U.S. Securities and Exchange Commission
                           Washington, D.C.  20549


                                 FORM 10-QSB

(Mark One)
[X]  QUARTERLY  REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934

       For the quarterly period ended September 30, 1998


[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

       For the transition period from                   to

       Commission file number              0-2864


                       DIVERSIFIED REALTY, INC.
(Exact name of small business issuer as specified in its charter)


                          Montana
(State  or  other  jurisdiction  of  incorporation  or  organization) 

                         81-0268110
            (IRS Employer Identification No.)

       128  Second  Street  South, Great  Falls,  Montana 59405
             (Address of principal executive offices)


                      (406) 727-2600
                (Issuer's telephone number)


                            Not Applicable
(Former  name,  former address and former  fiscal  year,  if changed
since last report)


   Check  whether the issuer (1) filed all reports required to  be  filed  by
Section  13  or 15(d) of the Exchange Act during the past 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


              APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                 PROCEEDINGS DURING THE PRECEDING FIVE YEARS

  Check whether the registrant filed all documents and reports required to be
filed  by  Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes         No


                    APPLICABLE ONLY TO CORPORATE ISSUERS

   State the number of shares outstanding of each of the issuer's classes  of
common equity, as of the latest practicable date:

       
          Class                           Outstanding at September 30, 1998
$.10 Par Value Common Stock                         5,372,895 Shares

Transitional  Small  Business Disclosure Format  (Check  One):   Yes    No  X

<PAGE>


                            DIVERSIFIED REALTY, INC.


                                    INDEX

                              SEPTEMBER 30, 1998

                                                                Page Number
PART I

  Condensed Financial Statements:

     Balance Sheet
       September 30, 1998                                             2

     Statements of Income -
       Three Months and Nine Months Ended
       September 30, 1998 and 1997                                    3

     Statements of Cash Flows -
       Nine Months Ended September 30, 1998 and 1997                  4

     Notes to Financial Statements                                    5

  Management's Discussion and Analysis
       of the Statements of Income                                    6


PART II

  Other Information                                                   7

  Signatures                                                          8


                                    1
<PAGE>

                           DIVERSIFIED REALTY, INC.

                                BALANCE SHEET

                          AS OF SEPTEMBER 30, 1998
                                                                     
     ASSETS
Current Assets                                                       
  Cash                                                         $  1,897,306   
  Receivables - Net                                                     782
  Due From Parent Company                                           226,000

   Total Current Assets                                           2,124,088

Property, Plant and Equipment, Net                                  246,182
                                                                     
            TOTAL ASSETS                                       $  2,370,270
                                                                     

    LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                     
Current Liabilities
  Accounts Payable and Accrued Expenses                        $     34,820

             Total Current Liabilities                               34,820
                                                                     
Stockholders' Equity
  Common Stock, $.10 Par Value, 
    11,000,000 shares authorized, 
    5,375,000 shares authorized                                     537,500
  Additional Paid-In-Capital                                      1,929,408
  Accumulated Deficit                                              (130,827) 
  Cost of Common Stock in Treasury                                     (631) 

             Total Stockholders' Equity                           2,335,450
                                                                     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $  2,370,270



                      See Notes to Financial Statements

                                     2

<PAGE>
<TABLE>

                          DIVERSIFIED REALTY, INC.
<CAPTION>
                           STATEMENTS OF INCOME




                                  For The Three             For The Nine
                                     Months                    Months
                                     Ended                     Ended
                                  September 30,             September 30,
                                 1998       1997           1998       1997
<S>                          <C>        <C>              <C>       <C>
                                                                            
Operating Revenues           $ 42,342   $ 31,076         $124,547  $ 95,640  

Operating Expenses             17,908     22,881           52,331    56,186   

                               24,434      8,195           72,216    39,454   

Provision for Income Taxes    (10,000)    (4,900)         (30,000)  (11,900) 

    Net Income               $ 14,434   $  3,295         $ 42,216  $ 27,554  
                                                                            
                                                                            

</TABLE>
                      See Notes to Financial Statements

                                    3
   
<PAGE>

                          DIVERSIFIED REALTY, INC.

