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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

     (Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission file number 000-24594

WEST COAST REALTY INVESTORS, INC.

3000 SAND HILL ROAD, BUILDING 3, SUITE 140
MENLO PARK, CALIFORNIA 94025
(Address of principal executive offices) (Zip Code)

(650) 233-7140
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports 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 [ü]    No [    ]

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 7, 2002, 2,927,967 shares of the Registrant’s Common Stock were outstanding.

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WEST COAST REALTY INVESTORS, INC.

REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

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Part I — Financial Information
	Item 1. Financial Statements
		Balance Sheets —
		As of June 30, 2002 (unaudited) and December 31, 2001(audited)			3
		Income Statements (unaudited) — Three and six months ended June 30, 2002 and 2001			4
		Statements of Cash Flows (unaudited) — Six months ended June 30, 2002 and 2001			5
		Statements of Stockholders’ Equity (unaudited) — Six months ended June 30, 2002 and 2001			6
		Summary of significant accounting policies			7
		Notes to financial statements			12
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				19
	Item 3. Quantitative and Qualitative Disclosures about Market Risk				38
Part II — Other Information
	Item 1. Legal Proceedings				39
	Item 2. Changes In Securities and Use of Proceeds				39
	Item 3. Defaults Upon Senior Securities				39
	Item 4. Submission of Matters to a Vote of Security Holders				39
	Item 5. Other Information				39
	Item 6. Exhibits and Reports on Form 8-K				40
	Signatures				41

As used in this Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” and “our” refer to West Coast Realty Investors, Inc., a Delaware corporation.

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PART I- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS

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

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WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME

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

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WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS

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

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WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDER’S EQUITY

Six months ended June 30, 2002
(Unaudited)

Six months ended June 30, 2001
(Unaudited)

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

West Coast Realty Investors, Inc. was organized in October 1989 under the laws of the State of Delaware. We have elected tax status as a Real Estate Investment Trust (“REIT”) for federal and state income tax purposes since 1991. Through March 31, 2002, we were advised by West Coast Realty Advisors, Inc. (“WCRA”) and our properties were managed by West Coast Realty Management, Inc. (“WCRM”) (collectively, the “Advisor”), each of which is a wholly-owned subsidiary of Associated Financial Group, Inc. The Advisor managed and oversaw our investments, subject to the direction of the board of directors. Our management and advisory relationships with the Advisor were terminated effective March 31, 2002, and since that date we have been self-managed and self-administered.

We were organized for the purpose of investing in, holding and managing income-producing residential, industrial, retail and commercial properties. As of June 30, 2002, all of our properties were located in California, and we did not own any residential properties. Most of our leases are “triple-net” leases where the tenant is responsible for maintenance, taxes and insurance.

Rental Real Estate and Depreciation

Assets are stated at lower of cost or net realizable value. Depreciation is computed using the straight-line method over their estimated useful lives of 31.5 to 39 years for financial reporting purposes.

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

Real estate classified as “held for sale” is stated at the lower of its carrying amount or estimated fair value less disposal costs. Depreciation is not recorded on assets classified as held for sale.

In the normal course of business, we may receive offers to purchase our properties, either solicited or unsolicited. For the offers we accept, the prospective buyer will usually require a due diligence period before closing the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. As a result, real estate is not classified as “held for sale” until it is likely, in the opinion of management, that a property will be disposed of in the near term, even if sales negotiations for the property are currently under way. Properties classified as held for sale are segregated from rental real estate in our financial statement presentation. As of June 30, 2002, we classified six properties as “held for sale,” as they were listed for sale with real estate brokers and we believed there was a high likelihood of sale in the near term. There can be no assurance that the properties held for sale will be sold in the near term, at prices we consider acceptable, or at all. Four properties were classified as “held for sale” as of December 31, 2001.

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WEST COAST REALTY INVESTORS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Rental Income, Operating Expense and Capitalized Costs

Rental revenue is recognized on a straight-line basis to the extent that rental revenue is deemed collectible. Percentage rents in the three and six month periods ended June 30, 2002 and 2001 were immaterial, and recognized when received. Improvements and betterments that increase the value of the property or extend its useful life are capitalized.

