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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 (Mark One)

For the quarterly period ended March 31, 2003

OR

For the transition period from                                    to                                   

Commission file number 000-24594

MEREDITH ENTERPRISES, INC.

(formerly West Coast Realty Investors, Inc.)

(Exact name of registrant as specified in its charter)

(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  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS

As of May 12, 2003, 975,298 shares of the Registrant’s Common Stock were outstanding.

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MEREDITH ENTERPRISES, INC.

REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

TABLE OF CONTENTS

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

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PART I—FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

MEREDITH ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

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

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MEREDITH ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

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MEREDITH ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

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

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MEREDITH ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES

Business

Meredith Enterprises, Inc. (formerly West Coast Realty Investors, Inc.) was originally organized in October 1989 under the laws of the State of Delaware. We have elected tax status as a Real Estate Investment Trust (“REIT”) for federal and state income tax purposes since 1991. From inception to March 31, 2002, West Coast Realty Advisors, Inc. (“WCRA”) advised us and West Coast Realty Management (“WCRM”) (collectively, the “Advisor”) managed our properties. Both WCRA and WCRM are wholly-owned subsidiaries of Associated Financial Group, Inc. The Advisor managed and oversaw our investments, subject to the direction of the board of directors, until the Advisor terminated as advisor effective March 31, 2002. On January 15, 2002, our stockholders voted to amend our bylaws to allow us to become self-managed upon the Advisor’s termination. On April 1, 2002, we became self-managed and self-administered upon the Advisor’s termination.

As of March 31, 2003, all of our properties were located in California and Georgia, and we did not own any residential properties. Many of our leases are “triple-net” leases where the tenant is responsible for maintenance, taxes and insurance, either by directly paying such costs or reimbursing us for those costs through additional rental payments.

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

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

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

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

In the normal course of business, we may receive offers for sale of our properties, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. As a result, real estate is not classified as “held for sale” until it is likely, in the opinion of management, that a property will be disposed of in the near term, even if sales negotiations for such property are currently under way. Properties classified as held for sale are segregated from rental real estate in our financial statement presentation. As of March 31, 2003, 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.

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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES

Rental Income, Operating Expense and Capitalized Costs

Rental revenue is recognized on a straight-line basis to the extent that rental revenue is deemed collectible. There were no percentage rents in the three month periods ended March 31, 2003 and 2002. 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 any acquisition costs paid to the Advisor, in accordance with Emerging Issues Task Force 97-11, “Accounting for Internal Costs Relating to Real Estate Property Acquisitions.” There were no such costs in the three month periods ended March 31, 2003 and 2002.

Loan Origination Fees

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

Cash and Cash Equivalents

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

Consolidation

The accompanying consolidated financial statements include the accounts of Meredith Enterprises, Inc. and other subsidiaries that hold title to individual properties. All significant intercompany balances and transactions have been eliminated in consolidation.

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.

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

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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES

distributions to owners. We do not have any components of comprehensive income in the three month periods ended March 31, 2003 and 2002, other than net income.

Reclassifications

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

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, rental real estate and rental real estate held for sale, which comprised 95% and 89% of our total assets at March 31, 2003 and December 31, 2002, respectively and over 99% of our total revenues (including discontinued operations) for both of the quarters ended March 31, 2003 and 2002. All the rental real estate we own is located in California and Georgia. We do not use reporting by geographic region.

Our business focus is the ownership and operation of suburban office, retail shopping center and light industrial properties. We evaluate performance and allocate resources primarily based on the opportunity for growth of net operating income (“NOI”). Like the real estate industry in general, 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. All other segment measurements are presently disclosed in the accompanying consolidated balance sheets and Notes to Consolidated Financial Statements.

All revenues are from external customers, and there are no revenues from transactions with other segments. See Note 1 for tenants that contributed 10% or more of our total revenues for the three month periods ended March 31, 2003 and 2002. Interest income is not separately reported, as it is immaterial. Interest expense on debt is not allocated to individual properties, even if such debt is secured. There is no provision for federal or state income taxes as we are organized as a REIT and as such, we owe no tax; see Note 7.

