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<SEC-DOCUMENT>0000950123-09-038717.txt : 20090827
<SEC-HEADER>0000950123-09-038717.hdr.sgml : 20090827
<ACCEPTANCE-DATETIME>20090827162351
ACCESSION NUMBER:		0000950123-09-038717
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20090821
ITEM INFORMATION:		Entry into a Material Definitive Agreement
ITEM INFORMATION:		Completion of Acquisition or Disposition of Assets
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20090827
DATE AS OF CHANGE:		20090827

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:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-53673
		FILM NUMBER:		091039994

	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>8-K
<SEQUENCE>1
<FILENAME>c89738e8vk.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML>
<HEAD>
<TITLE>Form 8-K</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>






<DIV align="center" style="font-size: 14pt; margin-top: 10pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 10pt"><B>FORM 8-K</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 10pt"><B>CURRENT REPORT<BR>
Pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Date of Report (Date of Earliest Event Reported): August&nbsp;21, 2009</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 10pt"><B>NetREIT</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified on is charter)</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="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>CALIFORNIA</B><BR>
(State of other jurisdiction <BR>
of incorporation)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">000-53673<BR>
(Commission<BR>
File Number)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">33-0841255<BR>
(I.R.S. Employer<BR>
Identification No.)</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>1282 Pacific Oaks Place<BR>
Escondido, California 92029</B><BR>
(Address of principal executive offices) (Zip Code)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>(760)&nbsp;471-8536</B><BR>
(Registrant&#146;s telephone number, including area code)</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instructions
A.2. below):
</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="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Written communications pursuant to Rule&nbsp;425 under the Securities Act (17 CFR 230.425)</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="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Soliciting material pursuant to Rule&nbsp;14a-12 under the Exchange Act (17 CFR 240.14a-12)</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="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Pre-commencement communications pursuant to Rule&nbsp;14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))</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="3%" nowrap align="left"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Pre-commencement communications pursuant to Rule&nbsp;13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</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>Item&nbsp;1.01 Entry Into A Material Definitive Agreement.</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">See Item&nbsp;2.01, which is incorporated herein by reference.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;2.01 Completion of Acquisition or Disposition of Assets.</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On August&nbsp;21, 2009, NetREIT (&#147;Company&#148;) completed the acquisition of Monterey Palms
Self-Storage (&#147;Monterey Palms&#148;) located at 73230 Varner Road, Thousand Palms, California
(&#147;Property&#148;) from the seller, Monterey Palms Self-Storage, LLC. The purchase price for the Property
was $6,200,000. The Company paid the purchase price through a cash payment of $1,504,383 which was
applied to closing costs and fees and to an existing loan secured by the Property, and assumed a
nonrecourse, variable interest rate, Promissory Note with a principal balance after the closing of
$4,695,617. The loan has a 30-year amortization, a maturity date of
March&nbsp;1, 2034, and the variable interest rate is calculated using
the lowest New York prime rate in effect on the first day of the month as published in the money
rate section of the West Cost edition of the Wall Street Journal
added to the margin of 0.500%. The
current interest rate is 5.50%; the floor interest rate is 5.50% and the ceiling interest rate is
10.50%. The lender of the Promissory Note is La Jolla Bank, Escondido, California
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Property is nine (9)&nbsp;single story, Class&nbsp;A buildings, constructed of reinforced concrete
masonry and metal construction with 113,126 rentable square feet comprised of 549 storage units
which range in size from 25 to 300 square feet, and 94 enclosed RV and boat storage units that
