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, 1996


[ ]  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, 1996
No Par Value Common Stock                         1,873,038 Shares

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

<PAGE>


                            DIVERSIFIED REALTY, INC.


                                    INDEX

                              SEPTEMBER 30, 1996

                                                                Page Number
PART I

  Condensed Financial Statements:

     Balance Sheet
       September 30, 1996                                             2

     Statements of Income -
       Three Months and Nine Months Ended
       September 30, 1996 and 1995                                    3

     Statements of Cash Flows -
       Nine Months Ended September 30, 1996 and 1995                  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, 1996
                                                                     
     ASSETS
Current Assets                                                       
  Cash                                                           $    647,243   
  Marketable Securities, at market                                          6 
  Receivables - Net                                                     1,814
  Due From Parent Company                                             304,425

   Total Current Assets                                               953,488

Noncurrent Receivables                                                 11,942

Property, Plant and Equipment, Net                                    282,122
                                                                     
            TOTAL ASSETS                                         $  1,247,552
                                                                     

    LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                     
Current Liabilities
  Accounts Payable and Accrued Expenses                          $      9,748

             Total Current Liabilities                                  9,748
                                                                     
Stockholders' Equity
  Common Stock - No Par Value, 5,000,000 shares                      
   authorized, 1,873,038 shares issued and                           
   outstanding                                                      1,416,319
  Accumulated Deficit                                                (178,515) 

             Total Stockholders' Equity                             1,237,804
                                                                     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $  1,247,552



                      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,
                                 1996       1995           1996       1995
<S>                          <C>        <C>              <C>       <C>
                                                                            
Operating Revenues           $ 27,344   $ 24,917         $ 77,842  $ 78,378  

Operating Expenses             20,470     16,117           57,977    53,548   

   Operating Income             6,874      8,800           19,865    24,830   

Provision for Income Taxes     (1,500)    (1,850)          (4,400)   (5,400) 

    Net Income               $  5,374   $  6,950         $ 15,465  $ 19,430  
                                                                            
                                                                            
Earnings Per Weighted Average                                               
 Share Outstanding: (1,874,257
 Shares in 1996 and 1,875,000
 Shares in 1995)             $     --   $    --          $    .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,
                                                           
                                                          1996          1995
     CASH FLOWS FROM OPERATING ACTIVITIES                                 
                                                                          
Net Cash Provided By Operating                                            
 Activities                                          $   30,209    $   46,106   
                                                                          
     CASH FLOWS FROM INVESTING ACTIVITIES                                 
                                                                          
Cash Received on Principal of                                             
 Notes Receivable                                         1,263         1,140
                                                                          
Net Cash Provided By Investing Activities                 1,263         1,140
                                                                          
     CASH FLOWS FROM FINANCING ACTIVITIES                                 
                                                                          
Net Cash Received From Parent Company                     1,800         1,800

Cash Purchases of Treasury Stock                           (589)           -

Net Cash Provided By Financing                                          
 Activities                                               1,211         1,800
                                                                          
NET INCREASE IN CASH                                     32,683        49,046
                                                                          
CASH - BEGINNING OF PERIOD                              614,560       558,236

CASH - END OF PERIOD                                 $  647,243    $  607,282



                      See Notes to Financial Statements

                                   4  
<PAGE>

                          DIVERSIFIED REALTY, INC.

                        NOTES TO FINANCIAL STATEMENTS

                             SEPTEMBER 30, 1996



      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, 1996
and the results of the Company's operations for the three months and nine
months ended September 30, 1996 and 1995 and cash flows for the nine months
ended September 30, 1996 and 1995.

      The results of operations for the three months and nine months ended
September 30, 1996 and 1995 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, 1996


      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, 
                                 1996 AND 1995             1996 AND 1995
                        
                                   INCREASES                (DECREASES)


Revenues                    $  2,427       9.7%        $  (536)     (.7%)

Expenses                       4,353      27.0%          4,429      8.3%       

Net Income                    (1,576)    (22.7%)        (3,965)   (20.4%)      



   Revenues devreased $536, .7%, in the first nine months of 1996 as compared
with the first nine months of 1995 with a decrease of $1,276 (2.3%) in rent
revenues partially offset by an increase of $765 (3.5%) in interest revenues.

   The decrease in rent revenues in the first nine months of 1996 as compared
with the first nine months of 1995 was due primarily to an increase in 
vacancies, partially offset by an increase in rental rates.

   Expenses increased $4,429 (8.3%) in the first nine months of 1996 as
compared with the first nine months of 1995 with increases in payroll and 
payroll costs and increases in other classifications of expenses partially 
offset by a decrease in the provision for depreciation.

   The decrease in revenues and the increase in expenses in the first nine
months of 1996 as compared with the first nine months of 1995 are the primary 
reasons for the decrease in net income.



                                     6

<PAGE>

                         DIVERSIFIED REALTY, INC.

                                PART II

                           OTHER INFORMATION


                           SEPTEMBER 30, 1996



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
                                                                
          No matters were submitted to a vote of security holders during the
          third quarter of 1996, however, on October 22, 1996, a meeting of
          shareholders was held at which the Company's entire Board of 
          Directors was elected. Directors elected to the Board were L. H.
          LaValley, Charles E. Reed and S. M. McCann. The Company's
          shareholders also authorized the Board of Directors to select an
          independant certified public accounting firm to audit the Compamy's
          financial statements for 1996. 
  

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, 1996               s/Kathleen King
                                        Kathleen King
                                        Secretary-Treasurer


Date:  October 30, 1996               s/Jerry K. Mohland
                                        Jerry K. Mohland,
                                        Accountant



                                8