Acquisition Costs

We expense internal acquisition costs, including acquisition costs paid the to the Advisor, in accordance with Emerging Issues Task Force 97-11, “Accounting for Internal Costs Relating to Real Estate Property Acquisitions.”

Loan Origination Fees

Loan origination fees are capitalized and amortized over the life of the loan and included in interest expense.

Cash and Cash Equivalents

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

Consolidation

As of June 30, 2002, we owned all of our assets directly and have no subsidiaries. We formed a subsidiary limited liability company in July 2002 in connection with the refinancing of four of our properties. See Note 11.

Use of Estimates

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

Net Income Per Share

We calculate net income per share by dividing the net income by the weighted average number of shares outstanding for the period. We did not have any potentially dilutive securities in the three and six month periods ended June 30, 2002 or 2001. We are obligated to grant options to purchase

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

200,000 shares of our stock to our President and Chief Operating Officer. See Note 10. No options have been granted to date.

Comprehensive Income

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” (“SFAS 130”) establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is comprised of net income and all changes to stockholders’ equity except those due to investments by owners and distributions to owners. We do not have any components of comprehensive income other than net income in the three and six month periods ended June 30, 2002 or 2001.

Reclassifications

We have made reclassifications to the prior years’ financial statements to conform to the presentation of the current year’s financial statements.

Presentation of Interim Information

The accompanying unaudited financial statements include all normal adjustments considered necessary, in the opinion of management, to present fairly the financial position as of June 30, 2002 and the results of operations and cash flows for the three and six month periods ended June 30, 2002 and 2001. Interim results are not necessarily indicative of results for a full year.

The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in our audited financial statements and notes for the fiscal year ended December 31, 2001.

Descriptive Information About Reportable Segments

Financial Accounting Standards Board Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“Statement 131”), requires certain descriptive information to be provided about an enterprise’s reportable segments. We have determined that we have one operating and reportable segment, real estate, which comprised 96% of our total assets at both June 30, 2002 and December 31, 2001 and approximately 99% our total revenues for both quarterly periods ended June 30, 2002 and 2001. All the rental real estate we presently own is located in California, although we intend to acquire an Atlanta, Georgia shopping center in the third quarter. Because most of our leases are to single tenants under long-term leases, the economic prospects of the region generally do not affect our rental income or operating expense. Accordingly, we do not use reporting by geographic region.

Our business focus has been the ownership and operation of suburban office properties and light industrial buildings, although we intend to acquire a shopping center in the Atlanta, Georgia area during the third quarter of 2002 and may pursue other real estate opportunities. We evaluate performance and allocate resources primarily based on the opportunity for growth of net operating

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

income (“NOI”). Like the real estate industry generally, we define NOI as the excess of all revenue generated by the property (primarily rental revenue) less direct operating expenses (primarily, but not limited to, property taxes, insurance, property management and maintenance expense, to the extent not paid by the tenant). NOI excludes depreciation, capitalized expenditures and interest expense. In addition to NOI growth prospects, we evaluate properties for planned capital expenditures and various risks such as non-payment of rent by tenant, term of the lease and other factors. NOI from our properties totaled $907,542 and $963,892 in the three month periods ended June 30, 2002 and 2001, respectively, and $1,853,963 and $1,987,230 in the six month periods ended June 30, 2002 and 2001, respectively.

All revenues are from external customers and there are no revenues from transactions with other segments. Interest income is not separately reported, as it is immaterial. Interest expense on debt is not allocated to individual properties, even if that debt is secured. Because we are organized as a REIT, we have not provided for federal or state income taxes. See Note 7.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board finalized Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that we recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that we reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that we identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires us to complete a transitional goodwill impairment test six months from the date of adoption. We are also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.

We had no previous transactions that resulted in the recognition of goodwill or other intangible assets. We have adopted SFAS 141 and SFAS 142 and there was no material effect on our financial statements.

Statement of Financial Accounting Standard 143 (SFAS 143), Accounting for Asset Retirement Obligations, was issued in June 2001 and is effective for fiscal years beginning after June 15, 2002.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SFAS 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made. We have adopted SFAS 143 and there was no material effect on our financial statements.