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 144 (“SFAS 144”) which supersedes SFAS No. 121, “Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and amends APB No. 30, “Reporting the Results of Operations- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” Along with establishing a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale, SFAS 144 retains the basic provisions of APB No. 30 for the presentation of discontinued operations in the income statement but broadens the presentation to include a component of an entity. SFAS No. 144 requires us to include operating results of properties we

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MEREDITH ENTERPRISES, INC.

SUMMARY OF ACCOUNTING POLICIES

consider held for sale, as well as those sold, in discontinued operations in our consolidated statements of earnings prospectively from the date of adoption, which was January 1, 2002.

New Accounting Pronouncements

Stock-based compensation

Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), which amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. We have elected not to change to the fair value based method of accounting for stock-based compensation and the adoption of SFAS 148 did not have a material impact on our consolidated balance sheet or results of operations.

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—RENTAL REAL ESTATE

Our major categories of rental real estate are:

In addition, we own land we are holding for future development, valued at its cost at March 31, 2003 of $2,238,359.

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

Once we classify a property as held for sale, we stop charging depreciation expense. Included in the above table are six properties, all in California, as of both March 31, 2003 and December 31, 2002: Fresno, Sacramento- both Java City properties, Roseville, Riverside and Vacaville.

We earned a portion of our rental revenue from tenants whose individual rents represented more than 10% of our total rental revenue including discontinued operations. In the three months ended March 31, 2003, one tenant represented 11% of our total rental revenue including discontinued operations and one other tenant accounted for 8%. The Northlake Festival Shopping Center accounted for approximately 50% of our total rental revenue including discontinued operations. In the three months ended March 31, 2002, three other tenants accounted for 19%, 14% and 12%, respectively, of our total rental revenue including discontinued operations.

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2—DISCONTINUED OPERATIONS

As of December 31, 2001, we had designated four properties as held for sale: Fresno, CA, Huntington Beach, CA, Roseville, CA and Riverside, CA. In accordance with SFAS 144, the results of these properties are not included in the line item discontinued operations until we adopted SFAS 144 as of January 1, 2002. In 2002, we designated three additional properties as held for sale: Sacramento, CA (717 W. Del Paso Road), Sacramento, CA (721 W. Del Paso Road) and Vacaville, CA and sold another property, Corona, CA. In accordance with SFAS 144, we have restated the prior results of the properties designated as held for sale and the property we sold as discontinued operations for all periods presented. The results of properties included in discontinued operations for the three months ended March 31, 2003 and 2002 are as follows:

In accordance with SFAS No. 144, net income and gain (loss) on disposition of real estate for properties sold or considered held for sale after December 31, 2001 are reflected in our consolidated statements of income as “discontinued operations” for all periods presented. In addition, we have determined to separately reflect the assets and liabilities of properties held for sale or sold in the current period as “Rental real estate held for sale,” “Other assets—rental real estate held for sale,” “Notes payable secured by rental real estate held for sale” and “Other liabilities—rental real estate held for sale” in the balance sheets for all periods presented.

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3—FUTURE MINIMUM RENTAL INCOME

As of March 31, 2003, future minimum rental income under the existing leases for rental real estate and rental real estate held for sale that have remaining noncancelable terms in excess of one year are as follows:

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

NOTE 4—RELATED PARTY TRANSACTIONS

We acquired the Northlake Festival Shopping Center in Atlanta, Georgia in October 2002 and paid a fee of $150,000 to Leeward Investments, LLC, which assisted us in negotiating the transaction. Mr. Eric P. Von der Porten, a director, is the manager for Leeward Investments, LLC. He was not directly involved in the negotiations.

