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, 1997


[ ]  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, 1997
No Par Value Common Stock                         1,872,895 Shares

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

<PAGE>


                            DIVERSIFIED REALTY, INC.


                                    INDEX

                              SEPTEMBER 30, 1997

                                                                Page Number
PART I

  Condensed Financial Statements:

     Balance Sheet
       September 30, 1997                                             2

     Statements of Income -
       Three Months and Nine Months Ended
       September 30, 1997 and 1996                                    3

     Statements of Cash Flows -
       Nine Months Ended September 30, 1997 and 1996                  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, 1997
                                                                     
     ASSETS
Current Assets                                                       
  Cash                                                         $  1,013,812   
  Receivables - Net                                                   1,984
  Due From Parent Company                                             1,400

   Total Current Assets                                           1,017,196

Noncurrent Receivables                                                9,961

Property, Plant and Equipment, Net                                  265,362
                                                                     
            TOTAL ASSETS                                       $  1,292,519
                                                                     

    LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                     
Current Liabilities
  Accounts Payable and Accrued Expenses                        $     40,095
  Income Taxes Payable                                                9,318

             Total Current Liabilities                               49,413
                                                                     
Stockholders' Equity
  Common Stock - No Par Value, 
  5,000,000 shares authorized, 
  1,875,000 shares issued                                         1,416,908
  Accumulated Deficit                                              (173,171) 
  Cost of Common Stock in Treasury                                     (631) 

             Total Stockholders' Equity                           1,243,106
                                                                     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $  1,292,519



                      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,
                                 1997       1996           1997       1996
<S>                          <C>        <C>              <C>       <C>
                                                                            
Operating Revenues           $ 31,076   $ 27,344         $ 95,640  $ 77,842  

Operating Expenses             22,881     20,470           56,186    57,977   

                                8,195      6,874           39,454    19,865   

Provision for Income Taxes     (4,900)    (1,500)         (11,900)   (4,400) 

    Net Income               $  3,295   $  5,374         $ 27,554  $ 15,465  
                                                                            
                                                                            
Earnings Per Weighted Average                                               
 Share Outstanding: (1,872,911
 Shares in 1997 and 1,874,257
 Shares in 1996)             $     --   $    --          $    .01   $   .01   
                                                                            

Dividends Per Share          $     --   $    --          $     --   $     --


</TABLE>
                      See Notes to Financial Statements

                                    3
   
<PAGE>

                          DIVERSIFIED REALTY, INC.

                          STATEMENTS OF CASH FLOWS




                                                           For The Nine      
                                                           Months Ended
                                                           September 30,
                                                           
                                                          1997          1996
     CASH FLOWS FROM OPERATING ACTIVITIES                                 
                                                                          
Net Cash Provided By Operating                                            
 Activities                                          $   62,733    $   30,209   
                                                                          
     CASH FLOWS FROM INVESTING ACTIVITIES                                 
                                                                          
Cash Received on Principal of                                             
 Notes Receivable                                         1,372         1,263
                                                                          
Net Cash Provided By Investing Activities                 1,372         1,263
                                                                          
     CASH FLOWS FROM FINANCING ACTIVITIES                                 
                                                                          
Net Cash Received From Parent Company                     1,800         1,800

Cash Purchases of Treasury Stock                             (6)         (589)

Net Cash Provided By Financing                                          
 Activities                                               1,794         1,211
                                                                          
NET INCREASE IN CASH                                     65,899        32,683
                                                                          
CASH - BEGINNING OF PERIOD                              947,913       614,560

CASH - END OF PERIOD                                 $1,031,812    $  647,243



                      See Notes to Financial Statements

                                   4  
<PAGE>

                          DIVERSIFIED REALTY, INC.

                        NOTES TO FINANCIAL STATEMENTS

                             SEPTEMBER 30, 1997



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, 1997
and the results of the Company's operations for the three months and nine
months ended September 30, 1997 and 1996 and cash flows for the nine months
ended September 30, 1997 and 1996.

The results of operations for the three months and nine months ended
September 30, 1997 and 1996 are not necessarily indicative of the results to
be expected for the full year.

Parent -

M Corp, Great Falls, Montana owns approximately 84% of the outstanding
shares of the Company.



                                  5

<PAGE>

                         DIVERSIFIED REALTY, INC.

                   MANAGEMENT'S DISCUSSION AND ANALYSIS
                          OF THE INCOME STATEMENT

                            SEPTEMBER 30, 1997


      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, 
                                 1997 AND 1996             1997 AND 1996
                        
                                   INCREASES                (DECREASES)


Revenues                    $  3,732      13.6%        $ 17,798    22.9%

Expenses                       2,411      11.8%          (1,791)   (2.0%)       

Net Income                    (2,079)    (38.7%)         12,089    78.2%      

Revenues increased $17,798 (22.9%) in the first nine months of 1997 as 
compared with the first nine months of 1996 due primarily to increases in 
interest revenues ($14,737, 64.7%) and other revenues ($4,975). Interest 
revenues increased primarily due to an increase in interest-earning deposits 
maintained by the Company. Operating expenses decreased $1,792 (3.1%) in the 
first nine months of 1997 as compared with the first nine months of 1996 
with a decrease in the provision for depreciation ($1,865, 15.1%). The 
provision for income tax expense increased $7,500, 170.5%, in the first nine 
months of 1997 as compared with the first nine months of 1996 due to the 
increase in pretax income.



                                     6

<PAGE>

                         DIVERSIFIED REALTY, INC.

                                PART II

                           OTHER INFORMATION


                           SEPTEMBER 30, 1997



ITEM 1    LEGAL PROCEEDINGS

          None

ITEM 2    CHANGES IN SECURITIES

          None

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

          None

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                                
          None

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, 1997               s/K. King
                                        K. King
                                        Secretary-Treasurer


Date:  October 30, 1997               s/Jerry K. Mohland
                                        Jerry K. Mohland,
                                        Accountant



                                8