**SECURITIES AND EXCHANGE COMMISSION**

##### **Washington, D.C.  20549**

##### ** **

**FORM 10-Q**

 

| **ý** |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                                                                                                                                                               |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **For the quarterly period ended  March 31, 2004.**                                                                                                                                                                                                                                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **OR**                                                                                                                                                                                                                                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **o**      |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **For the transition period  from                                to                                ** |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **Commission file number 1-14462**                                                                                                                                                                                                                                                                                                                                                                                                    |

 

| **AMERIVEST PROPERTIES INC.**                                    |
|------------------------------------------------------------------|
| (Exact name of registrant as  specified in its charter)          |
|                                                             |   |   |
| **Maryland**                                                     |   | **84-1240264** |
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |   |
| **1780 South Bellaire Street  Suite 100, Denver, Colorado**      |   | **80222** |
| (Address of  principal executive offices)                        |   | (Zip Code) |
|                                                             |   |   |
| **(303) 297-1800**                                               |
| (Registrant’s  telephone number, including area code)       |

 

Indicate by check markwhether the registrant (1) filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.  Yes  ý  No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  Yes  ý  No  o

 

The number of shares ofthe registrant’s common stock outstanding as of May 10, 2004 was 23,911,649.

 

 

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**Table of Contents**

 
| **Part I**  | **Financial Information**                                                                                   |   |
|-------------|-------------------------------------------------------------------------------------------------------------|--------|
|        |                                                                                                        |   |
| Item 1.     | Financial Statements:                                                                                       |   |
|        | Consolidated Balance Sheets  as of March 31, 2004 and December 31, 2003 (unaudited)                         |   |
|        | Consolidated  Statements of Operations for the three months ended March 31, 2004 and 2003  (unaudited)      |   |
|        | Consolidated  Statement of Stockholders’ Equity for the three months ended March 31, 2004  (unaudited) |   |
|        | Consolidated  Statements of Cash Flows for the three months ended March 31, 2004 and 2003  (unaudited)      |   |
|        | Notes to  Consolidated Financial Statements (unaudited)                                                     |   |
|        |                                                                                                        |   |
| Item  2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                 |   |
|        |                                                                                                        |   |
| Item  3.    | Quantitative  and Qualitative Disclosures About Market Risk                                                 |   |
|        |                                                                                                        |   |
| Item 4.     | Controls and Procedures                                                                                     |   |
|        |                                                                                                        |   |
| **Part II** | **Other Information**                                                                                       |   |
|        |                                                                                                        |   |
| Item 1.     | Legal Proceedings                                                                                           |   |
|        |                                                                                                        |   |
| Item  2.    | Changes  in Securities and Use of Proceeds                                                                  |   |
|        |                                                                                                        |   |
| Item 6.     | Exhibits and  Reports on Form 8-K                                                                           |   |

 

i

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**AMERIVEST PROPERTIES INC.**

**CONSOLIDATED BALANCE SHEETS**

**(unaudited)**

 
|                                                                                                                                              |   | **March 31,  2004** |        | **December  31,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-------------|-------------------------|--------|
| ASSETS                                                                                                                                            |   |                |        |                    |   |
| Investment in  real estate                                                                                                                        |   |                |        |                    |   |
| Land                                                                                                                                              |   | $                   | 35,758,606  |                    | $      | 28,838,214 |   |
| Buildings and  improvements                                                                                                                       |   | 212,271,792         |        | 184,519,890             |   |
| Furniture,  fixtures and equipment                                                                                                                |   | 981,909             |        | 799,730                 |   |
| Tenant  improvements                                                                                                                              |   | 9,155,780           |        | 6,144,440               |   |
| Tenant leasing  commissions                                                                                                                       |   | 1,535,091           |        | 1,061,160               |   |
| Intangible  assets                                                                                                                                |   | 15,853,841          |        | 11,468,120              |   |
| Less:  accumulated depreciation and amortization                                                                                                  |   | (15,636,222         | )           | (12,134,025             | )      |
| Net investment  in real estate                                                                                                                    |   | 259,920,797         |        | 220,697,529             |   |
|                                                                                                                                              |   |                |        |                    |   |
| Cash and cash  equivalents                                                                                                                        |   | 2,026,534           |        | 1,477,585               |   |
| Escrow deposits                                                                                                                                   |   | 8,604,459           |        | 5,778,427               |   |
| Assets – held  for sale                                                                                                                      |   | —              |        | 3,196,877               |   |
| Investment in  unconsolidated affiliate                                                                                                           |   | —              |        | 1,364,032               |   |
| Due from related  party                                                                                                                           |   | —              |        | 3,371,526               |   |
| Due from  unconsolidated affiliate                                                                                                                |   | —              |        | 262,347                 |   |
| Accounts  receivable                                                                                                                              |   | 902,943             |        | 296,377                 |   |
| Deferred rents  receivable                                                                                                                        |   | 1,506,143           |        | 1,401,455               |   |
| Deferred  financing costs, net                                                                                                                    |   | 2,289,316           |        | 2,301,043               |   |
| Prepaid expenses  and other assets                                                                                                                |   | 660,741             |        | 353,264                 |   |
|                                                                                                                                              |   |                |        |                    |   |
| Total assets                                                                                                                                      |   | $                   | 275,910,933 |                    | $      | 240,500,462 |   |
|                                                                                                                                              |   |                |        |                    |   |
| LIABILITIES                                                                                                                                       |   |                |        |                    |   |
| Mortgage loans  and notes payable                                                                                                                 |   | $                   | 154,739,860 |                    | $      | 158,237,661 |   |
| Liabilities –  held for sale                                                                                                                 |   | —              |        | 1,296,049               |   |
| Accounts payable  and accrued expenses                                                                                                            |   | 3,308,924           |        | 2,736,657               |   |
| Accrued real  estate taxes                                                                                                                        |   | 3,070,667           |        | 3,169,183               |   |
| Prepaid rents,  deferred revenue and security deposits                                                                                            |   | 3,079,427           |        | 2,694,335               |   |
| Dividends  payable                                                                                                                                |   | 2,278,197           |        | 2,262,170               |   |
|                                                                                                                                              |   |                |        |                    |   |
| Total  liabilities                                                                                                                                |   | 166,477,075         |        | 170,396,055             |   |
|                                                                                                                                              |   |                |        |                    |   |
| MINORITY  INTEREST                                                                                                                                |   | 1,836,304           |        | —                  |   |
|                                                                                                                                              |   |                |        |                    |   |
| STOCKHOLDERS’  EQUITY                                                                                                                        |   |                |        |                    |   |
| Preferred stock,  $.001 par value  Authorized – 5,000,000 shares  Issued and outstanding – none                                         |   | —              |        | —                  |   |
| Common stock,  $.001 par value  Authorized – 75,000,000 shares  Issued and outstanding – 23,859,639 and 17,401,309 shares, respectively |   | 23,860              |        | 17,401                  |   |
| Capital in  excess of par value                                                                                                                   |   | 131,846,267         |        | 91,706,371              |   |
| Distributions in  excess of accumulated earnings                                                                                                  |   | (24,272,573         | )           | (21,619,365             | )      |
|                                                                                                                                              |   |                |        |                    |   |
| Total  stockholders’ equity                                                                                                                  |   | 107,597,554         |        | 70,104,407              |   |
|                                                                                                                                              |   |                |        |                    |   |
| Total  liabilities and stockholders’ equity                                                                                                  |   | $                   | 275,910,933 |                    | $      | 240,500,462 |   |