Also in conjunction with the purchase of the Northlake Festival Shopping Center, we paid a real estate brokerage commission of $100,000 to Isakson-Barnhart Properties, Inc. and we have retained Isakson-Barnhart Properties, Inc. as the property manager of that shopping center. Isakson-Barnhart Properties, Inc. manages over 1.0 million square feet of retail and office space in Georgia, North Carolina and Tennessee. Mr. E. Andrew Isakson, one of our directors, is president of Isakson-Barnhart Properties, Inc. Under the property management agreement, Isakson-Barnhart Properties, Inc. manages, maintains and operates the shopping center for us. In return for its services, we pay a monthly property management fee to Isakson-Barnhart Properties, Inc. equal to the greater of (a) 3% of the gross income of the property actually collected for that month or (b) $2,500. In addition, we pay Isakson-Barnhart Properties, Inc. a leasing commission, in the range of $2.00 to $4.50 per square foot depending on the size of the space and whether there is a
co-broker, on new leases or expansion of current leases. We also pay a construction maintenance fee of 5% of the total cost of tenant improvements or other construction where Isakson-Barnhart Properties, Inc. supervises the project. Under this agreement, we paid a total of $30,334 to Isakson-Barnhart Properties, Inc. in the year ended December 31, 2002. The agreement is renewable annually, and either party is allowed to terminate the agreement upon 30 days’ prior written notice to the other. In addition, Mr. Isakson owns a 50% interest in a retail shopping center that is located adjacent to the Northlake Festival Shopping Center.

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 Amended and Restated

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advisory Agreement dated July 1, 2001 and the Amended and Restated Property Management Agreement dated July 1, 1998. Both agreements were terminated effective March 31, 2002, and since April 1, 2002, we have been fully self-administered and self-managed.

At March 31, 2003, the Advisor and its affiliates owned 7,584 of our shares, less than 1% of our outstanding shares. Two of our directors are also officers or directors of the Advisor or its affiliates. Associated Securities Corporation is an affiliate of the Advisor.

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

NOTE 5—NOTES PAYABLE

Notes payable consist of the following:

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate fair value of the notes was approximately $43,005,267 at December 31, 2002, based on current lending rates, which are the approximate industry lending rates on these types of properties and these locations.

The aggregate annual future maturities at March 31, 2003 of notes payable secured by rental real estate and notes payable secured by rental real estate held for sale are as follows:

NOTE 6—NET INCOME AND DIVIDENDS PER SHARE

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

On November 15, 2002, we filed our restated certificate of incorporation with the Secretary of State of Delaware, which, among other items, provided for a 1:3 reverse stock split. All share and per share amounts have been adjusted to give effect to this split.

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 2002 Stock Incentive Plan provides for the issuance of incentive stock options, non-qualified Stock options, restricted shares and other grants. The maximum number of shares that may be issued under the plan is 150,000. The option price may not be less than the fair market value of a share on the date that the option is granted and the options generally vest either immediately or over two years. Stockholders adopted the 2002 Stock Incentive Plan in September 2002. Changes in options outstanding during the period ended March 31, 2003 were as follows:

Period ending March 31, 2003

At March 31, 2003, the exercise price of shares under option was $10.25. The exercise price of all options granted in the period ended March 31, 2003 was equal to the market price on the date of grant. The options expire in 2013 and the weighted average remaining contractual life of these options is 10 years.

Pro forma information regarding net income and earnings per share required by SFAS 148 was determined as if we had accounted for the employee and non-employee director stock options granted in the period ended March 31, 2003 under the fair value method of that Statement. The fair value for these options was estimated as of the date of grant using a Black-Scholes option pricing model, with the following weighted average assumptions for the period ended March 31, 2003:

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options’ vesting periods. Our pro forma information, as if we had adopted SFAS 123 as discussed above, follows:

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

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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”) for federal income tax purposes. This requires, among a number of other organizational and operational requirements, that we distribute at least 90% of our taxable income (excluding capital gains) to our stockholders. In addition, California and Georgia, the states in which we own and operate real estate properties have provisions equivalent to the federal REIT provisions. Accordingly, no provision has been made for federal or state income taxes in the accompanying financial statements.

NOTE 8—SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

A supplemental disclosure of cash flow information follows:

NOTE 9—COMMITMENTS AND CONTINGENCIES

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

We have entered into employment agreements with our President and Chief Executive Officer and our Chief Financial Officer under which we would be obligated to make severance payments to them, upon either person’s termination or resignation for certain reasons, of one year’s salary plus bonus, if any.

