audited the accompanying consolidating balance sheet of Justice
Investors (a limited partnership) as of June 30, 2006, and the related
consolidating statements of operations, partners' capital and cash flows for
the twelve-months then ended.  These consolidating financial statements are the
responsibility of the Partnership's management.  Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidating financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidating financial statements referred to above
present fairly, in all material respects, the consolidating financial position
of Justice Investors (a limited partnership) as of June 30, 2006, and the
results of its operations and its cash flows for the twelve months then ended
in conformity with accounting principles generally accepted in the United
States of America.

Our audit was conducted for the purpose of forming an opinion on the
consolidating financial statements taken as a whole.  The information in
Schedule I-IV is presented for purposes of additional analysis of the
consolidating financial statements and is not required part of the basic
financial statements.  Such information has been subjected to the auditing
procedures applied in the audits of the consolidating financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidating financial statements taken as a whole.

As discussed in Note 1 and 12 to the financial statements, on May 31, 2005, the
Partnership closed down and suspended the Hotel operations during
reconstruction of the Hotel. The Hotel reopened for business in January 2006
after renovations had been completed.


/s/ Burr, Pilger & Mayer LLP


San Francisco, California
August 4, 2006

                                    F-1

<PAGE>

                            JUSTICE INVESTORS
                          (a limited partnership)
                        CONSOLIDATING BALANCE SHEET
                              June 30, 2006
                              -------------
<TABLE>
                                                                       Elimi-        Consoli-
               ASSETS                      Justice       Hotel        nations        dated
                                          ---------     --------     ----------     -----------
<S>                                       <C>           <C>          <C>            <C>
Current assets:
 Cash                                     $ 1,954,543   $  397,376   $         -    $ 2,351,919
 Accounts receivable (net of
   allowance for doubtful accounts
   of $5,250)                                  86,338      875,705       (39,000)       923,043
 Rents receivable garage-related party        126,917            -             -        126,917
 Rents receivable-other                        13,784            -             -         13,784
 Accounts receivable-partner                   10,170            -             -         10,170
 Inventory                                          -      479,436             -        479,436
 Prepaid expenses                              15,800       47,942             -         63,742
 Advances to hotel                          4,678,578            -    (4,678,578)             -
                                           ----------    ---------    ----------     ----------
      Total current assets                  6,886,130    1,800,459    (4,717,578)     3,969,011
                                           ----------    ---------    ----------     ----------
Property and equipment:
 Furniture and equipment (net of           13,238,372            -             -     13,238,372
   accumulated depreciation of
   $1,753,377 at June 30, 2006)
 Building and improvements (net of         28,649,196            -       258,538     28,907,734
   accumulated depreciation of
   $13,060,396 at June 30, 2006)
 Land                                       1,124,128            -             -      1,124,128
                                           ----------    ---------    ----------     ----------
      Total property and equipment         43,011,696            -       258,538     43,270,234
                                           ----------    ---------    ----------     ----------
Other assets, net                             410,577       29,275             -        439,852
                                           ----------    ---------    ----------     ----------
                                          $50,308,403   $1,829,734   $(4,459,040)   $47,679,097
                                           ==========    =========    ==========     ==========

      LIABILITIES AND PARTNERS CAPITAL

Current liabilities:
 Trade accounts payable and               $ 3,157,876   $2,594,352   $   (39,000)    $ 5,713,228
   accrued expenses
 Current portion of long-term debt            444,196            -             -         444,196
 Current portion of capital lease             105,094            -             -         105,094
   obligations
 Advance deposits                                   -      171,130             -         171,130
 Accrued repositioning fee                    200,000            -             -         200,000
 Due to owners                                      -      270,765      (270,765)              -
 Due to management company                          -       13,427             -          13,427
                                           ----------    ---------    ----------      ----------
      Total current liabilities             3,907,166    3,049,674      (309,765)      6,647,075
                                           ----------    ---------    ----------      ----------
Long-term debt                             45,202,910            -             -      45,202,910
Capital lease obligations                     516,167            -             -         516,167
                                           ----------    ---------    ----------      ----------
      Total long-term liabilities          45,719,077            -             -      45,719,077
                                           ----------    ---------    ----------      ----------
      Total Liabilities                    49,626,243    3,049,674      (309,765)     52,366,152
Partners' capital                             682,160   (1,219,940)   (4,149,275)     (4,687,055)
                                           ----------    ---------    ----------      ----------
                                          $50,308,403   $1,829,734   $(4,459,040)    $47,679,097
                                           ==========    =========    ==========      ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                    F-2
<PAGE>

                                JUSTICE INVESTORS
                          (a limited partnership)
            CONSOLIDATING STATEMENT OF OPERATIONS AND PARTNERS' CAPITAL
                   for the twelve months ended June 30, 2006
                   -----------------------------------------

<TABLE>
                                                                       Elimi-        Consoli-
                                           Justice       Hotel        nations         dated
                                          ---------     --------     ----------     -----------
<S>                                       <C>          <C>           <C>            <C>
Operating revenue:
 Rent-garage-related party                $  944,828   $         -   $         -    $   944,828
 Rent-other                                  109,692             -             -        109,692
 Room revenue                                      -     7,189,989             -      7,189,989
 Food and beverage revenue                         -     1,685,806             -      1,685,806
 Other operating departments                               177,938             -        177,938
                                           ---------    ----------    ----------     ----------
      Total operating revenue              1,054,520     9,053,733             -     10,108,253
                                           ---------    ----------    ----------     ----------
Operating expenses:
 Rooms                                             -     2,966,181             -      2,966,181
 Food and beverage                                 -     2,440,973             -      2,440,973
 Other operating departments                       -       378,087             -        378,087
 Depreciation and amortization             2,284,649             -             -      2,284,649
 Property taxes                              177,580       331,018             -        508,598
 General and administrative                2,602,526     1,383,961             -      3,986,487
 Credit card commissions                           -       223,722             -        223,722
 Advertising and sales                             -     1,050,959             -      1,050,959
 Utilities                                         -       529,256             -        529,256
 Repairs and maintenance                           -       950,912             -        950,912
 Franchise fees                                    -       503,412             -        503,412
 Management fees                                   -       192.686             -        192,686
 Insurance expense                                 -       366,540             -        366,540
 CEP fee                                           -       270,802      (270,802)             -
 Rental expense                                    -        21,907             -         21,907
                                           ---------    ----------    ----------     ----------
      Total operating expenses             5,064,755    11,610,416      (270,802)    16,404,369
                                           ---------    ----------    ----------     ----------
Other income (expense):
 Income on disposition of assets             178,357             -             -        178,357
 Chinese Cultural lease expense              (74,200)            -             -        (74,200)
 Start up costs-reopening of Hotel                 -    (1,229,918)            -     (1,229,918)
 Interest expense                         (1,373,099)            -             -     (1,373,099)
 Interest income                             193,797             -             -        193,797
                                           ---------    ----------    ----------     ----------
      Total other (expenses) income       (1,075,145)   (1,229,918)            -     (2,305,063)
                                           ---------    ----------    ----------     ----------
      Net (loss) income                   (5,085,380)   (3,786,601)      270,802     (8,601,179)

Capital at beginning of period -
 July 1, 2005                              5,767,540      (314,104)   (1,539,312)     3,914,124

Contributions                                      -     2,880,765    (2,880,765)             -
                                           ---------     ---------    ----------      ---------
Capital at end of period-
 June 30, 2006                            $  682,160   $(1,219,940)  $(4,149,275)   $(4,687,055)
                                           =========    ==========    ==========     ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                    F-3

<PAGE>

                                JUSTICE INVESTORS
                          (a limited partnership)
                    CONSOLIDATING STATEMENT OF CASH FLOWS
                   for the twelve months ended June 30, 2006
                   -----------------------------------------
<TABLE>
                                                                                 Elimi-         Consoli-
                                                    Justice       Hotel         nations         dated
                                                  -----------   ----------    ----------     -----------
<S>                                               <C>            <C>           <C>            <C>
Cash flows from operating activities:
 Net loss                                         $ (5,085,380)  $(3,786,601)  $   270,802    $ (8,601,179)
 Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
  Allowance for doubtful accounts                            -        (1,290)            -          (1,290)
  Depreciation and amortization                      2,284,649             -             -       2,284,649
  Gain on disposition of assets                       (178,357)            -             -        (178,357)
 Changes in operating assets and liabilities:
  Increase in rents receivable-related party           (64,669)            -             -         (64,669)
  Increase in rents receivable-other                    (7,633)            -             -          (7,633)
  Increase in accounts receivable                      (86,338)     (816,891)       39,000        (864,229)
  Increase in accounts receivable-partner              (10,170)            -             -         (10,170)
  Increases in advances to Hotel                    (2,880,765)            -     2,880,765              -
  Decrease in prepaid expenses                         843,908        19,455             -         863,363
  Increase in inventory                                      -      (477,142)            -        (477,142)
  Decrease in deposits                                       -         2,400             -           2,400
  Increase in other assets                            (316,207)            -             -        (316,207)
  (Decease) increase in trade accounts payable
    and accrued expenses                              (549,815)    1,954,017       (39,000)      1,365,202
 Increase in due to owner                                    -       270,765      (270,765)              -
 Decrease in due to management                              -        (1,573)            -          (1,573)
 Increase in accrued repositioning fee                 121,108             -             -         121,108
 Increase in due to partner                                  -       171,130             -         171,130
 Decrease in rents in advance                          (2,183)            -             -          (2,183)
                                                   -----------    ----------    ----------     -----------
     Net cash (used in) provided by operating
      activities                                    (5,931,852)   (2,665,730)    2,880,802      (5,716,780)
                                                   -----------    ----------    ----------     -----------
Cash flows from investing activities:
 Purchase of property and equipment and
    Construction in progress                       (30,639,085)            -           (37)    (30,639,122)
 Proceeds from sale of assets                            2,448             -             -           2,448
                                                   -----------    ----------     ---------     -----------
      Net cash used in investment activities       (30,636,637)            -           (37)    (30,636,674)
                                                   -----------    ----------     ---------     -----------
Cash flows from financing activities:
 Issuance of line of credit                         14,000,000             -             -      14,000,000
 Proceeds from notes payable                        30,000,000             -             -      30,000,000
 Payments on notes payable                            (352,894)            -             -        (352,894)
 Discharge of line of credit                        (6,500,000)            -             -      (6,500,000)
 Net proceeds on line of credit                      1,368,677             -             -       1,368,677
 Contributions                                               -     2,880,765    (2,880,765)              -
                                                   -----------    ----------    ----------     -----------
     Net cash provided by financing activities      38,515,783     2,880,765    (2,880,765)     38,515,783
                                                   -----------    ----------    ----------     -----------
     Net increase in cash                            1,947,294       215,035             -       2,162,329
Cash at beginning of year                                7,249       182,341             -         189,590
                                                   -----------    ----------    ----------     -----------
Cash at end of year                               $  1,954,543   $   397,376   $         -    $  2,351,919
                                                   ===========    ==========    ==========     ===========
Supplemental disclosures of cash flows
 information-

     Cash paid during the year for:
      Interest, net of capitalized interest       $  1,285,514   $         -   $         -    $  1,285,514
                                                   ===========    ==========    ==========     ===========
      Franchise taxes                             $        800   $         -   $         -    $        800
                                                   ===========    ==========    ==========     ===========
Supplemental disclosures of noncash activity
 for investing and financing activities-
 equipment purchased under capital lease          $    621,261   $         -   $         -    $    621,261
                                                   ===========    ==========    ==========     ===========
 </TABLE>

  The accompanying notes are an integral part of these financial statements.