Statement of Financial Accounting Standard 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in August 2001 and is effective for fiscal years beginning after December 15, 2001. SFAS 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. We have adopted SFAS 144 and there was no material effect on our financial statements.

Accounting Pronouncements Issued But Not Yet Adopted

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this standard will not have any immediate effect on our financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. We will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized.

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NOTES TO FINANCIAL STATEMENTS

NOTE 1— RENTAL REAL ESTATE

Our major categories of rental real estate are:

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

Once a property is classified as held for sale, we stop charging depreciation expense related to it.

On April 26, 2002, we sold our Huntington Beach property to an unaffiliated buyer for $1,500,000, resulting in a gain of approximately $230,000.

We currently believe we will sell our Corona property in the third quarter of 2002; however, as of June 30, 2002, and the three months then ended, we did not believe a sale to be likely and therefore did not classify the Corona property as held for sale as of June 30, 2002.

We earned a portion of our rental revenue from tenants whose individual rents represented more than 10% of our total rental revenue for the three and six month periods ending June 30, 2002 and 2001. Specifically:

	•		Four tenants accounted for 20%, 16%, 13% and 10% in the three month period ended June 30, 2002.
	•		Three tenants accounted for 15%, 14% and 11% in the three month period ended June 30, 2001 and one accounted for 9%.
	•		Four tenants accounted for 20%, 15%, 12% and 10% in the six month period ended June 30, 2002.
	•		Three tenants accounted for 15%, 14% and 11% in the six month period ended June 30, 2001 and one accounted for 9%.

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NOTES TO FINANCIAL STATEMENTS

The tenant in our Ontario property is a subsidiary of Adelphia Communications, Inc, which has filed for protection under the federal bankruptcy laws. The tenant has paid its rent through August 31, 2002. We do not yet know whether we will be adversely affected this bankruptcy filing.

NOTE 2— FUTURE MINIMUM RENTAL INCOME

As of June 30, 2002, future minimum rental income under the existing leases that have remaining noncancelable terms in excess of one year are as follows:

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

NOTE 3— DEPOSITS AND ACQUISITION EXPENSES

As of June 30, 2002, we had made deposits totaling approximately $460,000 in connection with a loan refinancing. Of this amount, approximately $300,000 was refunded to us upon the closing of the refinancing on August 5, 2002. See Note 11. In addition, we have deposited $400,000 toward the purchase of a shopping center in the Atlanta, Georgia area. This deposit is refundable if the lender of the existing loan does not formally consent to our assumption of the loan by August 25, 2002. Further, in connection with the above, we have paid approximately $70,000 in legal fees to outside counsel.

NOTE 4— RELATED PARTY TRANSACTIONS

Until March 31, 2002, we had two agreements with the Advisor to provide advice on investments and to administer our day-to-day operations, including property management. The Advisor has terminated those agreements, pursuant to their terms, effective March 31, 2002. Since that date, we have been fully self-administered and self-managed, and no fees are due the Advisor.

During the quarter ended March 31, 2002, no advisory fees were due to the Advisor, and the Advisor did not charge us property management fees or for a reimbursement of overhead costs due to the relatively low level of service provided in that period.

At June 30, 2002, the Advisor and a related entity owned 22,556 of our shares, less than 1% of our outstanding shares. Two of our directors are also directors of the Advisor and its affiliates.

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NOTES TO FINANCIAL STATEMENTS

The following related party transactions are included in the statements of income:

     In addition, we had related party accounts payable as follows:

NOTE 5 — NOTES PAYABLE

Notes payable consist of the following:

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WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 5 — NOTES PAYABLE (continued)

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WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 5 — NOTES PAYABLE (continued)

The aggregate annual future maturities of our notes payable at June 30, 2002 are as follows:

On August 5, 2002, we refinanced the loans secured by our properties in Tustin, Sacramento (Horn Road), Irvine and Folsom. These loans totaled approximately $8,500,000. See Note 11.

NOTE 6— NET INCOME AND DIVIDENDS PER SHARE

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

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NOTES TO FINANCIAL STATEMENTS

Net Income Per Share was computed using the weighted average number of outstanding shares of 2,927,967 and 2,927,967 for the three and six month periods ended June 30, 2002 and 2001. We did not issue any potentially dilutive securities in the three and six month periods ended June 30, 2002 or 2001.