 

See accompanyingnotes to consolidated financial statements.

 

1

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**AMERIVEST PROPERTIES INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

** **
|                                       |   | **Three  months ended  March 31,** |      |
|--------------------------------------------|--------|------------------------------------|-----------|
|                                       |   | **2004**                           |      | **2003** |   |
| REAL ESTATE OPERATING REVENUE              |   |                               |      |   |   |
| Rental revenue                             |   | $                                  | 9,593,895 |   | $ | 6,548,627 |   |
|                                       |   |                               |      |   |   |
| REAL ESTATE OPERATING EXPENSES             |   |                               |      |   |   |
| Property operating expenses                |   |                               |      |   |   |
| Operating expenses                         |   | 2,805,894                          |      | 1,548,705 |   |
| Real estate taxes                          |   | 1,237,864                          |      | 751,838 |   |
| Management fees                            |   | 17,322                             |      | 33,877 |   |
| General and administrative expenses        |   | 932,549                            |      | 837,080 |   |
| Ground rent expense                        |   | 161,141                            |      | — |   |
| Interest expense                           |   | 2,722,067                          |      | 1,725,435 |   |
| Depreciation and amortization expense      |   | 2,777,091                          |      | 1,327,966 |   |
| Total operating expenses                   |   | 10,653,928                         |      | 6,224,901 |   |
|                                       |   |                               |      |   |   |
| OTHER INCOME/(LOSS)                        |   |                               |      |   |   |
| Interest income                            |   | 15,363                             |      | 5,817 |   |
| Equity in loss of affiliate                |   | (18,076                            | )         | (10,602 | ) |
| Total other income/(loss)                  |   | (2,713                             | )         | (4,785 | ) |
|                                       |   |                               |      |   |   |
| (LOSS)/INCOME FROM CONTINUING OPERATIONS   |   | (1,062,746                         | )         | 318,941 |   |
|                                       |   |                               |      |   |   |
| DISCONTINUED OPERATIONS                    |   | 687,735                            |      | 86,023 |   |
|                                       |   |                               |      |   |   |
| NET (LOSS)/INCOME                          |   | $                                  | (375,011  | ) | $ | 404,964 |   |
|                                       |   |                               |      |   |   |
| (LOSS)/EARNINGS PER SHARE                  |   |                               |      |   |   |
| Basic                                      |   | $                                  | (0.02     | ) | $ | 0.04 |   |
|                                       |   |                               |      |   |   |
| Diluted                                    |   | $                                  | (0.02     | ) | $ | 0.04 |   |
|                                       |   |                               |      |   |   |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |   |                               |      |   |   |
| Basic                                      |   | 17,567,414                         |      | 11,100,292 |   |
|                                       |   |                               |      |   |   |
| Diluted                                    |   | 17,567,414                         |      | 11,203,104 |   |

 

See accompanyingnotes to consolidated financial statements.