                                    F-4
<PAGE>

                         JUSTICE INVESTORS
                       (a limited partnership)

             NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS


1.  Organization

Justice Investors, a Limited Partnership (the Partnership), was formed in 1967
to acquire real property in San Francisco, California, for the development and
lease of hotel and related facilities.  The leases became effective during 1970
upon completion of the Hotel and parking garage.  The Hotel portion of the
property was leased to Felcor Lodging Trust, Inc. (Felcor).  The Partnership
leases the parking garage to Evon Corporation (Evon), the managing general
partner.  The parking garage lease provides for payments of certain percentages
of parking receipts through November 30, 2010.  The Partnership leases space to
Tru Spa.  The spa lease provides for minimum and additional rent payments every
month through May 31, 2013.

During 2004, the Partnership entered into a settlement with Felcor and Holiday
Inn to resolve certain disputes regarding the deferred maintenance and repair
obligations under the Hotel lease.  As part of that settlement, the Partnership
received a settlement payment of $5,000,000 from Felcor.  Also, in connection
with the settlement, Holiday Inn was terminated as the manager of the Hotel and
the Hotel lease was terminated effective June 30, 2004.

Effective July 1, 2004, Dow Hotel Company (Dow) replaced Holiday Inn as the
management company of the Hotel and assumed control of the Hotel's day-to-day
operations.  As result of the termination of the lease with Felcor and the
change in the management company to Dow, the operations of the Hotel are now
recorded as part of the Partnership's operations.  Due to the significance of
the Hotel operations management has elected to present consolidating financial
information. Accordingly, the Hotel operations and Justice's operations are
shown separately in the financial statements and will be consolidated.

The Partnership entered into a short term franchise agreement with Holiday
Hospitality Franchising, Inc. to continue to utilize the Holiday Inn brand
(flag) until such time as they bring in a replacement flag.  In order to bring
in a new flag the Partnership committed to renovate and reposition the Hotel.
During December 2004, the Partnership entered into a franchise agreement (the
Hilton agreement) with the Hilton Hotels Corporation (Hilton).  Prior to
operating the Hotel as a Hilton Hotel, the Partnership was required to make
substantial renovations to the Hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards established by Hilton and
generally applicable to the Hotel.

The Partnership considered the benefits and detriments of closing the Hotel
during the renovation period.  The Partnership concluded that it would be in
its best interests to suspend operations of the Hotel during the renovations,
and the Hotel portion of the property was temporarily closed on June 1, 2005.
The below-ground parking garage and Tru Spa located on the lobby level of the
Hotel remained open during the renovation work.

The total cost of the construction-renovation was approximately $36.4 million,
which excludes $629,607 in interest costs incurred during the construction
phase that were capitalized.

                                    F-5
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

             NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS

1.  Organization, continued

As of January 12, 2006, the Hotel renovation work was substantially completed,
at which time the Partnership obtained approval from Hilton to open the Hotel
as the "Hilton San Francisco Financial District".  The Hotel opened with a
limited number of rooms available to rent, which number increased as the Hotel
transitioned into full operations by the end of February 2006.

The newly opened Hilton hotel has 549 well appointed guestrooms and luxury
suites with bay or city views.  The newly redesigned meeting rooms and ballroom
accommodate meetings and events for up to 500 people with video conferencing
and premium audio/visual equipment.  A new business center and fitness center
are additional amenities.  A redesigned entryway is integrated into the lobby
and management expects the new restaurant "Seven Fifty" and lounge will bring a
new level of excitement and service to the guests of the hotel.  Management
believes that the new Hilton hotel will now be able to directly compete with
all other hotels in the Financial District.


2.  Summary of Significant Accounting Policies

Basis of Consolidation

The consolidating financial statements include the consolidated accounts of the
Hotel operations and Justice.  All inter-company transactions and accounts have
been eliminated in consolidation.

Allocations

Net profits, losses, and cash flows from operations are to be allocated among
the Partners in proportion to their respective Partnership interests.

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

Accounts Receivable

The Partnership carries its accounts receivable at cost less an allowance for
doubtful accounts that is based on management's assessment of the
collectibility of accounts receivable.  The Partnership extends unsecured
credit to its customers but mitigates the associated credit risk by performing
ongoing credit evaluations of its customers.

Rents Receivable

Management believes that all rents receivable are fully collectible.
Therefore, no allowance for doubtful accounts was recorded as of June 30, 2006.

                                    F-6
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

           NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS, Continued

2.  Summary of Significant Accounting Policies, continued

Inventory

Food, beverage, china, glassware, and linen inventories are stated at the lower
of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment are stated at cost.  Building improvements are being
depreciated on a straight-line basis over their useful lives ranging from 5 to
39 years.  Furniture, fixtures, and equipment are being depreciated on a
straight-line basis over their useful lives ranging from 5 to 7 years.

Repairs and maintenance are charged to expense as incurred, and costs of
significant renewals and improvements are capitalized.  The cost of assets sold
or retired, and the related accumulated depreciation or amortization, are
removed from the accounts; any resulting gain or loss is included in other
income (expenses).

Capitalized Interest

The partnership capitalized interest as a component of building and
improvements in fixed assets.  For the twelve months ended June 30, 2006 total
interest expense incurred was $2,011,716.  Of these amounts $629,607 was
capitalized in 2006, and the remainder was expensed.

Other Assets

Loan fees are stated at cost and amortized over the term of the loan using the
straight-line method.  At June 30, 2006 the loan fees were $313,911, net of
amortization of $30,650, and the total amortization expense for the twelve
months ended June 30, 2006 was $30,650.  Included in other assets are franchise
fees of $100,000 that were paid to the Hilton during 2004.  The amortization of
the franchise fees started once the Hotel opened for business as a Hilton using
the straight-line method over the 15 year-term of the Hilton agreement.  At
June 30, 2006 the franchise fees were $96,666 net of amortization of $3,334.

Revenue Recognition

Justice.  The Partnership recognizes rental income over the lease term as it
becomes receivable according to the provisions of the leases.  The leases
contain provisions for base rent plus a percentage of the lessees' revenues.
See Note 4-Leasing Arrangements.

Hotel.  Revenues are recognized as earned.  Earned is generally defined as the
date upon which a guest occupies a room and/or utilizes the Hotel's services.
Ongoing credit evaluations are performed and potential credit losses are
expensed at the time the account receivable is estimated to be uncollectible.
Historically, credit losses have not been material to the Hotel's results of
operations.

                                    F-7
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

2.   Summary of Significant Accounting Policies, continued

Advertising Costs

Advertising costs are expensed as incurred.  Advertising costs were $316,298
for the twelve months ended June 30, 2006.

Income Tax

No income taxes have been provided in the accompanying financial statements
since the Partnership profits and losses are reportable by the partners on
their individual income tax returns.  Cash paid during the year for the taxes
represents the California minimum tax due for limited partnerships.

Fair Value of Financial Instruments

The Partnership's financial instruments are cash, accounts receivable, rents
receivable, inventories, prepaid expenses, accounts payable, accrued expenses,
and long-term debt.  The recorded values of cash, accounts receivable, rents
receivable, inventories, prepaid expenses, accounts payable, and accrued
expenses approximate their fair values based on their short-term nature.  The
recorded value of long-term debt approximates the fair value at June 30, 2006
as the related interest rate is in line with market rates.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions regarding certain types of assets, liabilities, revenues, and
expenses.  Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements.  Accordingly, upon settlement,
actual results may differ from estimated amounts.


3.  Property and Equipment

Property and equipment as of June 30, 2006 consist of the following:

                                               Accumulated         Net
                                Cost          Depreciation     Book Value
                              -----------     ------------     -----------
   Furniture and equipment    $14,991,749     $ 1,753,377      $13,238,372
   Building improvements       41,968,040      13,060,306       28,907,734
   Land                         1,124,128               -        1,124,128
                               ----------      ----------       ----------
                              $58,083,917     $14,813,683      $43,270,234
                               ==========      ==========       ==========

Depreciation expense for the twelve months ended June 30, 2006 was $2,250,665.
The partnership capitalized some of the interest as a component of building
improvements.  Included in building improvements are $629,607 capitalized
interest. Accumulated amortization of the capitalized interest at June 30, 2006
was $31,480.  Amortization of capitalized interest is included in depreciation
expense.

                                    F-8
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

3.  Property and Equipment, continued

The Company leases equipment under agreements that are classified as capital
leases.  The cost of equipment under capital leases was $621,261 at June 30,
2006 and this was included in the furniture and equipment.   Accumulated
amortization of the leased equipment at June 30, 2006 was $62,126.
Amortization of assets under capital leases is included in depreciation
expense.


4.  Long-Term Debt

The Partnership had a revolving line of credit of $7,500,000 with Bank of the
West.  This line of credit expired on February 1, 2006.  The line of credit was
collateralized by the first deed of trust on the Hotel land and property and
the Partnership's interest in the Hotel and garage leases.  The interest rate
on the line of credit was variable and was subject to change from time to time
based on changes in an index that is the Bank's prime rate (the Index).  The
balance was accruing interest at 6.25% at June 30, 2005. This line of credit
was paid back with the proceeds of the Prudential loan as mentioned below.

On June 27, 2005, the Partnership obtained a $2,000,000 Revolving Line of
Credit (LOC) from United Commercial Bank.  The line of credit expired July 31,
2005 at an annual interest rate equal to the either The Wall Street Journal
Prime Rate or LIBOR plus 2%, as selected by the Partnership, and is secured by
a second deed of trust on the Hotel property.  Interest only is payable monthly
with principal and accrued interest due at maturity.  This LOC was paid off
using the proceeds of the Prudential loan and replaced with another LOC as
mentioned below.

On July 27, 2005, the Partnership, entered into a first mortgage loan with The
Prudential Insurance Company of America (Prudential loan) in a principal amount
of $30,000,000.  The term of the loan is for 120 months at a fixed interest
rate of 5.22% per annum.  The loan matures on August 5, 2015.  The Loan calls
for monthly installments of principal and interest in the amount of
approximately $165,100.  The outstanding balance at June 30, 2006 was
$29,647,106.  The loan is secured by a first deed of trust on the Partnership's
hotel property, including all improvements and personal property thereon and an
assignment of all present and future leases and rents.  The loan is without
recourse to the limited and general partners of the Partnership.

On July 27, 2005, Justice Investors also obtained a $10,000,000 Revolving Line
of Credit (LOC) from United Commercial Bank.  The term of the line of credit is
for 60 months at an annual interest rate equal to the either The Wall Street
Journal Prime Rate or LIBOR plus 2%, as selected by the Partnership, and is
secured by a second deed of trust on the Hotel property.  Interest only is
payable monthly with principal and accrued interest due at maturity.  During
2006, the Partnership obtained a $6,500,000 increase in its existing line of
credit capacity with United Commercial Bank, raising the total amount available
to the Partnership pursuant to that line of credit to $16,500,000.  The
interest rate is equal to either The Wall Street Journal Prime Rate or LIBOR
plus 2%, as selected by the Partnership, and is secured by a second deed of
trust on the Hotel property.  Interest only is payable monthly with principal
and accrued interest due at maturity.  The LOC expires June 30, 2010.  The
outstanding line of credit at June 30, 2006 was $16,000,000 and the balance is
accruing interest at 7.25%.

                                    F-9
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

4.  Long-Term Debt, continued

From the proceeds of the Prudential loan, the Partnership retired its existing
line of credit with Bank of the West in the amount of $4,500,000, including
accrued interest, and paid off a short-term unsecured line of credit from
United Commercial Bank in the amount of $2,000,000, including accrued interest.

The payments due on the long-term debt subsequent to June 30, 2006 are as
follows:

             Twelve months ended June 30:
                   2007                        $   444,196
                   2008                            467,946
                   2009                            492,966
                   2010                         16,519,324
                   2011                            547,090
                 Thereafter                     27,175,584
                                                ----------
                                                45,647,106
                 Less current portion             (444,196)
                                                 ---------
                 Long term debt                $45,202,910


5.  Capital Leases

The Company leases certain equipment under capital leases expiring in 2006.
Installments of principal are due monthly including applicable interest until
June 1, 2011, at which time the final installment will be due.