NOTE 7— TAXES ON INCOME

We have elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (“the Code”). As a result, we will not be subject to federal taxation at the corporate level to the extent we distribute, annually, at least 90% of our REIT taxable income, as defined by the Code, to our stockholders and satisfy certain other requirements. In addition, California, the state in which in which we own and operate real estate properties, has provisions equivalent to the federal REIT provisions. Accordingly, we have not provided for federal or state income taxes in the accompanying financial statements.

NOTE 8— SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash flow information follows:

NOTE 9— INSURANCE RECOVERY

In March 2001, we received $165,053 from Banker’s Standard Insurance Company (“Banker’s Standard”) in partial settlement of a lawsuit regarding Bankers Standard’s responsibility to defend us in a lawsuit related to the Riverside property. See Note 10, below. Banker’s Standard is also required to pay the subsequent costs of this action. We had previously expensed these legal costs, and as a result, we took the proceeds of the settlement into income in March 2001.

NOTE 10— COMMITMENTS AND CONTINGENCIES

During the quarter ended September 30, 2001, we entered into an employment agreement with Mr. Allen K. Meredith, the President and Chief Executive Officer, under which he is entitled to options to purchase 200,000 shares of our common stock at an exercise price equal to the fair market value at the date of grant. These options would vest over a period of two years. As of June 30, 2002, no options have been issued to Mr. Meredith and there is therefore no dilutive impact for these options. Further, we would be obligated to make severance payments to Mr. Meredith, upon the termination of his employment or his resignation for certain reasons, of one year’s salary plus bonus, if any.

We are a defendant in a lawsuit entitled John Lonberg & Ruthee Goldkorn v. Sanborn Theaters, Inc., a California Corporation doing business as Marketplace Cinema and So-Cal Cinema, Inc., a California Corporation; and Salts-Troutman-Kaneshiro, Inc., West Coast Realty Investors, Inc., USDC Central District of California, Eastern Division Case No. CV-97-6598AHM (JGx). This is an Americans with

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NOTES TO FINANCIAL STATEMENTS

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

NOTE 11— SUBSEQUENT EVENTS

On June 27, 2002, our board of directors declared a dividend of $0.10 per common share to holders of record on July 3, 2002, payable on July 19, 2002.

On July 19, 2002 our board of directors amended portions of our bylaws to conform the bylaws to our certificate of incorporation and to revise the policies related to the amount of debt secured by any one property. Further, as described in the proxy materials for our September 2002 annual meeting of stockholders, our board voted to amend and restate our certificate of incorporation and our bylaws and to submit those amendments and restatements to our stockholders for their approval. A feature of those proposals is a one-for-three reverse split of our outstanding shares. These changes are contingent on stockholder approval and listing of our shares on a national exchange. Finally, the board adopted a stock incentive plan, which is also subject to stockholder approval.

On August 5, 2002, we completed the refinancing of loans totaling approximately $8,500,000 secured by four of our properties: Tustin, Sacramento (Horn Road), Irvine and Folsom. The new loans bear a base rate of 6.97% and have a total initial outstanding principal amount of $15,020,000 and are due in seven years, with principal amortizing on a 30 year basis. As part of the refinancing, the lender required us to create a single purpose limited liability company to hold title to these properties; accordingly, we transferred the properties to the limited liability company and are the sole member of that company. We received approximately $6,500,000 in net proceeds after reserves, interest prorations, a prepayment penalty and approximately $300,000 in fees and costs. In addition, we will expense the unamortized balance of loan fees of approximately $190,000 related to the loans we refinanced.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are identified by words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or in their negative form or other variations, or by discussions of strategy, plans or intentions. Forward-looking statements are based on assumptions, data or methods that may be incorrect, imprecise or incapable of being realized. These statements include our statements of this nature concerning the following:

	•		the commercial real estate market;
	•		our future revenues;
	•		our future revenue mix, net operating income and operating results;
	•		our future cash requirements;
	•		competition, our competitors and our ability to compete;
	•		our financial and managerial controls, reporting systems and procedures, and other systems and processes;
	•		property values;
	•		any particular tenant’s intentions or financial condition, such as its plans to renew or terminate a property lease, or the likelihood that it will default upon a property lease;
	•		vacancies;
	•		interest rates;
	•		our operating costs;
	•		our future depreciation expenses;
	•		litigation matters and legal proceedings, our defenses to such matters and our contesting of such matters;
	•		our ability to meet our debt obligations;
	•		the proposed sales of certain properties;
	•		our ability to obtain outside financing;
	•		identifying, acquiring and successfully integrating new properties;
	•		the type and locations of real estate investments we may make;
	•		our ability to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended;
	•		environmental risks;
	•		natural disasters and other threats to our properties;
	•		the economies of the geographic areas where our properties are located;
	•		our ability to provide liquidity for our common stock by listing it on the American Stock Exchange or other national market; and
	•		our ability to recover costs and deposits in our proposed purchase of the shopping center in the Atlanta, Georgia area.

These statements are subject to risks and uncertainties that could cause actual results and events to differ materially. For a detailed discussion of these risks and uncertainties, see the portion of this Item 2 entitled “Risk Factors that May Affect Future Operating Results.”. We undertake no obligation to

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update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.

RESULTS OF OPERATIONS

Overview

West Coast Realty Investors, Inc. was organized in October 1989 under the laws of the State of Delaware. We have elected tax status as a Real Estate Investment Trust (“REIT”) for federal and state income tax purposes since 1991. Through March 31, 2002, we were advised by West Coast Realty Advisors, Inc. (“WCRA”) and our properties were managed by West Coast Realty Management, Inc. (“WCRM”) (collectively, the “Advisor”), each of which is a wholly-owned subsidiary of Associated Financial Group, Inc. The Advisor managed and oversaw our investments, subject to the direction of the board of directors. Our management and advisory relationships with the Advisor were terminated effective March 31, 2002, and since that date we have been self-managed and self-administered.

Our business focus has been the ownership and operation of suburban office properties and light industrial buildings, although we intend to acquire an Atlanta, Georgia shopping center in the third quarter and may pursue other real estate opportunities. Most of our leases are “triple-net” leases where the tenant is responsible for maintenance, taxes and insurance.

Other than our becoming self-managed and self-advised as noted above, the most significant factors affecting our financial results are as follows:

	•		In August 2001, our tenant in our Vacaville property exercised its early termination option in the lease. This property generated approximately 8% of our gross rental income before its lease terminated. To date, we have not secured a replacement tenant for this property.
	•		On April 26, 2002, we sold our Huntington Beach property to an unaffiliated buyer for $1,500,000, resulting in a gain of approximately $230,000. This property generated approximately 3% of our gross rental income before its sale.
	•		On May 31, 2002, the lease expired on our Corona property, and to date, we have not secured a replacement tenant for this property. This property generated approximately 5% of our gross rental income before its lease expired.

In addition, the tenant in our Ontario property is a subsidiary of Adelphia Communications, Inc, which has filed for protection under the federal bankruptcy laws. The tenant has paid its rent through July 31, 2002. We do not yet know whether we will be adversely affected this bankruptcy filing. This property generates approximately 12% of our gross rental income

Quarter ended June 30, 2002 compared to the quarter ended June 30, 2001

Operations for the quarterly periods ended June 30, 2002 and 2001 represented full periods of rental operations for all of our properties except for our Huntington Beach, Vacaville and Corona properties for the reasons described above in “Overview.”

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Rental revenue decreased by $86,539 (8%) for the quarter ended June 30, 2002 compared to the quarter ended June 30, 2001, primarily due to the loss of rents in 2002 from the Huntington Beach, Vacaville and Corona properties.

Interest income decreased by $11,092 (72%) for the quarter ended June 30, 2002 compared to the quarter ended June 30, 2001 due to lower average balances maintained in interest-earning assets and lower interest rates.

Interest expense decreased by $57,099 (15%) for the quarter ended June 30, 2002 compared to the quarter ended June 30, 2001, due to significantly lower interest rates on our variable rate debt at our Folsom and Irvine properties in 2002 and the sale of the Huntington Beach property.