range in size from 150 to 600 square feet. The Property was built in 2007 and sits on
approximately 5.5 acres or 238,273 square feet. The Property is located in the Palm
Desert/Thousand Palms area adjacent to the Interstate 10 freeway in Riverside County.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company also entered into an agreement on August&nbsp;21, 2009, appointing CHG Properties Inc, a
California Corporation and wholly-owned subsidiary of NetREIT, the manager of the Property for a
management fee of five percent (5%) of the gross income.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>ITEM 9.01. Financial Statements and Exhibits.</B>
</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="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Financial Statements of Real Estate Acquired.</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="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Since it is impracticable to provide the required financial statements for the acquired real
property described in <B>Item&nbsp;2.01 </B>at the time of this filing and no audited financials are
available at this time, the Company hereby confirms that it intends to file the required
financial statements on or before November&nbsp;6, 2009 by amendment to this Form 8-K.</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="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Pro forma financial information.</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="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">See paragraph 9.01(a) above.</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="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Exhibits.</DIV></TD>
</TR>

</TABLE>
</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="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Description</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Assumption and Security Agreement, and Note Modification Agreement</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Promissory Note</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">NetREIT<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: August 27, 2009&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left"><I>/s/ Kenneth Elsberry</I>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Name:&nbsp;&nbsp;</TD>
    <TD align="left">Kenneth Elsberry&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD align="left">Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>2
<FILENAME>c89738exv10w7.htm
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 10.7</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<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">Exhibit&nbsp;10.7
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">RECORDING REQUESTED BY:<br>
AND WHEN RECORDED MAIL TO:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">La Jolla
Bank, FSB<BR>
390 W. Valley Parkway<BR>
Escondido, CA 92025

</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Loan No.&nbsp;1013023934
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">&#091;Space above this line for Recorder&#146;s use.&#093;<DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>LOAN ASSUMPTION AND SECURITY AGREEMENT,<BR>
AND NOTE MODIFICATION AGREEMENT</B>
</DIV>



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">THIS AGREEMENT is entered into and dated for reference purposes as of, AUGUST 1, 2009, by and
among LA JOLLA BANK, FSB, (&#147;<U>Lender</U>&#148;), and NETREIT, A CALIFORNIA CORPORATION
(&#147;<U>Purchaser</U>&#148;), with reference to the following facts:
</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="3%" nowrap align="left">A.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Lender holds a loan (the &#147;<U>Loan</U>&#148;) evidenced by an Adjustable Rate Note dated MARCH
16, 2004, payable by MONTEREY PALMS SELF STORAGE, LLC.(the &#147;<U>Original Borrower</U>&#148;), to the
order of Lender in the original principal amount of <B>$5,200,000.00 </B>(the &#147;<U>Note</U>&#148;) and a
Change in Terms Agreement dated December&nbsp;1, 2005. The Note is
secured by, among other things,
a Deed of Trust, dated MARCH 16, 2004, executed by the Original Borrower, as trustor, in favor
of OLD REPUBLIC TITLE COMPANY, as trustee, for the benefit of Lender, as beneficiary,
recorded in the Official Records of RIVERSIDE COUNTY, State Of CALIFORNIA, (the
&#147;<U>Official Records</U>&#148;) on MARCH 25, 2004, as Document No.&nbsp;2004-0208211 (the &#147;<U>Deed of
Trust</U>&#148;) and a Modification of Deed of Trust dated December&nbsp;1, 2005 and recorded on
December&nbsp;22, 2005 as Document No.&nbsp;2005-1057223 in the official records of Riverside county,