 

2

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**AMERIVESTPROPERTIES INC.**

**CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

**For the three months ended March 31, 2004**

**(unaudited)**

** **
|                                    |   |       |   |   |   | **Capital in  Excess of  Par Value** |   | **Distributions  in Excess of  Accumulated  Earnings** |   | **Total**  |        |
|-----------------------------------------|--------|------------|--------|--------|--------|--------------------------------------|--------|--------------------------------------------------------|--------|------------|-------------|
|                                    |   |       |
| **Common  Stock**                       |
| **Shares**                              |   | **Amount** |
| Balance at  December 31, 2003           |   | 17,401,309 |   | $      | 17,401 |                                 | $      | 91,706,371                                             |   | $          | (21,619,365 | ) | $ | 70,104,407 |   |
| Issuance of  common stock               |   |       |   |   |   |                                 |   |                                                   |   |       |        |
| Public offering,  net of offering costs |   | 6,325,000  |   | 6,325  |   | 39,934,050                           |   | —                                                 |   | 39,940,375 |        |
| Warrants  exercised                     |   | 87,752     |   | 88     |   | 37,412                               |   | —                                                 |   | 37,500     |        |
| Stock options  exercised                |   | 6,753      |   | 7      |   | 41,592                               |   | —                                                 |   | 41,599     |        |
| Dividend  Re-Investment Plan (DRIP)     |   | 5,570      |   | 6      |   | 38,549                               |   | —                                                 |   | 38,555     |        |
| Equity-based  compensation              |   | 33,255     |   | 33     |   | 88,293                               |   | —                                                 |   | 88,326     |        |
| Dividends  declared                     |   | —     |   | — |   | —                               |   | (2,278,197                                             | )      | (2,278,197 | )           |
| Net loss                                |   | —     |   | — |   | —                               |   | (375,011                                               | )      | (375,011   | )           |
| Balance at March  31, 2004              |   | 23,859,639 |   | $      | 23,860 |                                 | $      | 131,846,267                                            |   | $          | (24,272,573 | ) | $ | 107,597,554 |   |

 

See accompanying notes toconsolidated financial statements.

 

3

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**AMERIVEST PROPERTIES INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
|                                                                                      |   | **For the  three months ended  March 31,** |      |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                                                      |   | **2004**                                   |      | **2003** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                      |   |                                       |      |   |   |
| Net (loss)/income                                                                         |   | $                                          | (375,011  | ) | $ | 404,964 |   |
| Adjustments to reconcile net (loss)/income to net cash provided by  operating activities: |   |                                       |      |   |   |
| Depreciation and amortization expense                                                     |   | 2,804,661                                  |      | 1,360,713 |   |
| Gain on sale                                                                              |   | (574,276                                   | )         | — |   |
| Amortization of deferred financing costs                                                  |   | 166,114                                    |      | 112,119 |   |
| Equity in loss of affiliate                                                               |   | 18,076                                     |      | 10,602 |   |
| Equity-based compensation                                                                 |   | 88,326                                     |      | 9,187 |   |
| Changes in assets and liabilities                                                         |   |                                       |      |   |   |
| Accounts receivable                                                                       |   | (588,747                                   | )         | (177,822 | ) |
| Deferred rents receivable                                                                 |   | (230,790                                   | )         | (174,161 | ) |
| Prepaid expenses and other assets                                                         |   | (139,477                                   | )         | 127,745 |   |
| Accounts payable and accrued expenses                                                     |   | 402,065                                    |      | 9,571 |   |
| Other accrued liabilities                                                                 |   | 148,523                                    |      | 301,033 |   |
| Net cash flows provided by operating activities                                           |   | 1,719,464                                  |      | 1,983,951 |   |
|                                                                                      |   |                                       |      |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                      |   |                                       |      |   |   |
| Acquisitions of real estate                                                               |   | (31,884,486                                | )         | (17,039,577 | ) |
| Capital expenditures                                                                      |   | (948,667                                   | )         | (922,198 | ) |
| Tenant improvements                                                                       |   | (2,075,136                                 | )         | (358,626 | ) |
| Leasing commissions paid                                                                  |   | (249,386                                   | )         | (149,734 | ) |
| Deposit on pending real estate acquisition                                                |   | (168,000                                   | )         | — |   |
| Proceeds from sale, net of closing costs                                                  |   | 4,049,229                                  |      | — |   |
| Ending cash balance of newly consolidated affiliate                                       |   | 92,732                                     |      | — |   |
| Amounts (paid to)/received from affiliate                                                 |   | (47,464                                    | )         | 2,311 |   |
| Net cash flows used in investing activities                                               |   | (31,231,178                                | )         | (18,467,824 | ) |
|                                                                                      |   |                                       |      |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                      |   |                                       |      |   |   |
| Additions to mortgage loans and notes payable                                             |   | 36,017,462                                 |      | 17,000,000 |   |
| Payments on mortgage loans and notes payable                                              |   | (40,808,012                                | )         | (174,363 | ) |
| Payment of deferred financing costs                                                       |   | (118,613                                   | )         | (338,090 | ) |
| Net proceeds from common stock offering                                                   |   | 39,940,375                                 |      | — |   |
| Net proceeds from exercising of options and warrants                                      |   | 79,099                                     |      | 2,305,600 |   |
| Net change in escrow deposits                                                             |   | (2,826,032                                 | )         | (552,722 | ) |
| Dividends paid                                                                            |   | (2,223,616                                 | )         | (1,315,654 | ) |
| Net cash flows provided by financing activities                                           |   | 30,060,663                                 |      | 16,924,771 |   |
|                                                                                      |   |                                       |      |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                   |   | 548,949                                    |      | 440,898 |   |
|                                                                                      |   |                                       |      |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            |   | 1,477,585                                  |      | 2,318,566 |   |
|                                                                                      |   |                                       |      |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                  |   | $                                          | 2,026,534 |   | $ | 2,759,464 |   |
|                                                                                      |   |                                       |      |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                          |   |                                       |      |   |   |
| Cash paid for interest                                                                    |   | $                                          | 2,379,081 |   | $ | 1,394,058 |   |
|                                                                                      |   |                                       |      |   |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                    |   |                                       |      |   |   |
| Stock issued to the Dividend Re-Investment Plan (DRIP)                                    |   | $                                          | 38,555    |   | $ | 122,180 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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SUPPLEMENTAL INFORMATION