Minimum future lease payments under capital leases as of June 30, 2006 for each
of the next five years and in the aggregate are as follows:

      Twelve months ending June 30:
         2007                                               $ 157,303
         2008                                                 157,303
         2009                                                 157,303
         2010                                                 157,303
         2011                                                 156,885
                                                             --------
         Total minimum lease payments                         786,097
         Less interest                                       (164,836)
                                                              -------
                                                              621,261
         Less: current portion of capital lease payments	     (105,094)
                                                              -------
         Long-term capital lease obligation, net              516,167
                                                              =======

                                    F-10
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

6.  Leasing Arrangements

The Partnership leases the parking garage to Evon and spa facilities to Tru
Spa.

The parking garage lease with Evon provides for minimum monthly payments of
$19,764 plus an additional percentage rent.  The percentage rent is based on
60% of the gross parking revenues and is due monthly.  Additional garage
percentage rent received during the twelve months ended June 30, 2006 was
$707,660.

The Partnership entered into a lease agreement with Tru Spa for the spa
facilities in July 1, 2002.  The scheduled commencement was May 1, 2003 and the
lease expires on May 31, 2013.  The lease was amended and the amended
commencement date was June 1, 2003.  The minimum rent payments are $11,667 per
month from June to December 31, 2005 and from January 2006 and on every third
year thereafter, it is the minimum rent plus the percentage increase in the
Consumer Price Index multiplied by the minimum rent.  There is additional rent
of $2,072 per month that is payable on the same terms as the minimum rent.  Per
the lease agreement the minimum rent and other charges payable during the first
ninety days of the first lease year shall be deferred.  Beginning on the
thirteenth calendar month following such ninety-day period (September 2004),
and continuing for eleven consecutive months thereafter, Tru Spa shall add one-
twelfth of the deferred rent to the minimum rent due hereunder.

As a result of the renovations, the Tru Spa lease was amended and the
partnership applied the security deposit of $35,000 as follows: $17,219 as rent
for June 2005, $17,219 as rent for July 2005 and $562 as rent for August 2005.
This lease was amended a fourth time and the Partnership waived the remaining
balance of deferred rent and minimum rent during the period from September 1,
2005 until January 31, 2006. The next rental payments was due on February 1,
2006.

Minimum future rentals to be received under existing noncancelable operating
leases as of June 30, 2006 for each of the next five years and in the aggregate
are:

       Twelve months ended June 30:     Garage        Spa         Total
                                       ---------    ---------     ---------
          2007                        $  237,168   $  165,000   $  402,168
          2008                           237,168      165,000      402,168
          2009                           237,168      165,000      402,168
          2010                           237,168      165,000      402,168
          2011                            98,820      165,000      263,820
          Thereafter                           -      316,250      316,250
                                       ---------    ---------    ---------
                                      $1,047,492   $1,141,250   $2,188,742
                                       =========    =========    =========

7.  Management Agreement

The Partnership entered into a new management contract with Dow Hotel Company
(Dow) on May 19, 2004.  Justice authorized and contracted Dow to operate and
manage the Hotel as its agent.  Dow shall operate and manage the Hotel.  The
management contract with Dow is effective July 1, 2004 and shall continue for
an aggregate term of ten years, unless the agreement is extended or earlier
terminated as provided by the contract.

                                    F-11
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

7.  Management Agreement, continued

The base management fees are calculated as 2.5% of gross operating revenues for
the fiscal year.  Of that amount, 1.75% of the gross operating revenue for an
accounting period shall be paid on or before the 17 days after the month-end of
that accounting period and the balance of 0.75% of the gross operating revenues
shall be deferred, subordinated, and paid only to the extent that the partially
adjusted net operating income (NOI) for the fiscal year exceeds the amount of
the owner's return ($7 million) for the fiscal year and the Partnership has
received from the distributions of NOI for the fiscal year an amount equal to
or greater than its owner's return for such fiscal year.  The NOI did not
exceed the required amount and the management fee was not payable at June 30,
2006.

Subject to the limitation of the total management fee, Dow shall be entitled to
an incentive management fee equal to (i) 5% of the first two million dollars of
fully adjusted NOI for that fiscal year, plus (ii) 10% of the next two million
dollars of the fully adjusted NOI, plus (iii) 15% of the amount by which the
fully adjusted NOI for that fiscal year exceeds four million.  For any partial
year, the dollar amounts shall be prorated; provided that the aggregate
management fee payable (consisting of the base management fee and incentive
management fee) for the each fiscal year shall not exceed 4% of the gross
revenue of the Hotel for that fiscal year.

Management fees for the twelve months ended June 30, 2006 were $192,686 and no
incentive management fees were earned in for the twelve months ended June 30,
2006.  At June 30, 2006 management fees payable to Dow were $13,427.


8.  Related Party Transactions

The contractor that was selected to oversee the garage and the first four
floors' renovation (excluding room upgrades) of the Hotel is the contractor who
originally constructed the Hotel. He is also a partner  in  the Partnership and
is a director of Evon Corporation, the managing general partner of the
Partnership.  The contractor is also a board member of Evon Corporation. At
June 30, 2006 there was $500,790 respectively payable to the contractor.
Included in the fixed assets at June 30, 2006 were additions to building
improvements of $14,670,962 and $3,629,038 for furniture and equipment. These
additions were for the services performed by the contractor.  The related party
contractor fee to the Partnership for the renovation is competitive.

The garage lessee, Evon, is the Partnership's managing general partner.  Evon
paid the Partnership $944,828 for the twelve months ended June 30, 2006 under
the terms of the lease agreement.  See Note 4-Leasing Arrangements. Rent
receivable from Evon at June 30, 2006 was $126,917.


9.  Concentration of Credit Risk

Rental Revenue and Receivables

The Partnership earns rental revenues under two operating leases; see Note 4-
Leasing Arrangements.  The Partnership received 100% of its revenue related to
the parking garage from Evon and 100% of its revenue related to the spa from
Tru Spa.

                                    F-12
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

9.  Concentration of Credit Risk, continued

Hotel Revenue and Receivables
The Hotel's major customers are travel agents and airlines. At June 30, 2006
they make up about 30% of accounts receivable. The Hotel had two customers who
accounted for 33% of accounts receivable at June 30, 2006.

Cash and Cash Equivalents
The Partnership maintains most of its cash balances at one financial
institution.  The Federal Deposit Insurance Corporation insures balances up to
$100,000 in the aggregate per depositor.  At June 30, 2006, the Partnership
held cash balances in excess of the FDIC limit in the amount of $2,843,669.


10.  Commitments

Operating leases

The Partnership also leases equipment from a unrelated third party under
operating leases with expiration dates through 2009.

Minimum future operating lease commitments for equipment leases as of June 30,
2006 are as follows:

               Twelve months ended June 30:
                 2007                           $198,540
                 2008                            198,540
                 2009                            198,540
                                                 -------
                                                $595,620
                                                 =======

Administrative Fees-General Partners

The Partnership has entered into an agreement with its two general partners,
Evon and Portsmouth Square, Inc. (Portsmouth), to compensate them for services
provided to the Partnership.  Portsmouth had a 49.8% limited partnership
interest in the Partnership.  On April 13, 2006, Portsmouth purchased a 0.2%
partnership interest for another partner.  Portsmouth ownership in the
Partnership is now 50%.  In order to plan, implement, and administer the
repositioning and major changes in the operations of the Hotel (renovations) it
will be necessary for Evon and Portsmouth to devote substantial time,
expertise, and effort in the renovation and in managing Justice's assets.  On
July 16, 2004 the Partnership amended the General Partner Compensation
Agreement with an effective date of May 31, 2004.  This was done to provide
adequate compensation to Evon and Portsmouth and provide incentives to the
general partners to encourage excellence in the performance of their
responsibilities.

                                    F-13
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

10.  Commitments, continued

Administrative Fees-General Partners, continued

Commencing on the effective date the base compensation shall be paid in the sum
of $153,125 (80% or $122,500 to Evon and 20% or $30,625 to Portsmouth).  After
2004, the administrative fees will be 1.5% of gross revenue payable in twelve
equal monthly installments, with the repayment of excess estimated installments
within 30 days after year-end.  The base compensation shall not be less than
the minimum annual base compensation of $262,500 nor shall it be greater than
the maximum annual base compensation.  The partners will also be paid an
incentive compensation based upon 5% of NOI of Justice in excess of $7,000,000
(50% Evon; 50% Portsmouth).

On February 23, 2006 the Partnership amended the General Partner Compensation
Agreement.  The maximum base administrative fees shall be (i) 1.5% of
$40,000,000; and (ii) the sum of (i) plus the CPI percentage adjustment.  The
minimum annual base compensation shall be (i) $262,500; and (ii) the sum of (i)
plus CPI percentage adjustment.  The base administrative fees paid to Evon and
Portsmouth for the twelve months ended June 30, 2006 are as follows:

                        Evon                  $210,000
                        Portsmouth              52,500
                                               -------
                                              $262,500

There were no administrative fees payable to the partners as of June 30, 2006
and no incentive management fees were paid in for the twelve months June 30,
2006.

Repositioning Fees-General Partners

As part of the July 16, 2004 amendment, the General Partner Compensation
Agreement provided that the partners shall also be paid a repositioning fee in
the sum of $275,000 as compensation for the services rendered to Justice with
respect to the repositioning of the Hotel.

On February 23, 2006 the Partnership amended the General Partner Compensation
Agreement; the amount of the repositioning fee was changed to the sum of
$755,000.  Repositioning fees of $377,500 each are payable to Evon and
Portsmouth.  The fees are payable in six installments.  The first installment
of $68,750 each was paid within ten days of the execution of the July 16, 2004
amendment.  The second installment of $68,750 each was payable at the time that
the renovation was determined to have been substantiality completed, the third
installment of $50,000 each was payable at the time that the construction loans
for the renovation of the Hotel was closed and final permits for the Renovation
was issued; the fourth installments of $100,000 each was payable within 10 days
after the Hotel was reopened for business after substantial completion of the
Renovation.  The fifth installment of $40,000 each shall be payable within 10
days after a cash distribution to Partners of Justice has been made and the
final installment of $50,000 each shall be payable within 10 days after the
date on which, in the reasonable discretion of the general partners, the
operations of the Hotel achieved the profit projected in the budget adopted by
Justice.

                                    F-14
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

10.  Commitments, continued

Repositioning Fees-General Partners, continued

The repositioning fees to the general partners for the twelve months ended June
30, 2006 were $376,389.  At June 30, 2006 there was a payable of $200,000 for
repositioning fees.

Franchise Agreements

Holiday Hospitality Franchising, Inc.  The Partnership paid monthly royalties,
marketing and reservations fees of 5%, 1.5%, and 1%, respectively, of the
Hotel's gross room revenue for the preceding calendar month.  This franchise
agreement ended on May 30, 2005 when the hotel was closed for renovation
project and the agreement was replaced by the Franchise agreement with the
Hilton Hotels Corporation.

Hilton Hotels Corporation.  The Partnership entered into a Franchise License
agreement (the License agreement) with the Hilton Hotels Corporation (Hilton)
on December 10, 2004.  The terms of the License agreement would commence upon
final approval of application and the completion of the approved product
improvement plan.  The commence date of operations as a Hilton hotel can be no
later than June 1, 2006.  The term of the License agreement is for a period of
15 years commencing on the opening date, with an option to extend the license
agreement for another five years, subject to certain conditions.