                          STATEMENTS OF CASH FLOWS




                                                           For The Nine      
                                                           Months Ended
                                                           September 30,
                                                           
                                                          1998          1997
     CASH FLOWS FROM OPERATING ACTIVITIES                                 
                                                                          
Net Cash Provided By Operating                                            
 Activities                                          $   57,637    $   62,733

     CASH FLOWS FROM INVESTING ACTIVITIES                                 

Cash Received on Redemption
   of Property and Equipment                              5,210          -
                                                                          
Cash Received on Principal of                                             
 Notes Receivable                                        11,466         1,372
                                                                          
Net Cash Provided By Investing Activities                16,676         1,372
                                                                          
     CASH FLOWS FROM FINANCING ACTIVITIES                                 
                                                                          
Net Cash Received From Parent Company                  (242,200)        1,800

Cash Purchases of Treasury Stock                           -               (6)

Net Cash Provided (Used) By 
   Financing Activities                                (242,200)        1,794
                                                                          
NET INCREASE (DECREASE) IN CASH                        (167,887)       65,899
                                                                          
CASH - BEGINNING OF PERIOD                            2,065,193       947,913

CASH - END OF PERIOD                                 $1,897,306    $1,013,812



                      See Notes to Financial Statements

                                   4  
<PAGE>

                          DIVERSIFIED REALTY, INC.

                        NOTES TO FINANCIAL STATEMENTS

                             SEPTEMBER 30, 1998



In the opinion of management, all adjustments necessary (consisting of
only  normal  recurring accruals) have been made to the unaudited  financial
statements to present fairly the financial position as of September 30, 1998
and the results of the Company's operations for the three months and nine
months ended September 30, 1998 and 1997 and cash flows for the nine months
ended September 30, 1998 and 1997.

The results of operations for the three months and nine months ended
September 30, 1998 and 1997 are not necessarily indicative of the results to
be expected for the full year.

Parent -

M Corp, Great Falls, Montana owns approximately 94% of the outstanding
shares of the Company.



                                  5

<PAGE>

                         DIVERSIFIED REALTY, INC.

                   MANAGEMENT'S DISCUSSION AND ANALYSIS
                          OF THE INCOME STATEMENT

                            SEPTEMBER 30, 1998


      A  summary of the period to period changes in items included  in  the
statements of income is shown below.
                                                    
                                            COMPARISON   OF
                                 THREE MONTHS              NINE MONTHS
                                    ENDED                      ENDED
                                 SEPTEMBER 30,             SEPTEMBER 30, 
                                 1998 AND 1997             1998 AND 1997
                        
                                   INCREASES                (DECREASES)


Revenues                    $ 11,266      36.3%        $ 28,907    30.2%

Expenses                      (4,973)    (21.7%)         (3,855)   (6.9%)       

Net Income                    11,139     338.1%          14,662    53.2%      



Revenues increased $11,266 (36.3%) in the first nine months of 1998 as 
compared with the first nine months of 1997 due primarily to an increase 
in interest revenues ($31,591, 84.2%) partially offset by a decrease in 
other revenues ($4,811, 96.2%). Interest revenues increased primarily due 
to an increase in interest-earning deposits maintained by the Company. 
Operating expenses decreased $3,855 (6.9%) in the first nine months of 1998 
as compared with the first nine months of 1997 with a decrease in operating 
costs and expenses. The provision for income tax expense increased $18,100, 
152.1%, in the first nine months of 1998 as compared with the first nine 
months of 1997 due to the increase in pretax income.




                                     6

<PAGE>

                         DIVERSIFIED REALTY, INC.

                                PART II

                           OTHER INFORMATION


                           SEPTEMBER 30, 1998



ITEM 1    LEGAL PROCEEDINGS

          None

ITEM 2    CHANGES IN SECURITIES AND USE OF PROCEEDS

          None

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

          None

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                                
          On September 8, 1998 a meeting of shareholders was held at which 
          the Company's entire Board of Directors was elected. Directors 
          elected to the Board were Charles E. Reed, S. M. McCann and M. A. 
          Arneson. The Company's shareholders also authorized the Board of 
          Directors to select an independent certified public accounting 
          firm to audit the Company's financial statements for 1998.

ITEM 5    OTHER INFORMATION

          None

ITEM 6    EXHIBITS AND REPORTS ON FORM 8-K

          None



                                   7

<PAGE>
 
                        DIVERSIFIED REALTY, INC.

                             SIGNATURES


       In  accordance  with the requirements of  the  Exchange
       Act, the registrant caused this report to be signed  on
       its   behalf   by   the  undersigned,  thereunto   duly
       authorized.


                         DIVERSIFIED REALTY, INC.
                               Registrant


 




Date:  October 30, 1998               s/K. King
                                        K. King
                                        Secretary-Treasurer


Date:  October 30, 1998               s/Jerry K. Mohland
                                        Jerry K. Mohland,
                                        Accountant



                                8