 

Due to the Company’sadoption of Financial Accounting Standards Board (FASB) Interpretation (FIN)No. 46 (Revised), “Consolidation of Variable Interest Entities” (see Note 5 –Variable Interest Entity for more information), the assets and liabilities ofPanorama Falls have been consolidated with those of the Company as of March 31,2004.  The following table details theasset and liability amounts:

 
| Assets                                                |   |      |      |
|-------------------------------------------------------|--------|-----------|-----------|
| Investment in  real estate                            |   |      |      |
| Land                                                  |   | $         | 1,051,372 |   |
| Buildings and  improvements                           |   | 5,345,982 |      |
| Furniture, fixtures and equipment                     |   | 29,426    |      |
| Tenant  improvements                                  |   | 963,377   |      |
| Tenant leasing commissions                            |   | 239,190   |      |
| Less: accumulated depreciation and amortization       |   | (766,923  | )         |
| Net investment in real estate                         |   | 6,862,424 |      |
|                                                  |   |      |      |
| Cash and cash  equivalents                            |   | 92,732    |      |
| Accounts receivable                                   |   | 17,819    |      |
| Deferred rents receivable                             |   | 163,103   |      |
| Deferred financing costs, net                         |   | 35,774    |      |
| Total assets                                          |   | $         | 7,171,852 |   |
|                                                  |   |      |      |
| Liabilities                                           |   |      |      |
| Accounts payable  and accrued expenses                |   | $         | 170,202   |   |
| Accrued real estate taxes                             |   | 36,174    |      |
| Prepaid rents, deferred revenue and security deposits |   | 101,879   |      |
| Total liabilities                                     |   | $         | 308,255   |   |
|                                                  |   |      |      |
| Minority  Interest                                    |   | $         | 1,836,304 |   |

 

See accompanyingnotes to consolidated financial statements.

 

5

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**AMERIVEST PROPERTIES INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**MARCH 31, 2004**

**(unaudited)**

 

1 – Organization

 

AmeriVest Properties Inc.(the Company) is incorporated under the laws of the State of Maryland andoperates as a self-administered and self-managed real estate investment trust(REIT).  The Company primarily investsin and operates commercial office buildings in selective markets and leases thecommercial office buildings to small and medium size tenants.  At March 31, 2004, the Company owns andoperates, through its wholly-owned subsidiaries, 27 office properties located inmetropolitan Denver, Dallas, Phoenix and Indianapolis and several small citiesin Texas.

 

2 – Interim FinancialStatements

 

The unauditedconsolidated financial statements included herein were prepared from therecords of the Company in accordance with accounting principles generallyaccepted in the United States of America and reflect all adjustments which are,in the opinion of management, necessary to provide a fair statement of theresults of operations and financial position for the interim periods. Suchfinancial statements generally conform to the presentation reflected in theCompany’s Form 10-KSB filed with the Securities and Exchange Commission for theyear ended December 31, 2003.  Theconsolidated results of operations for the three months ended March 31, 2004are not necessarily indicative of the results that may be expected for the yearending December 31, 2004.  Thesefinancial statements and notes should be read together with the financialstatements and notes included in the Company’s Form 10-KSB for the year endedDecember 31, 2003.

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Certain prior periodbalances have been reclassified to conform to current period presentation.

 

3 – Equity-Based Compensation

 

The Company appliesAccounting Principles Board (APB) Opinion No. 25 and related interpretations inaccounting for its equity-based compensation. Accordingly, the Company does not recognize compensation cost foroptions granted to employees whose exercise price is equal to or exceeds thefair value of the underlying stock as of the grant date and which qualify forfixed plan accounting.

 

Equity-based compensationissued to non-employees is accounted for based on the fair value of the equityinstruments issued.  The measurementdate is considered to be the issuance date, or if there are performance vestingprovisions, when earned.

 

6

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The Company has adopted thedisclosure-only provisions of Statement of Financial Accounting Standards(SFAS) No. 148, “Accounting for Stock-Based Compensation – Transitionand Disclosure, an amendment of FASB Statement No. 123.” Had compensation cost for the Company’s stock option plan beendetermined based on the fair value at the grant date consistent with theprovisions of SFAS No. 148, the Company’s net (loss)/income and (loss)/earningsper share for the three months ended March 31, 2004 and 2003 would have beenchanged to the pro forma amounts indicated below:

 
|                                                              |   | **For the  three  months ended  March 31,** |     |
|-------------------------------------------------------------------|--------|---------------------------------------------|----------|
|                                                              |   | **2004**                                    |     | **2003** |   |
| Net (loss)/income – as reported                              |   | $                                           | (375,011 | ) | $ | 404,964 |   |
| Plus: Recognized equity-based compensation                        |   | 88,326                                      |     | 9,187 |   |
| Less: Total equity-based compensation expense based on fair value |   | (37,423                                     | )        | (23,724 | ) |
| Net (loss)/income – pro forma                                |   | $                                           | (324,108 | ) | $ | 390,427 |   |
| (Loss)/earnings per basic share – as reported                |   | $                                           | (0.02    | ) | $ | 0.04 |   |
| (Loss)/earnings per diluted share – as reported              |   | $                                           | (0.02    | ) | $ | 0.04 |   |
| (Loss)/earnings per basic share – pro forma                  |   | $                                           | (0.02    | ) | $ | 0.04 |   |
| (Loss)/earnings per diluted share – pro forma                |   | $                                           | (0.02    | ) | $ | 0.03 |   |