Beginning on the opening date, the Partnership will pay monthly royalty fees
for the first two years of three percent of the Hotel's gross room revenue for
the preceding calendar month, the third year will be four percent of the
Hotel's gross room revenue, and the fourth year until the end of the term will
be five percent of the Hotel's gross room revenue.  The partnership will also
pay a monthly program fee of four percent of the Hotel's gross revenue and an
information technology recapture charge of 0.75% of the Hotel's gross revenue.
The amount of the monthly program fee is subject to change; however, the
increase can not exceed one percent of the Hotel gross room revenue in any
calendar year, and the cumulative increases in the monthly fee will not exceed
five percent of gross room revenue.

The royalty fee and monthly program fee for the twelve months ended June 30,
2006 were $503,412.  The information technology recapture charge for the twelve
months ended June 30, 2006 were $53,925.  At June 30, 2006 the amount payable
to Hilton Hotels Corporation for royalty, monthly program fee, and information
technology recapture charge was $130,543.

                                    F-15
<PAGE>

                          JUSTICE INVESTORS
                       (a limited partnership)

          NOTES TO THE CONSOLIDATING FINANCIAL STATEMENTS-Continued

11.	  Legal proceedings

The Partnership is currently disputing a claim regarding a construction
contract. Justice has disputed the request for payment submitted by one of its
general contractors.  The contractor has recorded a mechanics' lien against the
property. Justice and the contractor have agreed to mediation pursuant to the
Construction Industry Rules of the American Arbitration Association as provided
in the construction contract.  The contractor has failed to pay a number of
subcontractors and these subcontractors have recorded a mechanics' lien against
the property.  The Partnership's management is confident that they will not be
liable for additional liability and have not recorded the disputed amount as of
June 30, 2006.

12.  Going Concern

The hotel was closed for operations from May 2005 through January 12, 2006.
There was no income from operations of the Hotel and management anticipated
losses.  The Partnership also had substantial financial commitments to make the
renovations.  The Partnership has received an appraisal of the Hotel property
indicating that the value of the property is adequate to serve as collateral for
lending facilities and the Partnership does not anticipate paying any
Partnership distributions until some time after operations commence under the
Hilton brand and net income and capital requirements warrants such
distributions.  The new Prudential Loan and the line of credit from United
Commercial Bank will provide the financial resources for the Partnership to
complete the substantial renovations to the Hotel required by its Franchise
License Agreement with the Hilton, allowing Justice to operate the Hotel as a
Hilton brand hotel. On of January 12, 2006 the Hotel renovation work was
substantially complete and the Hotel was reopened. Management believes that the
revenues expected to be generated from the operations of the hotel and from the
partnership's leases will be sufficient to meet all the partnership's current
and future obligations and financial requirements.

                                   F-16
<PAGE>



                              JUSTICE INVESTORS
                           (a limited partnership)
                SCHEDULE I - BALANCE SHEETS - JUSTICE INVESTORS
                                June 30, 2006
                            ---------------------

                                   ASSETS
Current assets:
 Cash                                                        $ 1,954,543
 Rents receivable garage-related party                           126,917
 Rents receivable-other                                           13,784
 Accounts receivable-other                                        86,338
 Accounts receivable-partner                                      10,170
 Prepaid expenses                                                 15,800
 Advances to hotel                                             4,678,578
                                                              ----------
       Total current assets                                    6,886,130
                                                              ----------
Property and equipment:
 Furniture and equipment (net of accumulated                  13,238,372
   depreciation of $1,753,377 at June 30, 2006)
 Building and improvements (net of accumulated                28,649,196
   depreciation of $13,060,306 at June 30, 2006)
 Land                                                          1,124,128
                                                              ---------
       Total property and equipment                           43,011,696
                                                              ----------
Other assets:
 Loan fees (net of accumulated amortization
   of $30,650 at June 30, 2006)                                  313,911
 Franchise fees (net of accumulated amortization
   of $3,334 at June 30, 2006)                                    96,666
                                                              ----------
       Total other assets                                        410,577
                                                              ----------
                                                             $50,308,403
                                                              ==========

                       LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
 Trade accounts payable and accrued expenses                 $ 3,061,280
 Current portion of long-term debt                               444,196
 Current portion of capital lease obligations                    105,094
 Accounts payable-Hotel renovation                                     -
 Rent received in advance                                              -
 Accrued interest                                                 96,596
 Accrued repositioning costs                                     200,000
                                                              ----------
       Total current liabilities                               3,907,166
                                                              ----------
Long-term debt                                                45,202,910
Capital lease obligations                                        516,167
                                                              ----------
       Total long-term liabilities                            45,719,077
                                                              ----------
        Total liabilities                                     49,626,243
Partners' capital                                                682,160
                                                              ----------
                                                             $50,308,403
                                                              ==========

   The accompanying notes are an integral part of these financial statements.

                                    F-17
 <PAGE>



                              JUSTICE INVESTORS
                           (a limited partnership)
                SCHEDULE II - BALANCE SHEETS - HOTEL OPERATIONS
                                June 30, 2006
                            ---------------------


                                   ASSETS

Current assets:
 Cash                                                        $   397,376
 Accounts receivable (net of allowance for
   doubtful accounts of $5,250 at June 30, 2006)                 875,705
 Inventory                                                       479,436
 Prepaid expenses                                                 47,942
                                                              ----------
       Total current assets                                    1,800,459

Other assets-deposits                                             29,275
                                                              ----------
                                                             $ 1,829,734
                                                              ==========


                         LIABILITIES AND OWNERS' CAPITAL

Current liabilities:
 Trade accounts payable and accrued expenses                 $ 1,782,909
 Accrued payroll and related expenses                            811,443
 Management fee payable                                           13,427
 Due to owners                                                   270,765
 Advance deposits                                                171,130
                                                              ----------
       Total current liabilities                               3,049,674

Owners' capital                                               (1,219,940)
                                                              ----------
                                                             $ 1,829,734
                                                              ==========

  The accompanying notes are an integral part of these financial statements.

                                    F-18
<PAGE>




                              JUSTICE INVESTORS
                           (a limited partnership)
    SCHEDULE III-STATEMENTS OF INCOME AND PARTNERS' CAPITAL-JUSTICE INVESTORS
                  for the twelve months ended June 30, 2006
                            ---------------------

Operating revenue:
 Garage rent-related party                                   $   944,828
 Spa                                                              80,550
 Other                                                            29,142
                                                              ----------
       Total operating revenue                                 1,054,520
                                                              ----------
Operating expenses:
 Depreciation and amortization                                 2,284,649
 Property taxes                                                  177,580
 General and administrative:
   Accounting fees                                               104,225
   Administrative and office expense                              74,840
   Administrative fees-general partners                          262,500
   Audit and tax preparation                                     115,171
   Bank charges                                                    2,782
   Business taxes                                                      -
   Consultants                                                    48,417
   Donation                                                        6,575
   Franchise taxes                                                 1,040
   Insurance expense                                             316,411
   Lease expense                                                  22,285
   Legal fees                                                    392,894
   Public relations                                               63,129
   Repairs and maintenance                                       124,225
   Repositioning costs                                           376,389
   Security                                                      466,889
   Travel and entertainment                                       12,861
   Utilities                                                     211,893
                                                              ----------
       Total operating expenses                                5,064,755
                                                              ----------
Other income (expense):
 Gain on disposition of assets                                   178,357
 Chinese Cultural lease expense                                  (74,200)
 Interest expense                                             (1,373,099)
 Interest income                                                 193,797
                                                              ----------
       Total other income                                     (1,075,145)
                                                              ----------
       Net loss                                               (5,085,380)

Partners' capital at beginning of period-July 1, 205           5,767,540
                                                              ----------
Partners' capital at end of period-June 30, 2006             $   682,160
                                                              ==========


  The accompanying notes are an integral part of these financial statements.

                                    F-19
<PAGE>


                              JUSTICE INVESTORS
                           (a limited partnership)
    SCHEDULE III-STATEMENTS OF INCOME AND PARTNERS' CAPITAL-HOTEL OPERATIONS
                   for the twelve months ended June 30, 2006
                            ---------------------


Operating revenue:
 Room revenue                                                $ 7,189,989
 Food and beverage revenue                                     1,685,806
 Other operating departments                                     177,938
                                                              ----------
       Total operating revenue                                 9,053,733
                                                              ----------

Operating expenses:
 Rooms                                                         2,966,181
 Food and beverage                                             2,440,973
 General and administrative                                    1,383,961
 Advertising and sales                                         1,050,959
 Repairs and maintenance                                         950,912
 Utilities                                                       529,256
 Franchise and marketing fees                                    503,412
 Insurance expense                                               366,540
 Other operating departments                                     378,087
 Property taxes                                                  331,018
 CEP fee                                                         270,802
 Credit card commissions                                         223,722
 Management fees                                                 192,686
 Rental expense                                                   21,907
                                                              ----------
       Total operating expenses                               11,610,416
                                                              ----------
Other expenses-start up costs-reopening of Hotel               1,229,918
                                                              ----------

       Net loss                                               (3,786,601)

Owners' capital at beginning of period-July 1, 2005             (314,104)

Contributions from owners                                      2,880,765
                                                              ----------
Owners' capital at end of period-June 30, 2006               $(1,219,940)
                                                              ==========


  The accompanying notes are an integral part of these financial statements.

                                    F-20
<PAGE>


REPORT OF INDEPENDENT REGISTERED
                       PUBLIC ACCOUNTING FIRM

To the Partners
Justice Investors
San Francisco, California

We have audited the accompanying consolidating balance sheet of Justice
Investors (a limited partnership) as of June 30, 2005, and December 31, 2004,
and the related consolidating statements of income, partners' capital and cash
flows for the six months ended June 30, 2005 and twelve-month ended December
31, 2004.  These consolidating financial statements are the responsibility of
the Partnership's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidating financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidating financial statements referred to above
present fairly, in all material respects, the consolidating financial position
of Justice Investors (a limited partnership) as of June 30, 2005, and December
31, 2004 and the results of its operations and its cash flows for the six
months ended June 30, 2005 and the twelve-months ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States
of America.

Our audit was conducted for the purpose of forming an opinion on the
consolidating financial statements taken as a whole.  The information in
Schedule I-IV is presented for purposes of additional analysis of the
consolidating financial statements and is not required part of the basic
financial statements.  Such information has been subjected to the auditing
procedures applied in the audits of the consolidating financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidating financial statements taken as a whole.

As discussed in Note 1 and 12 to the financial statements, on May 31, 2005, the
Partnership closed down and suspended the Hotel operations during
reconstruction of the Hotel. It was anticipated that the Hotel would reopen
promptly after renovations were completed.