We are a defendant in a lawsuit entitled John Lonberg & Ruthee Goldkorn v. Sanborn Theaters, Inc., a California Corporation Doing Business as Marketplace Cinema and So-Cal Cinema, Inc., a California

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MEREDITH ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Corporation; and Salts-Troutman-Kaneshiro, Inc., West Coast Realty Investors, Inc., USDC Central District of California, Eastern Division Case No. CV-97-6598AHM (JGx). This is an Americans with Disabilities Act claim brought against the Market Place Cinema, our property located in Riverside, CA. We own the theater and have leased it to Sanborn Theaters, Inc., who operates it. Plaintiffs allege certain features of the theater discriminated against them and violated state and federal disabled access laws. Plaintiffs demand statutory damages, damages for emotional distress, a “lodestar” multiplier, attorneys’ fees and punitive damages. Although Plaintiffs have not quantified their damages, we expect that Plaintiffs’ claims will exceed $300,000. The United States Department of Justice has intervened in this suit. This case has now been stayed pending the outcome of a similar case filed against AMC Theaters. We cannot determine the likelihood of an unfavorable outcome or range of potential loss, if any. We believe we have complied with all applicable provisions of law and intend to vigorously defend the allegations contained in the lawsuit. We believe that the lawsuit will not have a material impact on our continuing operations or overall financial condition.

On July 31, 2002, James E. Prock filed an action against us and our President and Chief Executive Officer, Mr. Allen Meredith, in Los Angeles County Superior Court. Mr. Prock was an employee of the Advisor and not an employee of West Coast Realty Investors, Inc. He provided services as our Chief Operating Officer from 1992 to August 2001 and as Acting Chief Operating Officer from August 2001 to March 2002. The lawsuit alleges that during the fall of 2001 and winter of 2002, we purportedly made promises to Mr. Prock that we would hire him as a full time managerial employee after we became a self-managed REIT. The lawsuit seeks damages for unspecified purported lost compensation and punitive damages, and the discovery process has commenced. We cannot determine the likelihood of an unfavorable outcome or range of potential loss, if any. We believe the suit is without merit and intend to vigorously defend the allegations contained in the lawsuit. We believe that the lawsuit will not have a material impact on our continuing operations or overall financial condition.

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Special Note Regarding Forward-Looking Statements

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

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

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OVERVIEW

Meredith Enterprises, Inc. (formerly West Coast Realty Investors, Inc.) is a real estate company engaged in acquiring, owning and managing, suburban office, retail shopping center and light industrial properties. We have elected to be taxed as a real estate investment trust, or “REIT,” for federal income tax purposes, which requires, among a number of other organizational and operational requirements, that we distribute at least 90% of our taxable income (excluding capital gains) to our stockholders. From inception to March 31, 2002, West Coast Realty Advisors, Inc. advised us and West Coast Realty Management, Inc. managed our properties. Each of these companies is a wholly owned subsidiary of Associated Financial Group, Inc., and we sometimes refer to them together as the “Advisor.” Since March 31, 2002, we have been self-managed and self-administered.

At March 31, 2003, we had a real estate portfolio of 14 properties, including:

All of our properties are located in California and Georgia. Until 2002, our business focus was the ownership and operation of suburban office properties and light industrial buildings. We have broadened our focus to include large shopping centers and properties outside of California. We acquired an Atlanta, Georgia shopping center in October 2002 and may pursue other real estate opportunities in Georgia and in other states. Most of our leases are “triple-net” leases where the tenant is responsible for maintenance, taxes and insurance.

SIGNIFICANT RECENT EVENTS

In the future, we believe our financial results will also be affected by the following:

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As a result of the August 2002 refinancing and the purchase of Northlake Festival, as of March 31, 2003, we had total assets of $57,915,512, total secured indebtedness of $40,699,214, total liabilities of $42,026,426 and a debt-to-total assets ratio of 73%, calculated on the basis of generally accepted accounting principles. Because this calculation method reflects accumulated depreciation and does not reflect any appreciation of the properties beyond their cost, it may result in assets being valued at less than their fair market values as determined by the board of directors. Further, this calculation excludes the effects, if any, of the ground lease on the Northlake Festival property. In addition, our aggregate monthly debt service has increased from approximately $150,000 to $300,000 or 100%, from June 2002 to November 2002, which reflects the August 2002 refinancing, the sale of our Huntington Beach, CA and Corona, CA properties and the assumption of debt with the purchase of the Northlake Festival. We plan to use revenues in excess of operating costs from the Northlake Festival property to pay the increased debt service.