 

The fair value of eachgrant is estimated on the date of grant using the Black-Scholes option-pricingmodel with the following weighted-average assumptions:

 
|                   |   | **2004** |   | **2003** |   |
|------------------------|--------|----------|--------|----------|--------|
| Dividend yield         |   | 7.5      | %      | 7.9      | %      |
| Volatility             |   | 27.0     | %      | 27.0     | %      |
| Discount rate          |   | 2.7      | %      | 2.9      | %      |
| Expected life  (years) |   | 5.0      |   | 4.6      |   |

 

4 – Transactions

 

*Camelback Lakes acquisition*

 

OnMarch 16, 2004, the Company acquired the Camelback Lakes office complex locatedin Phoenix, Arizona.  The purchase pricefor Camelback Lakes was $31,980,000, which was paid with $21,000,000 from the$42,000,000 senior secured revolving line of credit with Fleet National Bank(the Secured Fleet Facility) and the balance from the $30,000,000 unsecuredrevolving line of credit with Fleet (the Unsecured Fleet Facility).

 

*Texas Bank Buildings sale*

 

OnMarch 16, 2004, the Company sold its Texas Bank Buildings for $4,100,000.  The four properties are located in Clifton,Georgetown, Henderson and Mineral Wells, Texas.  The sale resulted in a gain of $574,276 which is included indiscontinued operations on the accompanying consolidated statements ofoperations for the three months ended March 31, 2004.  See Note 7 – Discontinued Operations for additional information.

 

5 – Variable Interest Entity

 

Effective March 31, 2004,the Company adopted FIN 46R and applied it to its investment in PanoramaFalls.  The Company owns 20% of PanoramaFalls as a tenant-in-common with the majority investor.  The Panorama Falls property is located inEnglewood, Colorado.  The building has acarrying value of $6,862,424.  TheCompany has financed the property through the Unsecured Fleet Facility.   Panorama Falls is deemed to be a variableinterest entity (VIE) as defined by FIN 46R. In accordance with FIN 46R, the Company determined it is subject to themajority of the variability in the variable interests in the entity and hasconsolidated the assets and liabilities of Panorama Falls effective March 31,2004 (see the note to the consolidated statements of cash flows for a detail ofthe assets and liabilities of Panorama Falls which have been consolidated).  With respect to the consolidated statementsof operations, the investment was accounted for under the equity method ofaccounting for the three months ended March 31, 2004.  The entity had revenues of $208,556 and a net loss of $90,380 forthe three months ended March 31, 2004 that are not reflected in theaccompanying consolidated statements of operations as the entity was notconsolidated until March 31, 2004, the required adoption date of FIN 46R.

 

7

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6 – Common Stock Offering

 

During March 2004, theCompany completed an offering of 6,325,000 shares of common stock, including825,000 shares to cover over-allotments, at a price of $6.75 per share.  The Company received approximately $39,940,000,net of underwriting commissions and expenses. The proceeds were used to repay the outstanding balance on the UnsecuredFleet Facility and a portion of the outstanding balance on the Secured FleetFacility.  The Company intends to useavailable amounts under these facilities to fund future property acquisitions.

 

7 – DiscontinuedOperations

 

OnMarch 16, 2004, the Company sold its Texas Bank Buildings for $4,100,000.  The net cash proceeds of approximately$2,700,000 are being held in escrow as the Company is considering using them tocomplete a tax deferred exchange under Section 1031 of the Internal RevenueCode.  In accordance with SFAS No. 144,the Company has classified the operations of these properties as discontinuedoperations for the three months ended March 31, 2004 and 2003.  The following is a summary of the operatingresults of these properties:

 
|                                  |   | **For the  three  months ended  March 31,** |    |
|---------------------------------------|--------|---------------------------------------------|---------|
|                                  |   | **2004**                                    |    | **2003** |   |
| Rental revenue                        |   | $                                           | 272,003 |   | $ | 265,901 |   |
|                                  |   |                                        |    |   |   |
| Property operating expenses           |   |                                        |    |   |   |
| Operating expenses                    |   | 82,141                                      |    | 86,773 |   |
| Real estate taxes                     |   | 16,373                                      |    | 19,923 |   |
| Management fees                       |   | 8,335                                       |    | 9,600 |   |
| Interest expense                      |   | 24,125                                      |    | 30,835 |   |
| Depreciation and amortization expense |   | 27,570                                      |    | 32,747 |   |
|                                  |   | 158,544                                     |    | 179,878 |   |
|                                  |   |                                        |    |   |   |
| Gain on sale                          |   | 574,276                                     |    | — |   |
|                                  |   |                                        |    |   |   |
| Net income                            |   | $                                           | 687,735 |   | $ | 86,023 |   |

 

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8 – (Loss)/Earnings Per Share

 