/S/ Burr, Pilger & Mayer LLP

San Francisco, California
August 1, 2005, except for Note 10,
 as to which date is August 12, 2005

                                    F-21

<PAGE>

                             JUSTICE INVESTORS
                          (a limited partnership)
                        CONSOLIDATING BALANCE SHEET
                              June 30, 2005
               with consolidating totals for December 31, 2004

<TABLE>
                                                          2005                             2004
                                       ---------------------------------------------    ---------
                                                                Elimi-     Consoli-      Consoli-
               ASSETS                   Justice      Hotel     nations      dated         dated
                                       ---------   ---------  ---------    ---------    ----------
<S>                                  <C>          <C>       <C>          <C>           <C>
Current assets:
 Cash                                $     7,249  $182,341  $         -  $   189,590   $ 4,580,284
 Accounts receivable (net of
   allowance for doubtful accounts
   of $19,084)                                 -    57,524            -       57,524       604,418
 Rents receivable garage-related
   party                                  62,248         -            -       62,248        76,746
 Rents receivable-other                    6,151         -            -        6,151        26,999
 Inventory                                     -     2,294            -        2,294         1,059
 Prepaid Expenses                        859,708    67,397            -      927,105       219,648
 Deposits                                      -    31,675            -       31,675        31,675
 Advances to hotel                     1,797,813         -   (1,797,813)           -             -
                                      ----------   -------   ----------   ----------    ----------
      Total current assets             2,733,169   341,231   (1,797,813)   1,276,587     5,540,829
                                      ----------   -------   -----------  ----------    ----------
Property and equipment:
 Furniture and equipment (net of         857,530         -            -      857,530       859,352
   accumulated depreciation of
   $331,160 at June 30, 2005 and
   $244,721 at December 31, 2004)
 Building and improvements (net of     4,145,802         -            -    4,145,802     6,232,536
   accumulated depreciation of
   $13,073,705 at June 30, 2005 and
   $13,242,650 at December 31, 2004)
 Construction in progress              7,693,859         -       258,501   7,952,360       646,722
 Land                                  1,124,128         -             -   1,124,128     1,124,128
                                      ----------   -------   -----------  ----------    ----------
      Total property and equipment    13,821,319         -       258,501  14,079,820     8,862,738
                                      ----------   -------   -----------  ----------    ----------
Other assets, net                        133,141         -             -     133,141       106,283
                                     $16,687,629  $341,231  $(1,539,312) $15,489,548   $14,509,850
                                      ==========   =======   ===========  ==========    ==========

 LIABILITIES AND PARTNERS CAPITAL

Current liabilities:
 Trade accounts payable and          $ 3,707,690  $640,335            -  $ 4,348,025   $ 1,893,854
   accrued expenses
 Advance deposits                              -         -            -            -        15,497
 Rent received in advance                  2,183         -            -        2,183             -
 Accrued repositioning fee                61,111         -            -       61,111             -
 Due to management company                     -    15,000            -       15,000        15,715
                                      ----------   -------   ----------   ----------    ----------
      Total current liabilities        3,770,984   655,335            -    4,426,319     1,925,066
                                      ----------   -------   ----------   ----------    ----------
Long-term debt                         7,131,323         -            -    7,131,323     4,779,713
Other long-term liabilities-deposit       17,781         -            -       19,781        35,000
                                      ----------   -------   ----------   ----------    ----------
      Total long-term liabilities      7,149,104         -            -    7,149,104     4,814,713
                                      ----------   -------   ----------   ----------    ----------
      Total Liabilities               10,920,088   655,355            -   11,575,423     6,739,779
Partners' capital                      5,767,541  (314,104) $(1,539,312)   3,914,125     7,770,071
                                      ----------   -------   ----------   ----------    ----------
                                     $16,687,629  $341,231  $(1,539,312) $15,489,548   $14,509,850
                                      ==========   =======   ==========   ==========    ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                    F-22

<PAGE>

                                JUSTICE INVESTORS
                          (a limited partnership)
            CONSOLIDATING STATEMENT OF INCOME AND PARTNERS' CAPITAL
                   for the six months ended June 30, 2005
               with consolidating totals for December 31, 2004

<TABLE>
                                                          2005                             2004
                                       ---------------------------------------------   ----------
                                                                Elimi-     Consoli-      Consoli-
                                        Justice      Hotel     nations      dated         dated
                                       ---------   ---------  ---------    ---------    ----------
<S>                                   <C>         <C>         <C>         <C>         <C>
Operating revenue:
 Rent-garage-related party            $  455,279  $        -  $        -  $  455,279  $ 1,150,709
 Rent-other                               98,301           -           -      98,301      176,539
 Rent-hotel                                    -           -           -           -    1,367,086
 Room revenue                                  -   4,502,233           -   4,502,233    6,745,744
 Food and beverage revenue                     -     494,288           -     494,288      926,827
 Other operating departments                   -     127,289           -     127,289      133,344
                                       ---------   ---------   ---------   ---------   ----------
      Total operating revenue            553,580   5,123,810           -   5,677,390   10,500,249
                                       ---------   ---------   ---------  ----------   ----------
Operating expenses:
 Rooms                                         -   2,478,882           -   2,478,882    2,938,186
 Food and beverage                             -     919,644           -     919,644    1,157,423
 Other operating departments                   -     162,871           -     162,871      188,948
 Depreciation and amortization           305,497           -           -     305,497      572,434
 Lease commission                              -           -           -           -       13,477
 Property taxes                           23,077     137,498           -     160,575      194,636
 General and administrative              642,810     791,048           -   1,433,858    2,317,437
 Credit card commissions                       -      89,328           -      89,328      122,626
 Advertising and sales                         -     396,588           -     396,588      451,158
 Utilities                                     -     333,969           -     333,969      491,842
 Repairs and maintenance                       -     473,903           -     493,903      579,452
 Franchise fees                                -     296,728           -     296,728      438,473
 Management fees                               -     104,477           -     104,477      136,659
 Insurance expense                             -     372,678           -     372,678      369,973
 CEP fee                                       -     102,260    (102,260)          -            -
 Miscellaneous                                 -      13,005           -      13,005       22,664
                                       ---------   ---------   ---------  ----------   ----------
      Total operating expenses           971,384   6,672,879    (102,260)  7,542,003    9,995,388
                                       ---------   ---------   ---------  ----------   ----------
Other income (expense):
 Lease termination settlement income           -           -           -           -    5,000,000
 Write-off of deferred lease costs             -           -           -           -       (7,754)
 Loss on disposition of assets  -
   From 1997 and 2003                 (1,920,139)          -           -  (1,920,139)           -
 Chinese Culture lease expense           (38,633)          -                 (38,633)           -
 Interest expense                        (40,914)          -           -     (40,914)    (166,583)
 Interest income                           8,353           -           -       8,353       35,312
                                      ----------   ---------   ---------  ----------    ---------
      Total other (expense) income    (1,991,333)          -           -  (1,991,333)   4,860,975
                                      ----------   ---------   ---------  ----------   ----------
      Net (loss) income               (2,409,137) (1,549,069)    102,260  (3,855,946)   5,365,836

Capital at beginning of period-
  January 1, 2005 and 2004             8,176,678    (170,896)   (235,711)  7,770,071    3,042,635
Contributions                                  -   1,405,861  (1,405,861)          -            -
Less distributions                             -           -           -           -     (638,400)
                                       ---------   ---------   ---------   ---------   ----------
Capital at end of period-June 30,
 2005 and December 31, 2004           $5,767,541  $ (314,104) $(1,539,312) $3,914,125  $7,770,071
                                       =========   =========   ==========   =========   =========

</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                    F-23

<PAGE>

                                JUSTICE INVESTORS
                          (a limited partnership)
                    CONSOLIDATING STATEMENT OF CASH FLOWS
                   for the six months ended June 30, 2005
               with consolidating totals for December 31, 2004

<TABLE>
                                                          2005                             2004
                                    ------------------------------------------------   ----------
                                                                Elimi-     Consoli-      Consoli-
                                     Justice       Hotel       nations      dated         dated
                                    ----------   ----------   ---------   ----------    ----------
<S>                                <C>          <C>          <C>         <C>           <C>
Cash flows from operating
   activities:
 Net (loss) income                 $(2,409,137) $(1,549,069) $  102,260  $(3,855,946)  $5,365,836
 Adjustments to reconcile net
   (loss) income to net cash
   provided by (used in)
   operating activities:
  Allowance for doubtful accounts            -      (12,544)          -      (12,544)      19,084
  Depreciation and amortization        302,355            -           -      302,355      572,434
  Loss on disposition of assets      1,920,139            -           -    1,920,139            -
  Write-off of lease costs                   -            -           -            -        7,754
 Changes in operating assets
   and liabilities:
  Decrease in rents receivable          35,346            -           -       35,346       66,573
  Decrease (increase) in accounts
   receivable                                -      559,438           -      559,438     (623,502)
  Decrease in accounts receivable
   -Justice                                  -       31,530           -       31,530            -
  Increase in advances to Hotel     (1,467,084)           -   1,467,084            -            -
  Decrease (increase) in
   prepaid expenses                   (829,153)     121,696           -     (707,457)    (219,648)
  Decrease(increase) in inventory            -       59,988     (61,223)      (1,235)      (1,059)
  Increase in deposits                       -            -           -            -      (31,675)
  Increase on other assets             (26,858)           -           -      (26,858)           -
  Increase(decrease) in trade
   accounts payable and
   accrued expenses                  3,385,806     (963,165)          -    2,422,641    1,513,669
  Decrease in rents received
   in advance                                -            -           -            -      (19,592)
  Increase in due to owner                   -      (17,967)     17,967            -            -
  Decrease in due to management              -         (715)          -         (715)      15,715
  Increase in deposits received         43,892            -           -       43,892       35,000
  Decrease in due to partner                 -      (15,497)          -      (15,497)      15,497
  Increase in rents in advance           2,183            -           -        2,183            -
                                    ----------   ----------   ---------   ----------    ---------
   Net cash provided (used in)
    by operating activities            957,489   (1,786,305)  1,526,088      697,272    6,716,086
                                    ----------   ----------   ---------   ----------    ---------
Cash flows from investing
   activities:
  Purchase of property and
   equipment and construction
   in progress                      (7,317,066)           -    (138,800)  (7,455,866)  (2,374,915)
  Proceeds from sale of assets          16,290            -           -       16,290            -
                                    ----------    ---------   ---------   ----------   ----------
   Net cash used in investment
    activities                      (7,300,776)           -    (138,800)  (7,439,576)  (2,374,915)
                                    ----------    ---------   ---------   ----------   ----------

Cash flows from financing
   activities:
 Contributions                               -    1,405,861  (1,405,861)           -            -
 Net proceeds on long-term debt      2,351,610            -           -    2,351,610      877,513
 Distributions to partners                   -            -           -            -     (638,400)
                                    ----------   ----------   ---------   ----------  -----------
   Net cash used in financing
    activities                       2,351,610    1,405,861  (1,405,861)   2,351,610      239,113
                                    ----------   ----------  ----------   ----------  -----------
   Net (decrease) increase
    in cash                         (3,991,677)    (380,444)    (18,573)  (4,390,694)   4,580,284
Cash at beginning of year            3,998,926      562,785      18,573    4,580,284            -
                                    ----------   ----------   ---------   ----------    ---------
Cash at end of year                $     7,249  $   182,341  $        -  $   189,590   $4,580,284
                                    ==========   ==========   =========   ==========    =========
Supplemental disclosures of
   cash flows information-
   cash paid during the year for:

 Interest                          $    18,414  $         -  $        -  $    18,414   $  161,927
                                    ==========   ==========   =========   ==========    =========
 Franchise taxes                   $       800  $         -  $        -  $       800   $      800
                                    ==========   ==========   =========   ==========    =========

</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                    F-24
<PAGE>

                              JUSTICE INVESTORS
                           (a limited partnership)
                 Notes to the Consolidating Financial Statements

1.  Organization

Justice Investors, a Limited Partnership (the Partnership), was formed in 1967
to acquire real property in San Francisco, California, for the development and
lease of hotel and related facilities.  The leases became effective during 1970
upon completion of the Hotel and parking garage.  The Hotel property was leased
to Felcor Lodging Trust, Inc. (Felcor).  The Partnership leases the parking
garage to Evon Garage Corporation (Evon), the managing general partner.  The
parking garage lease provides for payments of certain percentages of parking
receipts through November 30, 2010.  The Partnership leases space to Tru Spa.
The spa lease provides for minimum and additional rent payments every month
through May 31, 2013.

In the later part of fiscal 2003, Justice Investors conducted a comprehensive
physical inspection of the Hotel as permitted by the terms of the lease.  In
July 2003, Justice delivered to the Hotel lessee, Felcor Lodging Trust, Inc.
(Felcor) and Holiday Inn, the manager of the Hotel a notice citing certain
deficiencies in the physical condition of the Hotel property and in its
furniture, fixtures and equipment and requested that those deficiencies be
corrected in accordance with the lessee's obligations under the lease deferred
maintenance and repairs provisions.