RESULTS OF OPERATIONS

Quarter ended March 31, 2003 compared to the quarter ended March 31, 2002

As of December 31, 2001, we had designated four properties as held for sale: Fresno, CA, Huntington Beach, CA, Roseville, CA and Riverside, CA. In 2002, we designated three additional properties as held for sale: Sacramento, CA (717 W. Del Paso Road), Sacramento, CA (721 W. Del Paso Road) and Vacaville, CA and sold another property, Corona, CA. In accordance with SFAS 144, we have restated the prior results of the properties designated as held for sale in 2002 and the Corona, CA property we sold in 2002 as discontinued operations for all periods presented.

Operations for the three months ended March 31, 2003 and 2002 represented full quarters of rental operations for all of our properties we classify as continuing operations, except for the Northlake Festival Shopping Center in Atlanta, which we acquired in October 2002. The eight properties designated as held for sale during 2002 are included in the line items under “discontinued operations” with revenues netted against expenses.

Rental revenue increased by $1,071,671 (135%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, primarily due to the addition of revenues from of Northlake Festival property and offset in part by the loss of revenues from the Chino, CA property, where we recorded no revenue in the quarter ended March 31, 2003.

Interest income increased by $3,800 (88%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, due to higher average balances maintained in interest earning assets.

Interest expense increased by $472,687 (220%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, due to:

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General and administrative costs increased by $225,674 (110%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, principally due to higher legal expenses (including amounts related to our defense of the claim by James Prock), costs related to relocating our corporate headquarters and hiring one employee and engaging a consultant to perform functions previously performed by the Advisor.

Depreciation expense increased by $134,608 (120%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, due to the addition of Northlake Festival property in October 2002.

Ground rent was $ 233,893 in 2003, due to the ground lease for Northlake Festival; there was no ground lease expense in 2002.

Operating expenses increased by $214,340 (710%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, due the addition of Northlake Festival property in October 2002.

Property tax expense increased by $99,291 (442%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, primarily due to the addition of Northlake Festival.

Net income from discontinued operations decreased by $12,299 (18%) for the quarter ended March 31, 2003, as compared to the quarter ended March 31, 2002, primarily due to full periods of income for the Huntington Beach, CA and Corona, CA properties in 2002 and no income in the quarter ending March 31, 2003 as the properties were sold in 2002.

Net (loss) for the three months ended March 31, 2003 was ($35,750), compared to net income of $281,571 in the three months ended March 31, 2002. This decrease in net income was primarily due to the higher revenue and expenses in the Northlake Festival property not fully offsetting the higher interest and general and administrative expenses, and, to a lesser extent, the lack of revenue from the Chino, CA property in 2003.

The weighted average number of shares outstanding (after adjusting for the November 15, 2002 1:3 reverse stock split) was 983,535 and 975,989 for three months ended March 31, 2003 and 2002, respectively. Net (loss ) per share assuming dilution decreased to ($0.04) in the three months ended March 31, 2003 from net income per share of $0.29 in three months ended March 31, 2002, primarily as a result of the higher revenue and expenses in the Northlake Festival property not fully offsetting the higher interest and general and administrative expenses, and, to a lesser extent, the lack of revenue from the Chino, CA property in 2003.

INFLATION

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

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LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity to fund distributions, principal payment on notes payable and minor capital expenditures is our cash flows from operating activities. In order to qualify as a REIT for federal income tax purposes, among other requirements, we must distribute annually at least 90% of our REIT taxable income (excluding capital gains). Accordingly, we currently intend to continue to make, but have not contractually bound ourselves to make, regular quarterly distributions to holders of our common stock. As a policy, we keep cash balances on hand for reserves for unexpected cash requirements. Our primary source for liquidity to fund asset acquisitions, major capital expenditures and balloon payments on notes payable is to refinance selected existing notes payable and the proceeds from asset sales. 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 March 31, 2003:

At March 31, 2003, our total investments in rental real estate and rental real estate held for sale totaled $54,943,611 for the 14 properties we own. Depending upon the availability and cost of external capital, we anticipate making additional investments in suburban office, retail shopping center and light industrial properties, although we may make other types of investments. We intend to fund new investments from existing cash balances (subject to maintaining reasonable cash reserves), the proceeds of refinancing of selected existing mortgage debt to higher balances and the proceeds from asset sales. We may consider other sources of possible funding, including joint ventures or a construction loan to finance the construction of a shopping center on the 2.5 acres of land we own in Garden Grove, CA. To increase our financial flexibility, we may seek to obtain a revolving line of credit, although there can be no assurance we will be successful.

We believe our liquidity and various sources of capital are sufficient to fund operations including capital expenditures and leasing commissions, meet debt service and dividend requirements under the Internal Revenue Code for REIT status and finance future investments. We believe our properties are in good condition without significant deferred maintenance obligations and many are leased under “triple-net” leases, which reduce our risk pertaining to excessive maintenance and operating costs. However, we anticipate we will continue to require outside sources of financing to meet our long-term liquidity needs beyond 2003, such as scheduled debt repayments (including balloon payments on our debt), the construction of a shopping center on the 2.5 acres of land we own in Garden Grove, CA and property acquisitions.

On September 24, 2002, our stockholders voted to amend and restate our certificate of incorporation and bylaws to, among other items, eliminate the limit on our leverage. Unlike our previous certificate of incorporation and bylaws, these new organizational documents do not

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

CASH FLOWS IN 2003

Our cash resources decreased $3,223,597 during the three months ended March 31, 2003. During 2003, cash provided by operating activities was $102,281 primarily from net loss adjusted for non-cash items such as depreciation and amortization. Investing activities in 2003 resulted in a $2,562,964 use of cash resources primarily for purchase of the Garden Grove property. Financing activities used $762,914 for dividends and principal payments on notes payable secured by rental real estate and notes payable secured by rental real estate held for sale, including the pay off of one note secured by the Sacramento, CA (Java City 721 West Del Paso Road).

CASH FLOWS IN 2002

Our cash resources increased $238,702 during the three months ended March 31, 2002. During 2002, cash provided by operating activities was $392,348 primarily from net income adjusted for non-cash items such as depreciation and amortization. For the three months ended March 31, 2002, financing activities used $153,646 due largely to principal payments on notes payable.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis based on a combination of historical information and various other assumptions that we believe are reasonable under the particular circumstances. Actual results may differ from these estimates based on different assumptions or conditions. We believe the critical accounting policies that most impact 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. Certain of the leases also provide for additional revenue based on contingent percentage income which is recorded on an accrual basis once the specified target that triggers this type of income is achieved. The leases also typically provide for tenant recoveries of common area maintenance, real estate taxes and other operating expenses. These recoveries are recognized as revenue in the period the applicable costs are incurred. Rents due, but not yet collected, are recognized to the extent determined by management to be collectible.

Capital Expenditures—We capitalize those expenditures related to conducting significant rehabilitation of existing assets and extending the useful life of existing assets. These expenditures are depreciated over estimated useful lives determined by management. We expense certain improvements related to the operation of our properties, as well as those expenditures necessary to maintain a property in ordinary operating condition. The determination as to

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whether expenditures should be capitalized or expensed, and the period over which depreciation is recognized, requires management’s judgment.

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

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

On January 1, 2002, we adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” which requires that the assets and liabilities and the results of operations of any properties which have been sold since the adoption of SFAS No. 144, or otherwise qualify as held for sale as of March 31, 2003, be presented as discontinued operations in our consolidated financial statements in both current and prior periods presented. The 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 accordance with SFAS No. 144, our investments in real estate are carried at cost and are periodically evaluated for indicators of impairment. The evaluation of impairment and the determination of values are based on several factors, and future events could occur which would cause management to conclude that indicators of impairment exist and a reduction in carrying value to estimated fair value is warranted.

In the normal course of business, we will receive offers for sale of our properties, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. We classify real estate as “held for sale” when it is probable, in the opinion of management, that a property will be disposed of within one year.

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.