state of California.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">B.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Deed of Trust constitutes a first lien on the Original Borrower&#146;s fee simple estate as
more particularly described in Exhibit &#147;A&#148;. The Original Borrower&#146;s right, title and
interest in and to the land and the improvements located on the land, are collectively
referred to in this Agreement as the &#147;<U>Property</U>&#148;.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">C.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Concurrently with the recordation of this Agreement in the Official Records, Purchaser has
acquired title to the Property from the Original Borrower. In connection therewith,
Purchaser has requested that Lender consent to Purchaser&#146;s assumption of the Loan. Lender is
willing to permit Purchaser to assume the Loan on the terms and subject to the conditions
contained in this Agreement.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Purchaser agree as follows:
</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="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Assumption of Loan</U>. Effective as of the date on which Purchaser acquires title to
the Properly, which shall conclusively be deemed to have occurred no later than the date on
which this Agreement is recorded in the Official Records, Purchaser hereby assumes and agrees
to perform fully and when due each and every monetary and non-monetary obligation of the
Original Borrower under the Note, the Deed of Trust and every other instrument, certificate,
agreement and document that sets forth or secures any obligations of the Original Borrower
relating to the Loan (collectively, the &#147;<U>Loan Documents</U>&#148;). Lender hereby consents to
Purchaser&#146;s assumption of the Loan.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Assumption Fee</U>. Concurrently with the recordation of this Agreement, Purchaser
shall pay to Lender an assumption fee in the amount of $0.00. If Purchaser is acquiring the
Real Property through an escrow (the &#147;<U>Escrow</U>&#148;), this paragraph constitutes Purchaser&#146;s
irrevocable instructions to the holder of the Escrow to remit such assumption fee to Lender
upon the closing of the Escrow from the funds then held in the Escrow for Purchaser&#146;s account.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Purchaser&#146;s Receipt of Loan Documents</U>. Purchaser acknowledges having received a
complete copy of each Loan Document, including all riders and exhibits thereto, each in the
form executed and delivered by the Original Borrower.</DIV></TD>
</TR>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->1<!-- /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 style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Lender&#146;s Costs; Title Endorsement</U>. Purchaser shall pay, immediately upon Lender&#146;s
written request, all out-of-pocket expenses incurred by Lender in connection with Purchaser&#146;s
assumption of the Loan, including the fees for recording this Agreement in the Official
Records, the cost of obtaining a new Loan Policy of Title Insurance, or an ALTA No.&nbsp;10, Policy
Bring Down endorsement to Lender&#146;s policy of title insurance insuring the continued
validity and first lien priority of the Deed of Trust. If for any reason
Lender&#146;s title insurer is unwilling or unable to issue such ALTA No.&nbsp;10, Policy Bring Down
endorsement, then Lender, at its election, shall have the right, but not the obligation, to
revoke Lender&#146;s consent to Purchaser&#146;s assumption of the Loan and to declare the Loan due and
payable in full. Purchaser acknowledges that as a condition of issuing the ALTA No.&nbsp;10 Policy
Bring Down Form endorsement. Lender&#146;s title insurer may require that the Original Borrower or
Purchaser obtain and deliver to the title insurer for recordation a subordination agreement in
form and content satisfactory to the title insurer, executed and acknowledged by each person or
entity that holds or proposes to acquire any lien or security interest on or in the Property or
any part thereof. Purchaser hereby agrees to obtain any and all such subordination agreements at
no expense whatsoever to Lender, and to deliver a complete and correct copy of each subordination
agreement to Lender concurrently with the Purchaser&#146;s receipt thereof.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Non-Recourse.</U> Notwithstanding anything contained herein to the contrary, Lender by
its acceptance hereof, hereby agrees that none of the partners of Borrower, individually,
shall ever have any personal liability for the payment of the indebtedness evidenced hereby or
for the performance of any covenant, condition or term of this Note or the Deed of Trust or
any other instrument or other agreement existing as security for the payment of this Note.