The following tablereconciles basic weighted average common shares outstanding to diluted weightedaverage common shares outstanding for the three month periods ended March 31,2004 and 2003 and details the related effects on (loss)/earnings per share:

 
|                                                                        |   | **For the  three  months ended  March 31,** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                        |   | **2004**                                    |   | **2003** |   |
| Weighted average common shares outstanding – basic                     |   | 17,567,414                                  |   | 11,100,292 |   |
| Assumed conversion of options and warrants using the treasury stock  method |   | —                                      |   | 102,812 |   |
| Weighted average common shares outstanding – diluted                   |   | 17,567,414                                  |   | 11,203,104 |   |
| (Loss)/earnings per share – basic                                      |   | $                                           | (0.02  | ) | $ | 0.04 |   |
| (Loss)/earnings per share – diluted                                    |   | $                                           | (0.02  | ) | $ | 0.04 |   |

 

There are no adjustmentsnecessary to the basic weighted average common shares outstanding to arrive atthe diluted weighted average common shares outstanding for the three monthsended March 31, 2004 as the Company recognized a net loss and the impact wouldbe anti-dilutive.  The amounts excludedfrom the calculation due to their anti-dilutive effects are as follows: 40,432options, 20,573 warrants and 92,800 shares of restricted common stock.

 

9 – Subsequent Events

 

On May 7, 2004, theCompany acquired the Hackberry View of Las Colinas office building located inmetropolitan Dallas, Texas.  Thepurchase price was $16,800,000, which was paid with approximately $12,200,000from the assumption of the existing first and second mortgage loans and thebalance in cash.

 

9

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Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations

 

The following discussionand analysis of the consolidated financial condition and results of operationsshould be read in conjunction with the consolidated financial statements andnotes thereto included in this Form 10-Q and elsewhere.

 

Introduction

 

AmeriVest is a REIT which owns and operatescommercial office buildings in select markets catering to small and medium sizebusinesses.  At March 31, 2004, we owned27 properties totaling 2,365,640 square feet compared to 27 properties totaling1,564,090 square feet at March 31, 2003. We generate revenue primarily through the rental of office space at ourproperties.  The demand for our productsis correlated, in general, to the national economy, and more specifically, tothe demand for office space by small and medium size tenants in metropolitan Denver,Dallas, Phoenix and Indianapolis.

 

Dueto the sale of the Texas Bank Buildings, the operations of these properties,including the gain on sale, have been classified as discontinued operations forthe periods presented in accordance with SFAS No. 144.

 

Results Of Operations

 

*Comparisonof the three months ended March 31, 2004 to March 31, 2003:*

* *
|                                   |   | **Three  months ended  March 31,** |      |      |   |
|----------------------------------------|--------|------------------------------------|-----------|-----------|--------|
|                                   |   | **2004**                           |      | **2003**  |   | **Change** |   |
|                                   |   |                               |      |      |   |   |   |
| REAL ESTATE  OPERATING REVENUE         |   |                               |      |      |   |   |   |
| Rental revenue                         |   | $                                  | 9,593,895 |      | $      | 6,548,627 |   | $ | 3,045,268 |   |
|                                   |   |                               |      |      |   |   |   |
| REAL ESTATE  OPERATING EXPENSES        |   |                               |      |      |   |   |   |
| Property  operating expenses           |   |                               |      |      |   |   |   |
| Operating  expenses                    |   | 2,805,894                          |      | 1,548,705 |   | 1,257,189 |   |
| Real estate  taxes                     |   | 1,237,864                          |      | 751,838   |   | 486,026 |   |
| Management fees                        |   | 17,322                             |      | 33,877    |   | (16,555 | ) |
| General and  administrative expenses   |   | 932,549                            |      | 837,080   |   | 95,469 |   |
| Ground rent  expense                   |   | 161,141                            |      | —    |   | 161,141 |   |
| Interest expense                       |   | 2,722,067                          |      | 1,725,435 |   | 996,632 |   |
| Depreciation and  amortization expense |   | 2,777,091                          |      | 1,327,966 |   | 1,449,125 |   |
| Total operating  expenses              |   | 10,653,928                         |      | 6,224,901 |   | 4,429,027 |   |
|                                   |   |                               |      |      |   |   |   |
| OTHER  INCOME/(LOSS)                   |   |                               |      |      |   |   |   |
| Interest income                        |   | 15,363                             |      | 5,817     |   | 9,546 |   |
| Equity in loss  of affiliate           |   | (18,076                            | )         | (10,602   | )      | (7,474 | ) |
| Total other  income/(loss)             |   | (2,713                             | )         | (4,785    | )      | 2,072 |   |
|                                   |   |                               |      |      |   |   |   |
| DISCONTINUED  OPERATIONS               |   | 687,735                            |      | 86,023    |   | 601,712 |   |
|                                   |   |                               |      |      |   |   |   |
| NET  (LOSS)/INCOME                     |   | $                                  | (375,011  | )         | $      | 404,964 |   | $ | (779,975 | ) |

 

Rental revenue increased by $3,045,000, or 47%,from the first quarter of 2003 to the same period of 2004.  Approximately $2,796,000 of the increase isdue to the inclusion of the operating results from the late-2003 acquisitions(Financial Plaza, Scottsdale Norte and Greenhill Park) and $145,000 is due tothe inclusion of the Southwest Gas Building, acquired in February 2003, for afull quarter in 2004.  Additionally,$163,000 of the increase is due to the inclusion of Camelback Lakes, acquiredin March 2004, for a partial month in 2004.