NEW ACCOUNTING PRONOUNCEMENTS

Information on new accounting pronouncements is contained in “Summary of Accounting Policies” under Item 1 in this Report on Form 10-Q.

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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Risks Due to Investment in Real Estate

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

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

Our tenants may go bankrupt.

Our tenants may file for bankruptcy protection or become insolvent in the future. Currently, one of our tenants and the parent company of another tenant have filed for bankruptcy protection. In addition, another tenant has not paid rent since November 2002. We cannot evict a tenant solely because of its bankruptcy. A court might authorize the tenant to reject and terminate its lease with us. In that case, our claim against the bankrupt tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and, even so, our claim for unpaid rent would likely not be paid in full.

Our tenants may not renew their leases.

We cannot predict whether current tenants will renew their leases upon the expiration of their terms or whether current tenants will attempt to terminate their leases before they expire. Because the tenants in our Irvine, CA and Tustin, CA properties are not fully using the properties for their operations, and they may be less likely to re-lease the properties when the leases expire or may re-lease a smaller space. Further, the leases for our two Sacramento, CA (Java City), properties expire in July of 2003. If we are unable to promptly re-lease or renew the leases for significant vacant properties, or if the rental rates upon such renewal or re-leasing are significantly lower than expected rates, then our ability to make expected distributions to stockholders and to pay amounts due on our debt may be adversely affected.

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

To lease vacant space, we may need to pay substantial leasing commissions and renovation costs. We may acquire properties that are not fully leased, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property

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until the property is fully leased. Operating costs, including real estate taxes, insurance and maintenance costs, and mortgage payments, if any, do not, in general, decline when circumstances cause a reduction in income from a property from a vacancy or other reason. In addition, because many of our leases are “triple-net” leases that make the tenant responsible for property taxes, insurance and maintenance, we, and not the tenant would bear such costs, once the tenant no longer leases the property for any reason. We could sustain a loss as a result of foreclosure on the property if a property is mortgaged to secure payment of indebtedness and we were unable to meet our mortgage payments. As a result, our ability to make distributions to our stockholders could be adversely affected.

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

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

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

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

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

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

The risk that we may be unable to reinvest in attractive properties may affect our returns to stockholders.

In the markets we have targeted for future acquisition of properties, there is considerable buying competition from other real estate companies, many of whom may have greater resources, experience or expertise than we do. In many cases, this competition for acquisition properties has resulted in an increase in property prices and a corresponding decrease in property yields.

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We can give no assurances that we can reinvest the proceeds realized from the disposition of assets into new assets that will produce economic returns comparable to those being realized from the properties disposed of, or that we will be able to acquire properties meeting our investment criteria. To the extent that we are unable to reinvest those proceeds, or if the properties we acquire with those proceeds produce a lower rate of return than the properties disposed of, those results may have a material adverse effect on us.

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

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

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

All of our properties are located in developed areas where we face substantial competition from other properties and from other real estate companies who may develop or renovate competing properties. The number of competitive properties and real estate companies could have a material adverse effect on our ability to rent our properties, the rents we charge and our acquisition opportunities. The activities of these competitors could cause us to pay a higher price for a new property than we otherwise would have paid or may prevent us from purchasing a desired property at all, which could have a material adverse effect on us and our ability to make distributions to stockholders and to pay amounts due on our debt.

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

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

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

Many of our properties are leased to a single tenant, and some of these single tenant properties are individually significant to our total revenue. In the three months ended March 31, 2003, two tenants accounted for 11% and 8%, respectively, of our total rental revenue, including discontinued operations. The tenant may attempt to terminate the lease before its scheduled term, or we may be unable to renew the lease with the tenant. In that event, we may be unable to re-lease the space to another anchor tenant of similar or better quality upon expiration of the current lease on similar or better terms, and we could experience material adverse consequences

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such as higher vacancy, re-leasing on less favorable economic terms, reduced net income and reduced funds from operations. Similarly, if one or more of our single tenants goes bankrupt, we could experience material adverse consequences like those described above. There can be no assurance that our sole tenants will renew their leases when they expire or will be willing to renew on similar economic terms.

The Northlake Festival Property represents a significant percentage of our revenues.