Such non-personal liability shall in no way affect or impair the rights of the holder hereof
to realize upon the security thereof in the default, or levy execution of any money,
judgement, deficiency, or otherwise against Borrower or any property of Borrower. Lender
hereby agrees that at such time as a default shall occur, the sole remedies of the legal
holder hereof, or the Lender, or the Trustee, or the Beneficiary under the Deed of Trust,
shall be the foreclosure of the properly covered by the Deed of Trust or an action against
Borrower or the assets of Borrower and Lender shall not be entitled to a personal or
deficiency judgement against any partner.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Original Borrower and Guarantor Released</U>. Upon Purchaser&#146;s satisfaction of all
conditions and requirements of Lender to the this assumption, including, without limitation,
the payment of all principal reductions, fees and expenses, the closing of this assumption,
and the recordation of all agreements required to be recorded, this Agreement shall release
the Original Borrower(s) and Guarantors from any of their respective liabilities under the Loan
Documents and/or Guaranties.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Costs of Suit</U>. If any legal action, suit, or other proceeding is brought by either
party to enforce any provision of this Agreement, to rescind or otherwise set aside or vacate
this Agreement, or to remedy any breach or alleged breach of this Agreement, the party who
obtains substantially the relief sought by it in such action, suit or proceeding shall be
entitled to recover from the other party all costs and expenses of suit, including actual
attorneys&#146; fees.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>No Novation</U>. This Agreement shall not be construed as a novation, it being the intent
of the parties that the Loan Documents shall remain in full force and effect and that the lien
priority of the Deed of Trust relative to any other lien or encumbrance on the Property shall
not in any way be affected by this Agreement.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">9.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Notices</U>. All notices and other communications required or permitted under this
Agreement shall be in writing and shall be personally delivered or sent by first class United
States mail, and if mailed, shall be deemed received on the third business day after deposit
in the mail in the State of California, postage prepaid, addressed to
Lender at 390 W. Valley
Parkway, Escondido, California 92025, or to Purchaser at 1282 PACIFIC
OAKS PLACE, ESCONDIDO,
CA 92029. Notice of any change of either party&#146;s address shall be given by written notice in
the manner set forth in this paragraph.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Counterparts</U>. This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same document.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Further Actions</U>. The parties shall execute such further documents and take such
further actions as may be necessary to carry the provisions of this Agreement into effect.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">12.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Construction of Agreement</U>. Paragraph headings in this Agreement are included solely
for ease of reference and shall not affect the construction of this Agreement. This Agreement
shall be construed as if it had been prepared jointly by Lender and Purchaser. Unless
otherwise indicated, all references to paragraphs are to paragraphs in this Agreement. Unless
otherwise indicated, each exhibit referred to in this Agreement is an exhibit attached to this
Agreement and is incorporated herein by reference. When used in this Agreement, the words
&#147;include&#148;, &#147;includes&#148;, and &#147;including&#148; shall be construed as if immediately followed by the
words &#147;without limitation&#148;. If any portion of this Agreement shall be declared to be invalid,
illegal or unenforceable by any court of competent jurisdiction, such portion shall be deemed
severed from this Agreement and the remaining portions shall continue in full force and effect. CALIFORNIA law shall govern the
construction and enforcement of this Agreement.</DIV></TD>
</TR>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /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 style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</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="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">&nbsp;</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Entire Agreement</U>. This Agreement is intended by the parties to be a final
expression of their agreement with respect to the subject matter hereof and a complete and
exclusive statement of the terms of such agreement between the parties. This Agreement
supersedes any and all prior understandings, written or oral, between the parties.</DIV></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>No Relationship</U>.