During 2004, the Partnership settled its disputes with Felcor and Holiday Inn
regarding the deferred maintenance and repairs.  The Partnership received a
settlement payment of $5,000,000 in 2004, which is included in miscellaneous
income in the accompanying income statement.  Also, in connection with the
settlement, Holiday Inn was terminated as the manager of the Hotel and the
Hotel lease was terminated effective June 30, 2004.

Effective July 1, 2004, Dow Hotel Company replaced Holiday Inn as the
management company of the Hotel and assumed control of the Hotel's day-to-day
operations.  Prior to July 1, 2004 Justice recorded the rent payment of
$1,250,000 from Felcor as revenue.  As result of the termination of the lease
with Felcor and the change in management company to Dow Hotel Company there
will be no more rent payments as of July 1, 2004.  The operations of the Hotel
are now recorded as part of the Partnership's operations.  The Hotel operations
and Justice's operations will be shown separately in the financial statements
and will be consolidated.

The Partnership entered into a short term franchise agreement with Holiday
Hospitality Franchising, Inc. to continue to utilize the Holiday Inn brand
(flag) until such time as they bring in a replacement flag.

In order to bring in a new flag the Partnership must commit to renovate and
reposition the Hotel.  During December 2004, the Partnership entered into a
franchise agreement (the Hilton agreement) with the Hilton Hotels Corporation
(Hilton).  Prior to operating the Hotel as a Hilton Hotel, the Partnership is
required to make substantial renovations to the Hotel to meet Hilton standards
in accordance with a product improvement plan agreed upon by Hilton and the
Partnership, as well as complying with other brand standards established by
Hilton and generally applicable to the Hotel.  The Partnership estimates that
the cost of the renovations will be approximately $33 million.  This amount
includes $28 million for actual cost of renovation and $5 million for
construction interest and estimated carrying costs of operations.  The Hilton
agreement requires that those renovations be complete and the Hotel commence
operations as a Hilton hotel no later than June 1, 2006.  The Hilton agreement
has a term of 15 years commencing on the opening date, with an option to extend
the Hilton agreement for another five years, subject to certain conditions.

                                Continued
                                   F-25
<PAGE>

                             JUSTICE INVESTORS
                         (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


1.  Organization, continued

The Partnership considered the benefits and detriments of closing the Hotel
during reconstruction.  The Partnership considered the increased cost of
reconstruction while maintaining operations as opposed to the generation of
income during reconstruction; the anticipated timing of reconstruction while
the Hotel was opened as opposed to closed; the potential liability facing the
Hotel during construction; the advice of the management company of the Hotel;
issues involved in attempting to maintain satisfactory guest services during
the renovation; health and safety concerns relating to construction activities
including the result of an asbestos remediation; issues involved in the health
and safety of Hotel workers; the anticipated lessened duration of the
completion of the renovation work if the Hotel was totally shut down versus
keeping it opened; and other factors.  Based on the presentations made and the
considerations undertaken by the Partnership, the Partnership determined that
it would be in its best interests to suspend Hotel operations during
reconstruction of the Hotel.  The Hotel portion of the property is temporarily
closed for the renovations and it is anticipated that the Hotel will reopen as
the "Hilton San Francisco Financial District" during the first part of 2006.
The below ground parking garage and Tru Spa located on the lobby level of the
Hotel, have remained open during the renovation work.


2.  Summary of Significant Accounting Policies

Basis of Consolidation

The consolidating financial statements include the consolidated accounts of the
Hotel operations and Justice.  All inter-company transactions and accounts have
been eliminated in consolidation.

Allocations

Net profits, losses and cash flows from operations are to be allocated among
the Partners in proportion to their respective Partnership interests.

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

Accounts Receivable

The Partnership carries its accounts receivable at cost less an allowance for
doubtful accounts which is based on management's assessment of the
collectibility of accounts receivable.  The Partnership extends unsecured
credit to its customers but mitigates the associated credit risk by performing
ongoing credit evaluations of its customers.  The allowance for doubtful
account policy is 20% of 60-day accounts; 75% of 90-day accounts; 100% of over
90-day accounts.

                                 Continued

                                    F-26
<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


2.  Summary of Significant Accounting Policies, continued

Rents Receivable

Management believes that all rents receivable are fully collectible.
Therefore, no allowance for doubtful accounts was recorded as of June 30, 2005
and December 31, 2004.

Inventory

Food and Beverage inventories are stated at the lower of cost (first-in, first-
out method) or market.

Property and Equipment

Property and equipment are stated at cost.  Building improvements are being
depreciated on a straight-line basis over their useful lives ranging from 5 to
39 years.  Furniture, fixtures, and equipment are being depreciated on a
straight-line basis over their useful lives ranging from 5 to 7 years.  Repairs
and maintenance are charged to expense as incurred, and costs of significant
renewals and improvements are capitalized.  The cost of assets sold or retired,
and the related accumulated depreciation or amortizations are removed from the
accounts; any resulting gain or loss is included in operations.

Construction in Progress

Construction in progress at June 30, 2005 and December 31, 2005 consisted of
accumulated incurred costs for the renovation of the Hotel.  These costs are
part of the repositioning of the Hotel and will be placed in service once the
Hotel is rebranded as a Hilton Hotel.

Capitalized interest

The partnership capitalizes interest as a component of construction in progress
held in fixed assets. For the six months ended June 30, 2005 total interest
expense incurred was $133,055. Of these amounts $92,141 were capitalized in
2005, and the remainder was expensed. For the twelve months ended December 31,
2004 the total interest expense incurred was $166,583 and no interest was
capitalized.

Other Assets

Loan fees are stated at cost and amortized over the two-year term of the loan
using the straight-line method.  Deferred lease costs were written off in 2004.
Included in the other assets are franchise fees of $100,000 that were paid to
the Hilton during 2004.  This will be amortized once the Hotel operates as a
Hilton using the straight-line method over the 15 years term of the Hilton
agreement.

                                 Continued

                                    F-27
<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


2.  Summary of Significant Accounting Policies, continued

Trade Accounts Payable

The Partnership's banking system provides for the daily replenishment of bank
accounts from the line of credit as checks are presented.  Accordingly,
included in trade accounts payable at June 30, 2005 and December 31, 2004 is
$1,767,914 and $63,329, respectively, representing the excess of outstanding
checks over cash on deposit at the bank upon which the checks were drawn.

Revenue Recognition

Justice.  The Partnership recognizes rental income over the lease term as it
becomes receivable according to the provisions of the leases.  The leases
contain provisions for base rent plus a percentage of the lessees' revenues.
See Note 4-Leasing Arrangements.

Hotel.  Revenues are recognized as earned.  Earned is generally defined as the
date upon which a guest occupies a room and/or utilizes the Hotel's services.
Ongoing credit evaluations are performed and potential credit losses are
expensed at the time the account receivable is estimated to be uncollectible.
Historically, credit losses have not been material to the Hotel's results of
operations.

Advertising Costs
Advertising costs are expensed as incurred.  The advertising costs were $32,170
and $81,224 for the six months ended June 30, 2005 and the twelve months ended
December 31, 2004, respectively.

Income Tax
No income taxes have been provided in the accompanying financial statements
since the Partnership profits and losses are reportable by the partners on
their individual income tax returns.  Cash paid during the year for the taxes
represents the California minimum tax due for limited partnerships.

Fair Value of Financial Instruments
The Partnership's financial instruments are cash, accounts receivable, rents
receivable, inventories, prepaid expenses, accounts payable, accrued expenses
and long-term debt.  The recorded values of cash, accounts receivable, rents
receivable, inventories, prepaid expenses, accounts payable and accrued
expenses approximate their fair values based on their short-term nature.  The
recorded value of long-term debt approximates the fair value at June 30, 2005
and December 31, 2004 as the related interest rate is in line with market
rates.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions regarding certain types of assets, liabilities, revenues, and
expenses.  Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements.  Accordingly, upon settlement,
actual results may differ from estimated amounts.

                                 Continued

                                    F-28

<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


3.  Long-Term Debt

The Partnership had a $4,470,275 revolving line of credit agreement with a
bank.  During January 2004, the line of credit was replaced by a new line of
credit of $7,500,000 with another bank.  This line of credit will expire on
February 1, 2006.  The line of credit is collateralized by the first deed of
trust on the Hotel land and property and the Partnership's interest in the
Hotel and garage leases.  The interest rate on the line of credit is variable
and is subject to change from time to time based on changes in an index that is
the Bank's prime rate (the Index).  The outstanding balance under the agreement
at June 30, 2005 and December 31, 2004 was $5,131,353 and $4,779,713,
respectively.  The balances were accruing interest at 6.25% and 4.35% at June
30, 2005 and December 31, 2004, respectively.

The Partnership was not in compliance with one of its loan covenants as of June
30, 2005 and  December 31, 2004.  The Partnership received a waiver with
respect to the violation of the covenant.

On June 27, 2005, the Partnership also obtained a $2,000,000 Revolving Line of
Credit (LOC) from United Commercial Bank.  The line of credit expires July 31,
2005 at an annual interest rate equal to the either The Wall Street Journal
Prime Rate or LIBOR plus 2%, as selected by the Partnership, and is secured by
a second deed of trust on the Hotel property.  Interest only is payable monthly
with principal and accrued interest due at maturity.  The outstanding line of
credit at June 30, 2005 was $1,999,970.  The balance was accruing interest at
6.25% at June 30, 2005.

Subsequent to June 30, 2005 both these line of credits were refinanced and
replaced by a new loan and line of credit. See Note 11, Subsequent Events,
Long-Term Debt.


4.  Leasing Arrangements

The Partnership leased the Hotel to Felcor, and leases the parking garage to
Evon and spa facilities to Tru Spa.

In conjunction with settling amounts due from Felcor to the Partnership, the
Hotel lease with Felcor was terminated effective June 30, 2004.  The lease
provided for minimum monthly payments of $208,333 plus an additional percentage
rent.  Prior to the termination, Felcor advised the Partnership that it did not
intend to exercise its option to extend the Hotel lease for an additional
period of five  years, citing as its reasons substantial losses Felcor had
incurred under the Hotel lease in guaranteeing a minimum $2.5 million yearly
(discussed below) in lease payments to the Partnership.  Given the recent poor
performance of Felcor under the Hotel lease, the Partnership Management
unanimously determined that it was in the Partnership's best interest to agree
to the lease termination.  The percentage rent was based on the greater of (a)
20% of the gross room revenue of the lessee or (b) $2,500,000 plus 50% of the
lessee's cash available.  Cash available was defined as the gross room revenue
plus other revenue less operating expenses of the lessee less the base rent of
$ 2,500,000 less $1,250,000.  Rents due under the 20% of gross room revenue
provision were payable monthly and were calculated based on cumulative gross
room revenues on a calendar basis.  Rents due under the 50% of cash available
provision were payable annually in December.  Justice received $1,250,000 as
base rent and $117,086 as additional rent from Felcor for the Hotel for the
period January through June 2004.

                                 Continued

                                    F-29
<PAGE>

                              JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


4.  Leasing Arrangements, continued

The parking garage lease with Evon provides for minimum monthly payments of
$19,764 plus an additional percentage rent.  The percentage rent is based on
60% of the gross parking revenues and is due monthly.  Additional garage
percentage rent received during for the six months ended June 30, 2005 and the
twelve months ended December 31, 2004 was $336,695 and $913,541, respectively.
See Note 11, Subsequent events, Leasing Arrangements.

