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<SEC-DOCUMENT>0001362310-09-006309.txt : 20091005
<SEC-HEADER>0001362310-09-006309.hdr.sgml : 20091005
<ACCEPTANCE-DATETIME>20090501163332
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001362310-09-006309
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		3
FILED AS OF DATE:		20090501

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NETREIT
		CENTRAL INDEX KEY:			0001080657
		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE INVESTMENT TRUSTS [6798]
		IRS NUMBER:				330841255
		STATE OF INCORPORATION:			CA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		1282 PACIFIC OAKS PLACE
		CITY:			ESCONDIDO
		STATE:			CA
		ZIP:			92029-2900
		BUSINESS PHONE:		760-471-8536

	MAIL ADDRESS:	
		STREET 1:		1282 PACIFIC OAKS PLACE
		CITY:			ESCONDIDO
		STATE:			CA
		ZIP:			92029-2900
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML>
<HEAD>
<TITLE>CORRESP</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><IMG src="c84680p8468001.gif" alt="(LETTERHEAD)">
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">May&nbsp;1, 2009
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">United States Securities and Exchange Commission<BR>
450 Fifth Street NW<BR>
Mail Stop 4561<BR>
Washington, D.C. 20549

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="66%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">Attn:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Ms.&nbsp;Cicely Lomothe, Accounting Branch Chief</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Ms.&nbsp;Jaime John, Staff Accountant</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Ms.&nbsp;Kristina Aberg, Attorney-Advisor</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Re:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NetREIT</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Form&nbsp;10</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Filed May&nbsp;6, 2008</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">File No.&nbsp;001-39049</DIV></TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Ladies and Gentlemen:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Registrant requests the Accounting Staff&#146;s comments and guidance regarding Registrant&#146;s responses
below to the comments in the Staff&#146;s letter of April&nbsp;27, 2009 regarding the above-referenced Form
10 filing. Registrant&#146;s responses below are presented in the same numbers as the Staff&#146;s comments
in that letter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><U><B>Note 1 &#151; Organization, Page 62</B></U>
</DIV>


<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Registrant will add to the disclosure the fact that the tenant&#146;s in common and limited
partners have substantive participating rights.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><U><B>Note 2 &#151; Significant Accounting Policies</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><U><B>Property Acquisitions, pages 62-63</B></U>
</DIV>


<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Registrant will remove any reference to property tax assessments</TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Registrant has determined that terms of the ground lease approximate market value
rates. The Registrant is accounting for the ground lease as an operating lease and the
building and improvements are being accounted for as capital assets depreciated over a 39
year life. The Registrant has accounted for its right, within the ground lease, to purchase
the land at a fixed price that was determined in 1963, the original inception of the ground
lease. This is a right to purchase prime real estate that has appreciated substantially
since the purchase price was established approximately 47&nbsp;years ago.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><IMG src="c84680p8468002.gif" alt="(LETTERHEAD)">
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><IMG src="c84680p8468001.gif" alt="(LETTERHEAD)">
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">The ground lease relates specifically to leasing the land for a 99&nbsp;year term with rights to
improve on the property with buildings and property improvements. The Registrant purchased
the rights to the ground lease which contain a provision to purchase the land at a fixed
price determined to
be substantially below market at the date of our acquisition. In addition, the Company
purchased the building and property improvements on the land subject to the ground lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">The allocation of the purchase price as the fair value of the land purchase option within
the terms of the ground lease was based upon a third party appraisal. A section of the
appraisal reads as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%"><B>Conclusion of the Discounted Cash Flow Analysis</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">The cash flow result is $5,840,397. We have then added the value of the ground lease
purchase option ($1,370,000) to arrive at a sandwich estate value under the
controlling ground lease. This results in a total value of $7,210,397, or a rounded
value of $7,210,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">The appraisal concluded and states that the value associated with cash flow from the
building and building improvements of $5.8&nbsp;million was separate from the value associated
with the right to purchase the land which the appraiser valued at approximately $1.4
million. The land value was based on comparable properties without any consideration given
to future appreciation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><IMG src="c84680p8468002.gif" alt="(LETTERHEAD)">
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><IMG src="c84680p8468001.gif" alt="(LETTERHEAD)">
</DIV>