Purchaser, Original Borrower(s) and each Guarantor represent and
warrant to Lender, that neither Original Borrower(s) nor any Guarantor have any interest in
or is anyway related to or affiliated with Purchaser or any party holding and interest in
Purchaser or the Property.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="3" align="left"><U>LENDER</U><BR>
<BR>
LA JOLLA BANK, FSB<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" align="left">BY: R.W. LOVELESS, AVP&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="3" align="left"><U>PURCHASER</U><BR>
<BR>
NETREIT<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" align="left">BY: JACK K. HEILBRON, PRESIDENT&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U>CONSENT OF ORIGINAL BORROWER AND GUARANTORS</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The undersigned Original Borrower and
Guarantors consent to the execution and delivery of this Agreement.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>ORIGINAL BORROWER</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">MONTEREY PALMS SELF STORAGE, LLC
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">BY: SOVREN VENTURES II, LLC, MANAGING MEMBER OF<BR>
MONTEREY PALMS SELF STORAGE, LLC

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">BY: GRANITE SOVREN PARTNERS, LLC, MANAGING MEMBER OF<BR>
SOVREN VENTURES II, LLC

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">BY: GRANITE INVESTMENT GROUP, MANAGING MEMBER OF<BR>
GRANITE SOVREN PARTNERS. LLC

</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>3
<FILENAME>c89738exv10w8.htm
<DESCRIPTION>EXHIBIT 10.8
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 10.8</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;10.8
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROMISSORY NOTE</B>
</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="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Principal<BR>
$5,200,000.00</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Loan Date<BR>
03-16-2004</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Maturity<BR>
03-01-2034</B>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top"><B>Loan No<BR>
01-33-20070</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Call / Coll</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Account</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Officer<BR>
CC</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Initials<BR>
Not Legible</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt;">
References in the shaded area are for Lender&#146;s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing &#147;***&#148; has been omitted due to text length limitations.
</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="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Borrower:</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">MONTEREY PALMS SELF STORAGE, LLC (TIN:<BR>
32-0038133)<BR>
2601 MAIN STREET, SUITE 1330<BR>
IRVINE, CA 92614
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Lender:</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">LA JOLLA BANK, FSB
389 N. ESCONDIDO BLVD. <BR>
ESCONDIDO, CA 92025</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</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="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>Principal Amount: $5,200,000.00</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Initial Rate: 7.000%</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>Date of Note: March&nbsp;16, 2004</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PROMISE TO PAY. </B>MONTEREY PALMS SELF STORAGE, LLC (&#147;Borrower&#148;) promises to pay to LA JOLLA
BANK, FSB (&#147;Lender&#148;), or order, in lawful money of the United States of America, the principal
amount of Five Million Two Hundred Thousand &#038; 00/100 Dollars ($5,200,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance of each advance.
Interest shall be calculated from the date of each advance until repayment of each advance. The
interest rate will not increase above 10.500%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PAYMENT.
</B>Subject to any payment changes resulting from changes in the Index, Borrower will pay
this loan in accordance with the following payment schedule: 24&nbsp;monthly consecutive interest
payments, beginning April&nbsp;1, 2004, with interest calculated on the unpaid principal balances at an
interest rate of 7.000% per annum; 335&nbsp;monthly consecutive principal and interest payments in the
initial amount of $30,366.22 each, beginning April&nbsp;1, 2006, with interest calculated on the unpaid
principal balances at an interest rate based on the THE LOWEST NEW YORK PRIME RATE IN EFFECT ON THE
FIRST BUSINESS DAY OF THE MONTH (CYCLE)&nbsp;AS PUBLISHED IN THE MONEY RATE SECTION OF THE WEST COAST
EDITION OF THE WALL STREET JOURNAL, (currently 4.000%), plus a margin of 0.500&nbsp;percentage points,
adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an
initial interest rate of 5.500%; and one principal and interest payment of $30,368.30 on March&nbsp;1,
2034, with Interest calculated on the unpaid principal balances at an interest rate based on the
THE LOWEST NEW YORK PRIME RATE IN EFFECT ON THE FIRST BUSINESS DAY OF THE MONTH (CYCLE)&nbsp;AS
PUBLISHED IN THE MONEY RATE SECTION OF THE WEST COAST EDITION OF THE WALL STREET JOURNAL,