The Partnership entered into a lease agreement with Tru Spa for the spa
facilities in July 1, 2002.  The scheduled commencement was May 1, 2003 and the
lease expires on May 31, 2013.  The lease was amended and the amended
commencement date was June 1, 2003.  The minimum rent payments are $11,667 per
month from June to December 31, 2005 and from January 2006 and on every third
year thereafter, it is the minimum rent plus the percentage increase in the
Consumer Price Index multiplied by the minimum rent.  There is additional rent
of $2,072 per month that is payable on the same terms as the minimum rent.  Per
the lease agreement the minimum rent and other charges payable during the first
ninety days of the first lease year shall be deferred.  Beginning on the
thirteenth calendar month following such ninety-day period (September 2004),
and continuing for eleven consecutive months thereafter, Tru Spa shall add one-
twelfth of the deferred rent to the minimum rent due hereunder.  Included in
the rent receivable at June 30, 2005 and December 31, 2004 is $6,151 and
$26,759 that reflects the receivable for deferred rent.  As a result of the
renovations, the lease was amended and the partnership shall apply the security
deposit of $35,000 as follows: $17,219 as rent for June 2005, $17,219 as rent
for July 2005 and $562 as rent for August 2005.

Minimum future rentals to be received under existing noncancelable operating
leases as of June 30, 2005 for each of the next five years and in the aggregate
are:

                                      Garage       Spa         Total
                                    ----------  ----------  ----------
    Six months ending June 30:
             2006                   $  237,168  $  165,000  $  402,168
             2007                      237,168     165,000     402,168
             2008                      237,168     165,000     402,168
             2009                      237,168     165,000     402,168
             2010                      237,168     165,000     402,168
             Thereafter                 98,820     481,250     580,070
                                     ---------   ---------   ---------
                                    $1,284,660  $1,306,250  $2,590,910

5.  Management Agreement

The Partnership entered into a new management contract with Dow Hotel Company
(Dow) on May 19, 2004.  Justice authorized and contracted Dow to operate and
manage the Hotel as its agent.  Dow shall operate and manage the Hotel.  The
management contract with Dow is effective July 1, 2004 and shall continue for
an aggregate term of ten years, unless the agreement is extended or earlier
terminated as provided by the contract.

                                 Continued

                                    F-30

<PAGE>
                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


5.  Management Agreement, continued

The base management fees are calculated as 2.5% of gross operating revenues for
the fiscal year.  Of that amount, 1.75% of the gross operating revenue for an
accounting period shall be paid on or before the 17 days after the month-end of
that accounting period and the balance of 0.75% of the gross operating revenues
shall be deferred, subordinated, and paid only to the extent that the partially
adjusted net operating income (NOI) for the fiscal year exceeds the amount of
the owner's return ($7 million) for the fiscal year and the Partnership has
received from the distributions of NOI for the fiscal year an amount equal to
or greater than its owner's return for such fiscal year.  The NOI did not
exceed the required amount and the management fee was not payable for the six
months ended June 30, 2005 and twelve months ended December 31, 2004.

Subject to the limitation of the total management fee, Dow shall be entitled to
an incentive management fee equal to (i) 5% of the first two million dollars of
fully adjusted NOI for that fiscal year, plus (ii) 10% of the next two million
dollars of the fully adjusted NOI, plus (iii) 15% of the amount by which the
fully adjusted NOI for that fiscal year exceeds four million.  For any partial
year, the dollar amounts shall be prorated; provided that the aggregate
management fee payable (consisting of the base management fee and incentive
management fee) for the each fiscal year shall not exceed 4% of the gross
revenue of the Hotel for that fiscal year.

Management fees for the six months ended June 30, 2005 and the twelve months
ended December 31, 2004, were $104,477 and $136,659 and no incentive management
fees were earned in for the six months ended June 30, 2005 and twelve months
ended December 31, 2004.  At December 31, 2004, management fees payable to Dow
were $15,715.  There were no fees payable to Dow at June 30, 2005.


6.  Related Party Transactions

During the twelve months ended December 31, 2004, the Partnership incurred
expenses for legal services of $2,114 which were rendered by a limited partner.

The contractor that was selected to oversee the garage and the first four
floors' renovation (excluding room upgrades) of the Hotel is the contractor who
originally constructed the Hotel and is affiliated with one of the directors of
a substantial shareholder of Evon Corporation, the managing general partner of
the Partnership.  The contractor is also a board member of Evon Corporation. At
June 30, 2005 and December 31, 2004 there was $706,813 and $9,360, respectively
payable to the contractor.  Included in the construction in progress at June
30, 2005 and December 31, 2004 were $1,170,889 and $9,360, respectively for
services performed by the contractor.  The related party contractor fee to the
Partnership for the renovation is competitive.

The garage lessee, Evon, is the Partnership's managing general partner.  Evon
paid the Partnership $455,279 and $1,150,709 during the six months ended June
30, 2005 and the twelve months ended December 31, 2004, respectively, under the
terms of the lease agreement.  See Note 4-Leasing Arrangements.  Rents
receivable from Evon at June 30, 2005 and December 31, 2004 were $62,248 and
$76,986, respectively.

                                  Continued

                                    F-31
<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


7.  Concentration of Credit Risk

Rental Revenue and Receivables

The Partnership earns rental revenues under two operating leases; see Note 4-
Leasing Arrangements.  The Partnership received 100% of its revenue related to
the parking garage from Evon and 100% of its revenue related to the spa from
Tru Spa.

Hotel Revenue and Receivables

The Hotel's major customers are travel agents and airlines, and at June 30,
2005 they make up 100% of the accounts receivable.  At December 31, 2004 they
make up about 86% of accounts receivable.  The Hotel had four customers who
accounted for 48% of accounts receivable at June 30, 2005 and two customers who
accounted for 24% of Hotel revenue for the six months then ended.  The Hotel
had two customers who accounted for 68% of accounts receivable at December 31,
2004 and two customers who accounted for 17% of Hotel revenue for the year then
ended.

Cash and Cash Equivalents

The Partnership maintains most of its cash balances at one financial
institution.  The Federal Deposit Insurance Corporation insures balances up to
$100,000 in the aggregate per depositor.  At June 30, 2005 and December 31,
2004, the Partnership held cash balances in excess of the FDIC limit in the
amount of $225,482 and $5,017,426, respectively.


8.  Commitments

Administrative Fees-General Partners
The Partnership has entered into an agreement with its two general partners,
Evon and Portsmouth Square, Inc. (Portsmouth) to compensate them for services
provided to the Partnership.  Portsmouth has a 49.8% limited partnership
interest in the Partnership.  In order to plan, implement and administer the
repositioning and major changes in the operations of the Hotel (renovations) it
will be necessary for Evon and Portsmouth to devote substantial time, expertise
and effort in the renovation and in managing Justice's assets.  On July 16,
2004 the Partnership amended the General Partner Compensation Agreement with an
effective date of May 31, 2004.  This was done to provide adequate compensation
to Evon and Portsmouth and provide incentives to the general partners to
encourage excellence in the performance of their responsibilities.

Prior to amendment, the administrative fees were 3% of the first $10,000,000 of
gross rents.  Of the first $150,000 payable, eighty percent was due to Evon and
twenty percent was due to Portsmouth.  Any compensation in excess of $150,000
was split equally between Evon and Portsmouth.  The agreement provided for
monthly minimum administrative fees payable of $10,000 to Evon and $2,500 to
Portsmouth.

                                  Continued

                                    F-32
<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


8.  Commitments, continued

Administrative Fees-General Partners, continued

There were special provisions in the agreement for the base compensation for
the year ended 2004.  Commencing on the effective date and continuing through
and including December 31, 2004, the base compensation shall be paid in the sum
of $153,125 -(80% or $122,500 to Evon and 20% or $30,625 to Portsmouth).  After
2004, the administrative fees will be 1.5% of gross revenue payable in twelve
equal monthly installments, with the repayment of excess estimated installments
within 30 days after year-end.  The base compensation shall not be less than
the minimum annual base compensation of $262,500 nor shall it be greater than
the maximum annual base compensation.  The partners will also be paid an
incentive compensation based upon 5% of NOI of Justice in excess of $7,000,000
(50% Evon; 50% Portsmouth).

The base administrative fees paid to Evon and Portsmouth for six months ended
June 30, 2005 and the twelve months ended December 31, 2004 are as follows:

                                            2005         2004
                                            ----         ----
        Evon-prior to amendment                 -     $ 50,000
        Evon                             $105,000      122,500
        Portsmouth-prior to amendment           -       12,500
        Portsmouth                         26,250       30,625
                                          -------      -------
                                         $131,250     $215,625

There were no administrative fees payable to the partners as of June 30, 2005
and December 31, 2004 and no incentive management fees were paid in for the six
months ended June 30, 2005 and December 31, 2004.

Repositioning Fees-General Partners

Pursuant to the General Partner Compensation Agreement, the partners shall also
be paid a repositioning fee in the sum of $275,000 as compensation for the
services rendered to Justice with respect to the repositioning of the Hotel.
Repositioning fees of $137,500 each are payable to Evon and Portsmouth.  The
fees are payable in two installments of $68,750, the first installment within
ten days of the execution of this agreement.  The second will be payable at the
time that the renovation is determined in the reasonable discretion of the
general partners to have been substantiality completed.  The repositioning fees
to the general partners for the six months ended June 30, 2005 and the twelve
months ended December 31, 2004 were $92,736 and $106,944, respectively.  At
June 30, 2005 there was a payable of $61,111 for repositioning fees and at
December 31, 2004 there were prepaid repositioning fees of $30,555.

                                 Continued

                                    F-33
<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


8.  Commitments, continued

Franchise Agreements.

Holiday Hospitality Franchising, Inc.  Total franchise cost incurred by the
Partnership for the six months ended June 30, 2005 and twelve months ended
December 31, 2004 was $296,728 and $438,473.  The Partnership pay monthly
royalties, marketing and reservations fees of 5%, 1.5%, and 1%, respectively,
of the Hotel's gross room revenue for the preceding calendar month.  This
franchise agreement ended on May 30, 2005 when the hotel was closed for
renovation project and the agreement will be replaced by the Franchise
agreement with the Hilton Hotels Corporation.

Hilton Hotels Corporation.  The Partnership entered into a Franchise License
agreement (the License agreement) with the Hilton Hotels Corporation (Hilton)
on December 10, 2004.  The terms of the License agreement would commence upon
final approval of application and the completion of the approved product
improvement plan.  The commence date of operations as a Hilton hotel can be no
later than June 1, 2006.  The term of the License agreement is for a period of
15 years commencing on the opening date, with an option to extend the license
agreement for another five years, subject to certain conditions.  Beginning on
the opening date, the Partnership will pay monthly royalty fees of four percent
of the Hotel's gross room revenue for the preceding calendar month.  The amount
of the monthly fee is subject to change; however the increase can not exceed
one percent of the Hotel gross room revenue in any calendar year, and the
cumulative increases in the monthly fee will not exceed five percent of gross
room revenue.

Hotel Company contractual agreement

Dow, contracted by the partnership and acting as an agent for the Hotel,
entered into a memorandum of understanding with UNITE HERE (union of hotel
employees) on June 27, 2005 whereas the employer (Dow) agrees to extend recall
rights to all active employees employed by the Hotel as of the closure of May
31, 2005.  Recall rights shall be extended for the period of closure, even if
the Hotel is close beyond twelve months.  Recall rights shall be offered by
certified mail at least ten days prior to the first day of work and employees
will have five days to respond by certified mail or in person to the Hotel.
Dow will also provide extended Health and Welfare Contributions.  In the month
following the closure of the Hotel (June 2005), the employer will make
contributions to all funds, based upon hours worked in the prior month per
normal contribution rules and practices.  In the second month following the
closure, the employer will make a monthly contribution, but only to the Health
and Welfare fund for all laid off employees and regardless of hours and shifts
worked.  This is intended to provide Health and Welfare eligibility only, for
laid off employees through the end of August.  All Health and Welfare benefit
coverage will cease September 1, 2005.

                                  Continued

                                    F-34
<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


9.  Arbitration Settlement

During 2004, the Partnership settled a dispute with Felcor, the Hotel lessee,
related to an obligation of Felcor to repair existing deficiencies in the
window system, and certain existing cracks, spalling, and porosity conditions
in the concrete.  The Partnership received a settlement payment of $5,000,000
in 2004 plus base rent of $1,875,000 in 2004.  The settlement payment is
included in miscellaneous income in the accompanying income statement.