<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Registrant believes that it has a contract based intangible associated with the
land. When the land purchase option is exercised in 2062, the party exercising it will be
acquiring land. This right, and the value associated with this right, is separate from both
the depreciable assets attached to the land and the contractual lease term. If at the end
of the lease term, the land were to be recorded at the option strike price of $181,710,
that would represent an improper assessment of the cost of the land to us. In 2007, we
actually paid $1,370,000 representing the present value of the excess of the fair value of
the land over the strike price of the option. To demonstrate, if you were to shorten the
time frame from the date of our purchase of the buildings and assumption of the lease to
the date the option could be exercised, we think the impropriety of amortizing the &#147;value
of the option&#148; over the option period would perhaps be more obvious. If one were to assume
that we entered this transaction one month before the option could be exercised, if we were
to amortize the intangible asset over the term of the option, we&#146;d have amortization
expense of $1,370,000 and land recorded at $181,710 when we know that we are actually
paying the current fair value for the land of $1,530,000. The value of the land determined
the price we paid for being able to assume the purchase option and in our minds that is
what we are paying for the land.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">For your convenience, we have included the response to comment 10 of the letter dated March&nbsp;31,
2009 as a exhibit 1. This comment related to the same issues as comments 3 and 4 to the letter of
April&nbsp;27, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Conclusion</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">In conclusion, the Company believes that it has properly treated the accounting for the land
purchase option as an indefinite lived intangible asset separate and distinct from any other
components of the lease contract.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Very truly yours,
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><FONT style="border-bottom: 1px solid #000000">/s/Kenneth W. Elsberry</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">KENNETH W. ELSBERRY<BR>
CHIEF FINANCIAL OFFICER
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">cc:</TD>
    <TD>&nbsp;</TD>
    <TD>Ms.&nbsp;Jaime John, Staff Accountant<BR>
Ms.&nbsp;Cicely Lamothe, Accounting Branch Chief<BR>
Ms.&nbsp;Kristina Aberg, Attorney-Advisor<BR>
Mr.&nbsp;Tom Kluck, Legal Branch Chief</TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><IMG src="c84680p8468002.gif" alt="(LETTERHEAD)">
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit
1</B>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>RESPONSE TO COMMENT 10</U>:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>World Plaza</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Background</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In September&nbsp;2007, the Company acquired an assignment to a 99&nbsp;year ground lease that commenced in
1963, the existing buildings, and building improvements to the land with rights to mortgage same and
an assignment of the existing tenant&#146;s lease agreements. The Company paid $7.7&nbsp;million.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At acquisition, the property consisted of the master ground lease and a lease fee interest with
respect to 3 one story class &#147;C&#148; buildings with approximately 55,096 square feet of retail
center in San Bernardino, California. The land lease, including an option to purchase the land, was
assigned to the Company without modification from its original inception executed in 1963. The
option to purchase the land calls for the lessee to pay a fixed purchase price of $181,710. The
only time this option can be exercised is at the end of the lease term in 2062, and the option must be
exercised within 90&nbsp;days of the end of the lease term or any rights to
exercise the purchase option will be lost.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The purchase price for the land remains fixed for the entire 99&nbsp;year lease term at $181,710 while
the value of the land has appreciated significantly since 1963. The Company attributed a value of
$1.4&nbsp;million, net of the present value of the option cost, to the land purchase option. The land
value was based upon other comparable property sales near the date of purchase and a copy of a
recent appraisal prepared for the benefit of the existing lender from whom we assumed the loan.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Accounting References on point to this issue</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Paragraph&nbsp;15 of FIN 21 states the following:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In a business combination, the acquiring enterprise shall retain the previous classification in
accordance with FASB Statement No.&nbsp;13 for the leases of an acquired enterprise unless the
provisions of the lease are modified as indicated in paragraph 13 above.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Paragraph&nbsp;7 of SFAS 13 states the following:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The criteria for classifying leases set forth in this paragraph and in paragraph 8 derive from
the concept set forth in paragraph 60. If at its inception (as defined in paragraph 5(b)) a lease
meets one or more of the following four criteria, the lease shall be classified as a capital lease
by the lessee. Otherwise, it shall be classified as an operating lease.
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"> The lease transfers ownership of the property to the lessee by the end of the lease term
(as defined in paragraph 5(f)). This criterion is met in situations in which the lease
agreement provides for the transfer of title at or shortly after the end of the lease term
in exchange for the payment of a nominal fee, for example, the minimum required by statutory
regulation to transfer title.</DIV></TD>
</TR>
</TABLE>
</DIV>
<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The lease contains a bargain purchase option (as defined in paragraph 5(d)).</DIV></TD>
</TR>
</TABLE>
</DIV>
<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The lease term (as defined in paragraph 5(f)) is equal to 75&nbsp;percent or more of the