(currently 4.000%), plus a margin of 0.500&nbsp;percentage points, adjusted if necessary for the minimum
and maximum rate limitations for this loan, resulting in an initial interest rate of 5.500%. This
estimated final payment is based on the assumption that all payments will be made exactly as
scheduled and that the Index does not change; the actual final payment will be for all principal
and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless
otherwise agreed or required by applicable law, payments will be applied first to any accrued
unpaid interest; then to principal; then to any unpaid collection costs; and then to any late
charges. Interest on this Note during the initial interest only payment period is computed on a
3651365 simple interest basis; that is, by applying the ratio of the annual interest rate over the
number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Interest on this Note during the permanent
loan phase is computed on a 301360 simple interest basis; that is, with the exception of odd days
in the first payment period, monthly interest is calculated by applying the ratio of the annual
interest rate over a year of 360&nbsp;days, multiplied by the outstanding principal balance, multiplied
by a month of 30&nbsp;days. Interest for the odd days is calculated on the basis of the actual days to
the next full month and a 360-day year. Borrower will pay Lender at Lender&#146;s address shown above or
at such other place as Lender may designate in writing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>VARIABLE INTEREST RATE. </B>The interest rate on this Note is subject to change from time to time based
on changes in an independent index which is the THE LOWEST NEW YORK PRIME RATE IN EFFECT ON THE
FIRST BUSINESS DAY OF THE MONTH (CYCLE)&nbsp;AS PUBLISHED IN THE MONEY RATE SECTION OF THE WEST COAST
EDITION OF THE WALL STREET JOURNAL, (the &#147;Index&#148;). The Index is not necessarily the lowest rate
charged by Lender on its loans. If the Index becomes unavailable during the term of this loan,
Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower&#146;s request. The interest rate change will not occur more often than
each 6 MONTHS. Borrower understands that Lender may make loans based on other rates as well. The
Index currently is 4.000% per annum. The interest rate or rates to be
applied to the unpaid principal balance of this Note will be the rate or rates set forth herein in
the &#147;Payment&#148; section. Notwithstanding any other provision of this Note, after the first payment
stream, the interest rate for each subsequent payment stream will be effective as of the last
payment date of the just-ending payment stream. Notwithstanding the foregoing, the variable
interest rate or rates provided for in this Note will be subject to the following minimum and
maximum rates. NOTICE: Under no circumstances will the interest rate on this Note be less than
5.500% per annum or more than (except for any higher default rate shown below) the lesser of
10.500% per annum or the maximum rate allowed by applicable law. Notwithstanding the above
provisions, the maximum increase or decrease in the interest rate at any one time on this loan will
not exceed 2.000&nbsp;percentage points. Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (A)&nbsp;increase Borrower&#146;s payments to ensure Borrower&#146;s
loan will pay off by its original final maturity date, (B)&nbsp;increase Borrower&#146;s payments to cover
accruing interest, (C)&nbsp;increase the number of Borrower&#146;s payments, and (D)&nbsp;continue Borrower&#146;s
payments at the same amount and increase Borrower&#146;s final payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PREPAYMENT FEE. </B>Borrower agrees that all loan fees and other prepaid finance charges are
earned fully as of the date of the loan and will not be subject to refund upon early payment
(whether voluntary or as a result of default), except as otherwise required by law. Upon prepayment
of this Note, Lender is entitled to the following prepayment fee: If the aggregate amount of
principal prepaid during months 25 through 36, from the date of funding, exceeds twenty percent
(20%) of the original principal amount of this Note, the Borrower shall pay Lender a penalty equal
to three percent (3%) of the original principal amount of this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If the aggregate amount of principal prepaid during months 37 through 48, from the date of
funding, exceeds twenty percent (20%) of the original principal amount of this Note, the Borrower
shall pay Lender a penalty equal to two percent (2%) of the original principal amount of this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If the aggregate amount of principal prepaid during months 49 through 60, from the date of
funding, exceeds twenty percent (20%) of the original principal amount of this Note, the Borrower
shall pay Lender a penalty equal to one percent (1%) of the original principal amount of this Note.
</DIV>

<DIV style="margin-top: 6pt">
<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="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than
it Is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower&#146;s obligation to continue to make payments under the payment schedule. Rather, early
payments will reduce the principal balance due and may result in Borrower&#146;s making fewer payments.