10.  Renovation and Construction Commitments

At August 12, 2005, the Partnership has various contracts outstanding with
third parties in connection with the renovation of the Hotel.  The following is
a schedule of the contractual and purchase obligations for the minimum payments
required under the contracts for 2005:

                  Contractual obligations      $12,484,301
                  Purchase obligations           6,839,493
                                                ----------
                                               $19,323,794
                                                ==========

There were no obligations subsequent to 2005.

11.  Subsequent Events

Long-Term Debt

On July 27, 2005, the Partnership, entered into a first mortgage loan (the
Loan) with The Prudential Insurance Company of America (Prudential) in a
principal amount of $30,000,000.  The term of the loan is for 120 months at a
fixed interest rate of 5.22% per annum.  The loan matures on August 5, 2015.
The Loan calls for monthly installments of principal and interest in the amount
of approximately $165,100, calculated on a 360 month amortization schedule.
The loan is secured by a first deed of trust on the Partnership's hotel
property, including all improvements and personal property thereon and an
assignment of all present and future leases and rents.  The loan is without
recourse to the limited and general partners of the Partnership.

On July 27, 2005, Justice Investors also obtained a $10,000,000 Revolving Line
of Credit (LOC) from United Commercial Bank.  The term of the line of credit is
for 60 months at an annual interest rate equal to the either The Wall Street
Journal Prime Rate or LIBOR plus 2%, as selected by the Partnership, and is
secured by a second deed of trust on the Hotel property.  Interest only is
payable monthly with principal and accrued interest due at maturity.

From the proceeds of the loan, the Partnership retired its existing line of
credit with Bank of the West in the approximate amount of $4,521,000, including
accrued interest, and paid off a short term unsecured line of credit from
United Commercial Bank in the amount of $2,007,000, including accrued interest.

                                  Continued

                                    F-35
<PAGE>

                              JUSTICE INVESTORS
                           (a limited partnership)
          Notes to the Consolidating Financial Statements, Continued


11.  Subsequent Events, continued

Long-Term Debt

The Prudential Loan and the line of credit from United Commercial Bank will
provide the financial resources for the Partnership to complete the substantial
renovations to the Hotel required by its Franchise License Agreement with the
Hilton, allowing Justice to operate the Hotel as a Hilton brand hotel.

Leasing Arrangements

Evon, the lessee of the parking garage gave 30 day notice to Ampco System
Parking, their parking facilities operator on July 20, 2005.  The lease will
terminate with Ampco System Parking on August 31, 2005. Ace Parking will be the
new operator effective September 1, 2005. The terms of the new agreement have
been agreed upon in principle and will be finalized by the end of August 2005.

12.  Going Concern

During the closure of the Hotel for renovations, there would be no income from
operations of the Hotel and management anticipates losses.  The Partnership
also has substantial financial commitments to make the renovations.  The
Partnership has received an appraisal of the Hotel property indicating that the
value of the property is adequate to serve as collateral for lending facilities
and the Partnership does not anticipate paying any Partnership distributions
until some time after operations commence under the Hilton brand and net income
and capital requirements warrants such distributions.  The new Prudential Loan
and the line of credit from United Commercial Bank will provide the financial
resources for the Partnership to complete the substantial renovations to the
Hotel required by its Franchise License Agreement with the Hilton, allowing
Justice to operate the Hotel as a Hilton brand hotel.

                                    F-36

<PAGE>

                             JUSTICE INVESTORS
                           (a limited partnership)
                SCHEDULE I - BALANCE SHEETS - JUSTICE INVESTORS
                      June 30, 2005 and December 31, 2004
                            ---------------------

                          ASSETS                      2005           2004
                                                   ----------     ----------
Current assets:
 Cash                                             $     7,249    $ 3,998,926
 Rents receivable garage-related party                 62,248         76,746
 Rents receivable-other                                 6,151         26,999
 Prepaid expenses                                     859,708         30,555
 Advances to hotel                                  1,797,813        330,729
                                                   ----------     ----------
       Total current assets                         2,733,169      4,463,955
                                                   ----------     ----------
Property and equipment:
 Furniture and equipment (net of accumulated          857,530        859,352
   depreciation of $331,160 at June 30, 2005
   and $244,721 at December 31, 2004)
 Building and improvements (net of accumulated      4,145,802      6,232,536
   depreciation of $13,073,705 at June 30, 2005
   and $13,242,650 at December 31, 2004)
 Construction in progress                           7,693,859        527,021
 Land                                               1,124,128      1,124,128
                                                   ----------     ----------
       Total property and equipment                13,821,319      8,743,037
                                                   ----------     ----------
Other assets:
 Loan fees (net of accumulated amortization            33,141          6,283
   of $9,426 at June 30, 2005 and $6,284
   at December 31, 2004)
 Franchise fees                                       100,000        100,000
                                                   ----------     ----------
                                                  $16,687,629    $13,313,275
                                                   ==========     ==========

          LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
 Trade accounts payable and accrued expenses      $ 3,685,190    $   272,708
 Accounts payable-Hotel                                     -         31,530
 Rent received in advance                               2,183              -
 Accrued interest                                      22,500         17,646
 Accrued repositioning costs                           61,111              -
                                                   ----------     ----------
       Total current liabilities                    3,770,984        321,884
                                                   ----------     -----------

Long-term debt                                      7,131,323      4,814,713
Other long-term liabilities-deposit                    17,781         35,000
                                                   ----------     ----------
       Total long-term liabilities                  7,149,104      4,814,713
                                                   ----------     ----------
       Total liabilities                           10,920,088      5,136,597
Partners' capital                                   5,767,541      8,176,678
                                                   ----------     ----------
                                                  $16,687,629    $13,313,275
                                                   ==========     ==========

   The accompanying notes are an integral part of these financial statements.

                                    F-37

<PAGE>
                              JUSTICE INVESTORS
                           (a limited partnership)
                SCHEDULE II - BALANCE SHEETS - HOTEL OPERATIONS
                      June 30, 2005 and December 31, 2004
                            ---------------------

                          ASSETS                      2005           2004
                                                   ----------     ----------
Current assets:
 Cash                                             $   182,341    $   562,785
 Accounts receivable (net of allowance for             57,524        604,418
   Doubtful accounts of $6,540 at June 30,
   2005 and $19,084 at December 31, 2004)
 Accounts receivable-Justice                                -         31,530
 Inventory                                              2,294         62,282
 Prepaid expenses                                      67,397        189,093
 Deposits                                              31,675         31,675
                                                   ----------     ----------
       Total current assets                       $   341,231    $ 1,481,783
                                                   ==========     ==========

            LIABILITIES AND OWNERS' CAPITAL

Current liabilities:
 Trade accounts payable and accrued expenses      $   426,571    $   852,785
 Accrued payroll and related expenses                 213,764        750,715
 Management fee payable                                15,000         15,715
 Due to owners                                              -         17,967
 Advance deposits                                           -         15,497
                                                   ----------     ----------
       Total current liabilities                      655,335      1,652,679

Owners' capital                                      (314,104)      (170,896)
                                                   ----------     ----------
                                                  $   341,231    $ 1,481,783
                                                   ==========     ==========

  The accompanying notes are an integral part of these financial statements.

                                    F-38

<PAGE>

                              JUSTICE INVESTORS
                           (a limited partnership)
    SCHEDULE III-STATEMENTS OF INCOME AND PARTNERS' CAPITAL-JUSTICE INVESTORS
                 for the six months ended June 30, 2005
                and for the year ended December 31, 2004
                            ---------------------

                                                    2005          2004
                                                 ----------     ----------
Operating revenue:
 Garage rent-related party                      $   455,279    $ 1,150,709
 Spa                                                 82,704        165,135
 Other                                               15,597         11,404
 Hotel-base rent                                          -      1,250,000
 Hotel-additional rent                                    -        117,086
 Hotel-income distributions                               -        377,813
                                                  ---------      ---------
      Total operating revenue                       553,580      3,072,147
                                                  ---------      ---------
Operating expenses:
 Depreciation and amortization                      305,497        572,434
 Lease commission                                         -         13,477
 Property taxes                                      23,077         45,105
 General and administrative:
   Accounting fees                                    5,785         11,979
   Administrative and office expense                 31,113         12,517
   Administrative fees-general partners             131,250        215,625
   Audit and tax preparation                         40,868         77,453
   Bank charges                                       2,423          5,274
   Business taxes                                         -            268
   Consultants                                            -        197,230
   Donation                                             300          3,550
   Franchise taxes                                      800            800
   Insurance expense                                 37,842         94,833
   Legal fees                                       222,287        495,958
   Repairs and maintenance                            8,436         56,622
   Repositioning costs                               92,736        241,590
   Security                                          65,503        106,392
   Travel and entertainment                           3,467          9,572
                                                  ---------      ---------
      Total operating expenses                      971,384      2,160,679
                                                  ---------      ---------
Other income (expense):
 Lease termination settlement income                      -      5,000,000
 Write-off of deferred lease costs                        -         (7,754)
 Loss on disposition of assets-                  (1,920,139)             -
   from 1997 and 2003
 Chinese Culture lease expense                      (38,633)             -
 Interest expense                                   (40,914)      (166,583)
 Interest income                                      8,353         35,312
                                                  ---------      ---------


      Total other (expense) income               (1,991,333)     4,860,975
                                                  ---------      ---------
      Net (loss) income                          (2,409,137)     5,772,443

Partners' capital at beginning of period-         8,176,678      3,042,635
   January 1, 2005 and 2004
Less distributions to partners                            -       (638,400)
                                                  ---------      ---------
Partners' capital at end of period-             $ 5,767,541    $ 8,176,678
   June 30, 2005 and December 31, 2004


  The accompanying notes are an integral part of these financial statements.

                                    F-39

<PAGE>

                              JUSTICE INVESTORS
                           (a limited partnership)
    SCHEDULE III-STATEMENTS OF INCOME AND PARTNERS' CAPITAL-HOTEL OPERATIONS
                 for the six months ended June 30, 2005
                and for the year ended December 31, 2004
                            ---------------------

                                                    2005          2004
                                                 ----------     ----------
Operating revenue:
 Room revenue                                   $ 4,502,233    $ 6,745,744
 Food and beverage revenue                          494,288        926,827
 Other operating departments                        127,289        133,344
                                                  ---------      ---------
      Total operating revenue                     5,123,810      7,805,915
                                                  ---------      ---------

Operating expenses:
 Rooms                                            2,478,882      2,938,186
 Food and beverage                                  919,644      1,157,423
 Other operating departments                        162,871        188,948
 General and administrative                         791,048        787,774
 Credit card commissions                             89,328        122,626
 Advertising and sales                              396,588        451,158
 Utilities                                          333,969        491,842
 Repairs and maintenance                            473,903        579,452
 Franchise and marketing fees                       296,728        438,473
 Management fees                                    104,477        136,659
 Property taxes                                     137,498        149,531
 Insurance expense                                  372,678        369,973
 CEP fee                                            102,260        156,241
 Miscellaneous                                       13,005         22,664
                                                  ---------      ---------
      Total operating expenses                    6,672,879      7,990,950
                                                  ---------      ---------
      Net income                                 (1,549,069)      (185,035)

Owners' capital at beginning of period-
    January 1, 2005 and 2004                       (170,896)             -
Contributions from owners                         1,405,861        768,016
Less distributions to owners                              -       (753,877)
                                                  ---------      ---------
Owners' capital at end of period-
   June 30, 2005 and December 31, 2004          $  (314,104)   $  (170,896)
                                                  =========      =========


  The accompanying notes are an integral part of these financial statements.

                                    F-40