 

Property operating expenses increased by$1,727,000, or 74%, from the first quarter of 2003 to the same period of2004.  Approximately $1,293,000 of theincrease is due to the inclusion of the late-2003 acquisitions, $128,000 isrelated to the full quarter of the Southwest Gas Building operations and

 

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$65,000 is related to the partial month ofCamelback Lakes operations.  Theremainder of the increase was experienced in our existing portfolio (propertiesowned for the full quarter of both years). The main components of the additional expense consisted of increases inproperty tax accruals, utilities and regional property managementpersonnel.  Property taxes for the firstquarter increased from $752,000, or 11% of revenue, in 2003 to $1,238,000, or13% of revenue, in 2004.  Currently,eight of the thirteen core properties have been acquired in the past twoyears.  Upon acquisition, the propertiesare often reassessed by the local municipalities at the purchase price and realestate taxes increase accordingly. While the Company utilizes outside property tax consulting firms to protestthe valuations of any properties that are deemed to be overvalued, it accruesthe expense based on the most recent property tax bills with any amountsrefunded to the Company through this process recorded when realized.  The Company focuses on the control ofoperating expenses as a percent of revenue and as it continues to grow and gainscale in each of its markets, believes that it will be able to maintain orincrease its operating margins.

 

General and administrative expenses increased from$837,000, or 13% of revenue, for the first quarter of 2003 to $933,000, or 10%of revenue, for the same period in 2004. This increase is primarily due to the addition of corporate personnelhired during the latter half of 2003 to support the continued growth of theCompany.  Legal and accounting fees areanticipated to increase throughout 2004, particularly with respect toactivities necessary to comply with the Sarbanes-Oxley Act of 2002.

 

Theground rent expense recognized in 2004 relates to the ground lease for GreenhillPark, acquired in December 2003.  Theannual rent under this lease increases every ten years; the next increase willbe effective January 1, 2006, and the lease expires on December 1, 2083.  The Company accounts for this lease as anoperating lease.

 

Interest expense increased by $997,000 from thefirst quarter of 2003 to the same period of 2004. This increase is due to theadditional debt used to acquire the above-mentioned properties.  The average outstanding debt balanceincreased by approximately 40% from the first quarter of 2003 to the sameperiod of 2004 and the weighted average interest rate on this debt was flatfrom 2003 to 2004.  The increase in interest expense is alsoattributable to the interest and fees related to the Unsecured Fleet Facility.  This facility provides the Company with moreflexibility and a readily available vehicle for financing acquisitions andother capital needs.

 

Theincrease in depreciation and amortization expense is due to the increase indepreciable assets resulting from the above-mentioned acquisitions.

 

Includedin discontinued operations are the operations of the Texas Bank Buildings.  These properties were sold on March 16, 2004for $4,100,000.  This sale resulted in again of $574,276, which is reflected in the 2004 amount.

 

Liquidity and Capital Resources

 

*Operating Activities*

 

Net cash flows provided by operations wereapproximately $1,719,000 for the three months ended March 31, 2004.  This results primarily from the Company’soperating results adjusted for non-cash expenses and a general increase in ourreceivables in excess of the prior year period.  Cash flow from operations is the primary source to fund dividendpayments, debt service and capital expenditures.

 

*Investing Activities*

 

Net cash flows used in investing activities wereapproximately $31,231,000 for the three months ended March 31, 2004, of which$31,884,000 was used to acquire Camelback Lakes.  The remainder is primarily composed of capital improvement,tenant improvement and leasing commission costs offset by the net proceeds fromthe sale of the Texas Bank Buildings of $4,049,000.

 

*FinancingActivities*

 

Net cash flows provided by financing activities wereapproximately $30,061,000 for the three months ended March 31, 2004.  Included in this amount is approximately$39,940,000 which represents the net proceeds from the March 2004 common stockoffering.  The offsetting amount isprimarily composed of net unscheduled loan repayments, scheduled principal paymentson mortgage loans, dividend payments and payments into escrow accounts asrequired by certain lenders.

 

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*FutureSources of Capital*

 

The Company receives baserent under non-cancelable tenant leases and most leases provide for additionalrent based on increases in operating expenses.

 

The Company desires toacquire additional properties.  In orderto do so, it will utilize current sources of debt financing and possibly incuradditional debt and/or obtain additional equity capital.  The Company also intends to obtain creditfacilities for short and long-term borrowing with commercial banks or otherfinancial institutions.  The issuance ofsuch securities or increase in debt to acquire additional properties, of whichthere is no assurance, could adversely affect the amount of cash available topay dividends to stockholders.

 

The Company has two creditfacilities with Fleet National Bank.  AtMarch 31, 2004, there was $30,650,000 outstanding with $11,350,000 availableunder the Secured Fleet Facility and there was no outstanding balance with$30,000,000 available under the Unsecured Fleet Facility.  Available amounts under these facilitieswill be used to acquire and improve new and existing properties, as well as forworking capital.

 

*Future Uses of Capital, Contractual Commitments andOff-Balance Sheet Arrangements*

 

Thefollowing table details the contractual obligations at March 31, 2004.  These include scheduled maturities ofmortgage loans and notes payable as well as estimated amounts on the groundlease for Greenhill Park that resets the payment amount every ten years basedon the appraised value and expires on December 1, 2083:

 
| **For the years  ended December 31,** |   | **Mortgage  Loans and  Notes Payable** |        | **Ground  Lease** |   | **Total**   |   |
|---------------------------------------|--------|----------------------------------------|-------------|-------------------|--------|-------------|--------|
| 2004                                  |   | $                                      | 1,623,505   |              | $      | 481,624     |   | $ | 2,105,129 |   |
| 2005                                  |   | 32,946,055                             |        | 642,165           |   | 33,588,220  |   |
| 2006                                  |   | 16,495,075                             |        | 863,016           |   | 17,358,091  |   |
| 2007                                  |   | 2,394,890                              |        | 863,016           |   | 3,257,906   |   |
| 2008                                  |   | 37,136,849                             |        | 863,016           |   | 37,999,865  |   |
| Thereafter                            |   | 64,143,486                             |        | 225,671,046       |   | 289,814,532 |   |
| Total                                 |   | $                                      | 154,739,860 |              | $      | 229,383,883 |   | $ | 384,123,743 |   |

 

*InterestRate Information*

 

As of March 31, 2004, approximately 80% of the totalmortgage loans outstanding are fixed rate loans with a weighted-averageinterest rate of 6.4% and 20% are variable rate loans with a weighted-averageinterest rate of 3.9%.