Borrower agrees not to send Lender payments marked &#147;paid in full&#148;, &#147;without recourse&#148;, or similar
language. If Borrower sends such a payment, Lender may accept it without losing any of Lender&#146;s
rights under this Note, and Borrower will remain obligated to pay any further amount owed to
Lender. All written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes &#147;payment in full&#148; of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction of a disputed
amount must be mailed or delivered to: LA JOLLA BANK, FSB; 389 N. ESCONDIDO BLVD.; ESCONDIDO, CA
92025.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INTEREST RESERVES. </B>Borrower authorizes Lender to place $436,800.00 of the Principal Amount as an
interest reserve, which is an estimate of the interest due on the Note for the draw phase
(&#147;Interest Reserve&#148;). All interest payments shall be paid
from the Interest Reserve. Lender may
automatically deduct accrued unpaid interest from the Interest
Reserve. Interest will accrue, as
described in this Note, on amounts deducted from the Interest Reserve. In the event the interest
due under this Note for the draw phase exceeds the Interest Reserve, Borrower will pay accrued
unpaid interest when due according to the terms of this Note. At the end of the draw phase. Lender
will advance or disburse the remaining Interest Reserve, if any, to Borrower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>LATE CHARGE. </B>If a payment is 10&nbsp;days or more late, Borrower will be charged 5.000% of the regularly
scheduled payment or $5.00, whichever is greater.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INTEREST AFTER DEFAULT. </B>Upon default, the variable interest rate on this Note shall immediately
increase by 3.000&nbsp;percentage points, if permitted under applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DEFAULT. </B>Each of the following shall constitute an event of default (&#147;Event of Default&#148;) under this
Note:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>Payment Default. </B>Borrower fails to make any payment when due under this Note.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>Other Defaults. </B>Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Note or in any of the related documents or to comply
with or to perform any term, obligation, covenant or condition contained in any other
agreement between Lender and Borrower.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>Environmental Default. </B>Failure of any party to comply with or perform when due any term,
obligation, convenant or condition contained in any environmental agreement executed in
connection with any loan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>False Statements. </B>Any warranty, representation or statement made or furnished to Lender by
Borrower or on Borrower&#146;s behalf under this Note or the related documents is false or
misleading in any material respect, either now or at the time made or furnished or becomes
false or misleading at any time thereafter.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>Death or Insolvency. </B>The dissolution of Borrower (regardless of whether election to continue
is made), any member withdraws from Borrower, or any other termination of Borrower&#146;s
existence as a going business or the death of any member, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower&#146;s property, any assignment for the benefit
of creditors, any type of creditor workout, or the commencement of any
</DIV>

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</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROMISSORY NOTE</B>
</DIV>

<DIV align="center">
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    <TD>&nbsp;</TD>
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</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><B>Loan No: 01-33-20070</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><b>(Continued)</b>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"> <B>Page</B></TD>
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</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">proceeding under any bankruptcy or insolvency laws by or against Borrower.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>Creditor or Forfeiture Proceedings. </B>Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any creditor of
Borrower or by any governmental agency against any collateral securing the loan. This includes
a garnishment of any of Borrower&#146;s accounts, including deposit accounts, with Lender. However,
this Event of Default shall not apply if there is a good faith dispute by Borrower as to the
validity or reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding
and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in
an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond
for the dispute.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>Events Affecting Guarantor. </B>Any of the preceding events occurs with respect to any
Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes
or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by
this Note. In the event of a death, Lender, at its option, may, but shall not be required to,
permit the Guarantor&#146;s estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>Adverse Change. </B>A material adverse change occurs in Borrower&#146;s financial condition, or Lender