estimated economic life of the leased property (as defined in paragraph 5(g)). However, if
the beginning of the lease term falls within the last 25&nbsp;percent of the total estimated
economic life of the leased property, including earlier years of use, this criterion shall
not be used for purposes of classifying the lease.</DIV></TD>
</TR>
</TABLE>
</DIV>
<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"> The present value at the beginning of the lease term of the minimum lease payments (as
defined in paragraph 5(j)), excluding that portion of the payments representing executory
costs such as insurance, maintenance, and taxes to be paid by the lessor, including any
profit thereon, equals or exceeds 90&nbsp;percent of the excess of the fair value of the leased
property (as defined in paragraph 5(c)) to the lessor at the inception of the lease over any
related investment tax credit retained by the lessor and expected to be realized by him.
However, if the beginning of the lease term falls within the last 25&nbsp;percent of the total
estimated economic life of the leased property, including earlier years of use, this
criterion shall not be used for purposes of classifying the lease. A lessor shall compute
the present value of the minimum lease payments using the interest rate implicit in the
lease (as defined in paragraph 5(k)). A lessee shall compute the present value of the
minimum lease payments using his incremental borrowing rate (as defined in paragraph 5(1)),
unless (i)&nbsp;it is practicable for him to learn the implicit rate computed by the lessor and
(ii)&nbsp;the implicit rate computed by the lessor is less than the lessee&#146;s incremental
borrowing rate. If both of those conditions are met, the lessee shall use the implicit rate.
</DIV></TD>
</TR>
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">FAS 142 Paragraph&nbsp;11 states the following:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The accounting for a recognized intangible asset is based on its useful life to the reporting
entity. An intangible asset with a finite useful life is amortized; an intangible asset with an
indefinite useful life is not amortized. The useful life of an intangible asset to an entity is the
period over which the asset is expected to contribute directly or indirectly to the future cash
flows of that entity.<SUP style="font-size: 85%; vertical-align: text-top">9</SUP> The estimate of the useful life of an intangible asset to an
entity shall be based on an analysis of all pertinent factors, in particular, the following factors
with no one factor being more presumptive than the other:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The expected use of the asset by the entity.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The expected useful life of another asset or a group of assets to which the
useful life of the intangible asset may relate.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">FAS 142 Paragraph&nbsp;13 states the following:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The amount of an intangible asset to be amortized shall be the amount initially assigned to that
asset less any residual value. The residual value of an intangible asset shall be assumed to be
zero unless at the end of its useful life to the reporting entity the asset is expected to continue
to have a useful life to another entity and (a)&nbsp;the reporting entity has a commitment from a third
party to purchase the asset at the end of its useful life or (b)&nbsp;the residual value can be
determined by reference to an exchange transaction in an existing market for that asset and that
market is expected to exist at the end of the asset&#146;s useful life.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">FAS 142 Paragraph&nbsp;B58 states the following:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Board reasoned that an intangible asset that is separable or is subject to contractual or
legal-based rights will have an observable market or will have identifiable cash flows associated
with it. The Board noted that Concepts Statement 7 (issued after issuance of the 1999 Exposure
Draft) provides guidance for using cash flows to determine the fair value of an asset in the
absence of an observable market. Because there are different ways to determine fair value, the
Board concluded that it was not necessary that there be an observable market for an intangible
asset in order for that asset not to be amortized. Therefore, any intangible asset that is
determined to have an indefinite useful life should not be amortized until that life is determined
to be no longer indefinite.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Facts</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>With respect to classification of the lease:</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">It is the Company&#146;s position that the unmodified land lease from 1963 would have been classified as
an operating lease as the lease does not meet any of the criteria under paragraph 7 of SFAS 13.
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">To effect the transfer of ownership, the purchase price to buy the land is $181,710
which the Company&#146;s believes was far greater than a nominal fee for the land at lease
inception in 1963.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The lease does not contain a bargain purchase price.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The lease relates to land. Therefore, the 75% of economic useful life and the present
value of the lease payment provisions of these paragraphs do not apply.</DIV></TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>With respect to application of SFAS 142:</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company believes that this land purchase option value is separable from the components of the
contract as stated under paragraph B58 of SFAS 142. We also believe that the useful life of this
asset under SFAS 142, paragraph 11 is indefinite as it relates to the acquisition of the land and
that under paragraph 13 its residual value is at least equal to its market value. In addition, the
likelihood of exercising this land purchase option by the Company or subsequent assignees is
probable. Further, should the Company decide to sell its property rights to World Plaza, the value
of the land purchase option would be a material and separate consideration to the selling price
just as it was to our acquisition price considerations.
</DIV>





<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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