General and administrative costs increased by $152,768 (153%) principally due to our conversion to a self-advised and self-managed REIT, including expenses related to hiring of employees, travel expenses and insurance. This increase was offset in part by our having to pay no advisory fee in 2002 because our agreement with the Advisor was terminated on March 31, 2002.

Depreciation expense decreased by $ 59,777 (33%) for the quarter ended June 30, 2002 compared to the quarter ended June 30, 2001, primarily due to the classification of properties as “held for sale” in the first quarter of 2002. Depreciation expense was not charged to those properties held for sale in the second quarter of 2002, as it had been during the same quarter in 2001.

Operating expenses decreased by $30,089 (20%) primarily due to the elimination of the management fee to the Advisor on the termination of the agreement on March 31, 2002.

Net gain on sale of rental real estate held for sale was $230,940 in quarter ended June 30, 2002 due to the sale of the Huntington Beach property. We sold no properties in the same period in 2001.

Net income for the quarter ended June 30, 2002 was $439,479, compared to net income of $311,973 for the quarter ended June 30, 2001. This increase was largely attributed to the gain on sale of our Huntington Beach property.

The weighted average number of shares outstanding for the quarter ended June 30, 2002 was 2,927,967, the same as the comparable period in prior year. Net income per share before gain on sale of rental real estate held for sale decreased from $0.11 in 2001 to $0.07 in 2002 largely due to the loss of rents from the Vacaville, Huntington Beach and Corona properties.

Six months ended June 30, 2002 compared to the six months ended June 30, 2001

Operations for the quarterly periods ended June 30, 2002 and 2001 represented full periods of rental operations for all of our properties except for our Huntington Beach, Vacaville and Corona properties during the periods and for the reasons described above in “Overview.”

Rental revenue decreased by $156,974 (7%) for the six months ended June 30, 2002 compared to the six months ended June 30, 2001, primarily due to the loss of rents in 2002 from the Huntington Beach, Vacaville and Corona properties.

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Interest income decreased by $24,181 (24%) for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 due to lower average balances maintained in interest-earning assets and lower interest rates.

Interest expense decreased by $129,858 (16%) for the six months ended June 30, 2002 compared to the six months ended June 30, 2001, due to significantly lower interest rates on our variable rate debt at our Folsom and Irvine properties in 2002 and to the sale of the Huntington Beach property in 2002.

General and administrative costs increased by $227,247 (98%) principally due to our conversion to a self-advised and self-managed REIT, including expenses related to the hiring of four employees, travel expenses and insurance. This increase was offset in part by having to no advisory fee due for the period January 1 - March 31, 2002 because the criteria to charge the fee was not met in that period and the termination of our agreement with the Advisor on March 31, 2002.

Depreciation expense decreased by $119,556 (3%) the six months ended June 30, 2002 compared to the six months ended June 30, 2001, primarily due to the classification of properties as “held for sale” in the first six months of 2002. Depreciation expense was not charged to those properties classified as held for sale in the first six months of 2002, as it had been during the same six months in 2001.

Operating expenses decreased by $23,707 (8%) primarily due largely to the Advisor waiving the management fee for the period January 1 - March 31, 2002 and the termination of the agreement with the Advisor on March 31, 2002.

In March 2001, we received $165,053 from Banker’s Standard Insurance Company (“Banker’s Standard”) in partial settlement of a lawsuit regarding Banker’s Standard’s responsibility to defend us in the Market Place Cinema lawsuit. See Part II, Item 1. Banker’s Standard is also required to pay the subsequent legal costs of defending this action. We had previously expensed these legal costs, and as a result the proceeds of the settlement were taken into income in March 2001. There was no such item in 2002.

Net gain on sale of real estate held for sale was $230,940 in six months ended June 30, 2002 due to the sale of the Huntington Beach property; there were no property sales in the same period in 2001.

Net income for the six months ended June 30, 2002 was $721,050, compared to net income of $790,444 for the six months ended June 30, 2001. This decrease was largely attributed to amounts recognized from the Banker’s Standard settlement in 2001, the loss of rents from the Vacaville, Huntington Beach and Corona properties in 2002 and offset in part by the gain on sale of rental real estate held for sale in 2002.