believes the prospect of payment or performance of this Note is impaired.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><B>Cure Provisions. </B>If any default, other than a default in payment is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within the preceding
twelve (12)&nbsp;months, it may be cured (and no event of default will have occurred) if Borrower,
after receiving written notice from Lender demanding cure of such default: (1)&nbsp;cures the
default within ten (10)&nbsp;days; or (2)&nbsp;if the cure requires more than ten (10)&nbsp;days, immediately
initiates steps which Lender deems in Lender&#146;s sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary steps sufficient to
produce compliance as soon as reasonably practical.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>LENDER&#146;S RIGHTS. </B>Upon default, Lender may declare the entire unpaid principal balance on this
Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ATTORNEYS&#146; FEES; EXPENSES. </B>Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender&#146;s attorneys&#146; fees and Lender&#146;s legal expenses, whether or not there is
a lawsuit, including attorneys&#146; fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court
costs, in addition to all other sums provided by law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law
and the laws of the State of California. This Note has been accepted by Lender in the State of
California.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CHOICE OF VENUE. </B>If there is a lawsuit, Borrower agrees upon Lender&#146;s request to submit to the
jurisdiction of the courts of SAN DIEGO County, State of California.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DISHONORED ITEM FEE. </B>Borrower will pay a fee to Lender of $10.00 if Borrower makes a payment
on Borrower&#146;s loan and the check or preauthorized charge with which Borrower pays is later
dishonored.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>COLLATERAL. </B>Borrower acknowledges this Note is secured by the following collateral described in the
security instruments listed herein:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(A)&nbsp;a Construction Deed of Trust dated March&nbsp;16, 2004, to a trustee in favor of Lender on
real property located in RIVERSIDE County, State of California. That agreement contains the
following due on sale provision: Lender may, at Lender&#146;s option, declare immediately due and
payable all sums secured by the Construction Deed of Trust upon the sale or transfer, without
Lender&#146;s prior written consent, of all or any part of the Real Property, or any interest in the
Real Property. A &#147;sale or transfer&#148; means the conveyance of Real Property or any right, title
or interest in the Real Property; whether legal, beneficial or equitable; whether voluntary or
involuntary; whether by outright sale, deed, installment sale contract, land contract, contract
for deed, leasehold interest with a term greater than three (3)&nbsp;years, lease-option contract,
or by sale, assignment, or transfer of any beneficial interest in or to any land trust holding
title to the Real Property, or by any other method of conveyance of an interest in the Real
Property. If any Borrower is a corporation, partnership or limited liability company, transfer
also includes any change in ownership of more than twenty-five percent (25%) of the voting
stock, partnership interests or limited liability company interests, as the case may be, of
such Borrower. However, this option shall not be exercised by Lender if such exercise is
prohibited by applicable law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(B)&nbsp;an Assignment of All Rents to Lender on real property located in RIVERSIDE County, State of
California.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(C)&nbsp;collateral described in a Commercial Security Agreement dated March&nbsp;16, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>LINE OF CREDIT. </B>This Note evidences a straight line of credit. Once the total amount of
principal has been advanced, Borrower is not entitled to further loan advances. Borrower agrees to
be liable for all sums either: (A)&nbsp;advanced in accordance with the instructions of an authorized
person or (B)&nbsp;credited to any of Borrower&#146;s accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidenced by endorsements on this Note or by Lender&#146;s
internal records, including daily computer print-outs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>SUCCESSOR INTERESTS. </B>The terms of this Note shall be binding upon Borrower, and upon Borrower&#146;s
heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender
and its successors and assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. </B>Please notify us
if we report any inaccurate information about your account(s) to a consumer reporting agency. Your
written notice describing the specific inaccuracy(ies) should be sent to us at the following
address: LA JOLLA BANK, FSB, 389 N. ESCONDIDO BLVD., ESCONDIDO, CA 92025
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>GENERAL PROVISIONS. </B>Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs, guarantees or endorses this
Note, to the extent allowed by law, waive any applicable statute of limitations, presentment,
demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender&#146;s security interest
in the collateral; and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.
</DIV>


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