The weighted average number of shares outstanding for the six months ended June 30, 2002 was 2,927,967, the same as the comparable period in prior year. Net income before gain on sale of rental real estate held for sale per share decreased from $0.27 in 2001 to $0.17 in 2002 largely due to amounts recognized from the Banker’s Standard settlement in 2001 and the loss of rents from the Vacaville, Huntington Beach and Corona properties in 2002.

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

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CRITICAL ACCOUNTING POLICIES

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

Revenue Recognition — We recognize minimum rents on the straight-line method over the terms of the leases, as required under Statement of Financial Accounting Standard No. 13. Some of the leases also provide for additional revenue based on contingent percentage income, which is recorded on an accrual basis once the specified target that triggers this type of income is achieved. The leases also typically require our tenants to pay us for common area maintenance, real estate taxes and other operating expenses. We recognize these payments as revenue in the period the applicable costs are incurred.

Real Estate — We record real estate assets at the lower of cost or fair value if impaired. Costs incurred to unaffiliated third parties for the acquisition of properties are capitalized.

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

In the normal course of business, we may receive offers to purchase our properties, either solicited or unsolicited. For the offers we accept, the prospective buyer will usually require a due diligence period before closing the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. As a result, real estate is not classified as “held for sale” until it is likely, in the opinion of management, that a property will be disposed of in the near term, even if sales negotiations for the property are currently under way. Properties classified as held for sale are segregated from rental real estate in our financial statement presentation and we stop recording depreciation on a property once we classify it as held for sale. There can be no assurance that the properties held for sale will be sold in the near term, at prices we consider acceptable, or at all.

Properties classified as held for sale are segregated from rental real estate in our financial statement presentation. We stop recording depreciation on a property once we classify it as “held for sale.”

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

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity to fund distributions, principal payments on notes payable and minor capital expenditures is our cash flows from operating activities. To qualify as a REIT for federal income tax purposes, we must distribute annually at least 90% of our REIT taxable income (excluding capital gains). Accordingly, we currently intend to continue to make, but have not contractually bound

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ourselves to make, regular quarterly distributions to holders of our common stock. As a policy, we keep cash balances on hand for reserves for unexpected cash requirements. Our primary sources for liquidity to fund asset acquisitions, major capital expenditures and balloon payments on notes payable include (a) net proceeds of refinancing selected existing notes payable, and (b) selling assets. Further, we may attempt to obtain funding by issuing additional equity either in the form of common stock or through joint ventures.

The following table presents our contractual cash obligations as of June 30, 2002:

At June 30, 2002, our net real estate investments totaled approximately $33,470,434 for the 14 properties we own. Depending upon the availability and cost of external capital, we anticipate making additional investments in light industrial and suburban office properties, and in other types of real property. In particular, we have entered into an agreement to acquire an Atlanta, Georgia shopping center for a gross purchase price of approximately $20,500,000, plus additional expenses associated with the inspection and closing. We have deposited $400,000 as an earnest money deposit. This potential acquisition represents a change in our business focus, which had previously been to acquire, own and manage light industrial and suburban office properties in California.

The tenant in our Ontario property is a subsidiary of Adelphia Communications, Inc, which has filed for protection under the federal bankruptcy laws. The tenant has paid its rent through August 31, 2002. We do not yet know whether we will be adversely affected this bankruptcy filing.

We intend to fund new investments from existing cash balances (subject to maintaining reasonable cash reserves) and from the net proceeds of (a) refinancing selected existing mortgage loans to higher balances and (b) asset sales. On August 5, 2002 we completed the refinancing of approximately $8,500,000 of mortgages on four properties, increasing the mortgage balance to approximately $15,000,000. We intend to use the approximately $6,500,000 in net proceeds for general corporate purposes, including funding the $4,000,000 cash portion of the purchase price of the Atlanta shopping center described above.

We believe that we will sell our Corona property in the third quarter of 2002 and, based on the contracted sale price, will net approximately $1, 200,000, although there can be no assurance we will indeed sell the property at that price, or at all.

With respect to our acquisition of the shopping center in particular, we have obtained the approval of the institutional lender to assume the existing first mortgage debt that encumbers the property, which has a principal balance of approximately $16,800,000. If we proceed with the acquisition, we will be required to pay approximately $170,000 in assumption fees to the lender. The transaction is currently

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