 

*DebtCovenants*

 

Certain of the Company’s debt instruments containcovenants common to that type of facility or borrowing, including financialcovenants establishing minimum debt service coverage and maximum leverageratios.  The Company was in compliancewith all financial covenants pertaining to its debt instruments during thethree months ended March 31, 2004.

 

Critical Accounting Policies

 

The discussion and analysis of the Company’s financialcondition and results of operations are based upon its consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financial statements require management to makeestimates and judgments that affect the reported amounts of assets andliabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities at the date of the financial statements.  Actual results may differ from these estimatesunder different assumptions or conditions.

 

Critical accounting policies are defined as those thatare reflective of significant judgments and

 

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uncertainties, whichwould potentially result in materially different results under differentassumptions and conditions.  The Companybelieves that its critical accounting policies include those items describedbelow.

 

*Investment in Real Estate*

 

Upon acquisition, the purchase price of a property isallocated to land, building and improvements and other intangible assets andassociated liabilities as required by SFAS No. 141 “BusinessCombinations.”  The allocation to landis based on an estimate of its fair value based on all available informationincluding appraisals.  The allocation toother intangible assets represents the value associated with the in-placeleases, including leasing commission, legal and other related costs.  Also required by SFAS No. 141, is thecreation of an intangible asset or liability resulting from in-place leasesbeing above or below the market rental rates on the date of acquisition.  This asset or liability is amortized overthe life of the related in-place leases as an adjustment to revenue.

 

Investment in real estate is stated at cost.  Depreciation and amortization are computedon a straight-line basis over the estimated useful lives as follows:

 
| **Description**                                                              |   | **Estimated Useful Lives** |
|------------------------------------------------------------------------------|--------|----------------------------|
| Land                                                                         |   | Not  depreciated           |
| Buildings and  improvements                                                  |   | 20 to 40 years             |
| Furniture, fixtures and  equipment                                           |   | 5 to 7 years               |
| Tenant improvements, tenant leasing commissions and other intangible  assets |   | Term of related lease      |

 

Maintenance and repairs are expensed as incurred andimprovements are capitalized.  The costof assets sold or retired and the related accumulated depreciation and/oramortization are removed from the accounts and the resulting gain or loss isreflected in operations in the period in which such sale or retirementoccurs.  Allocating the purchase price ofa property to the different components of investment in real estate,determining whether expenditures meet the criteria for capitalization andassigning depreciable lives is considered to be critical because it requiresmanagement to exercise significant judgment.

 

*Valuation of Real Estate Assets*

 

Long-lived assets to be held and used by the Companyare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. TheCompany continually evaluates the recoverability of its long-lived assets basedon estimated future cash flows from and the estimated liquidation value of suchlong-lived assets, and provides for impairment if such undiscounted cash flowsare insufficient to recover the carrying amount of the long-lived asset.  Valuation of real estate assets isconsidered to be critical because the evaluation of impairment and thedetermination of fair values involve management’s assumptions relating tofuture economic events that could materially affect the determination of thefair value, and therefore the carrying value of real estate.

 

*Revenue Recognition*

 

Certain leases provide for tenant occupancy duringperiods for which no rent is due or where minimum rent payments increase duringthe term of the lease.  Rental revenueis recorded for the full term of each lease on a straight-line basis.  Accordingly, the Company records areceivable from tenants for rents that it expects to collect over the remaininglease term as deferred rents receivable. When the Company acquires a property, the term of the existing leases isconsidered to commence as of the acquisition date for the purposes of thiscalculation.  Revenue recognition isconsidered to be critical because the evaluation of the realizability of suchdeferred rents receivable involves management’s assumptions relating to suchtenant’s viability.

 

Inflation

 

Management believes that inflation should not have amaterial adverse effect on the Company. The Company’s office leases generallyrequire the tenants to pay increases in operating expenses should anyinflationary pressures materialize.

 

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Forward-Looking Statements

 

Certain statements in thisForm 10-Q that are not historical facts are “forward-looking statements” asthat term is defined under the Private Securities Litigation Reform Act of1995.  These forward-looking statementsare based on the Company’s current expectations, beliefs, assumptions,estimates and projections about the industry and markets in which the Companyoperates.  Words such as “expects,”“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” andvariations of such words and similar expressions are intended to identify suchforward-looking statements.  Informationconcerning expected investment balances, expected funding sources, plannedinvestments, forecasted dates and revenue and expense growth assumptions areexamples of forward-looking statements. These statements are not guarantees of future performance and involvecertain risks, uncertainties and assumptions, which are difficult to predictand many of which are beyond the Company’s control.  Therefore, actual outcomes and results may differ materially fromwhat is expressed, forecasted or implied in such forward-looking statements.  The Company undertakes no obligation toupdate publicly any forward-looking statements, whether as a result of newinformation, future events or otherwise, except as required by applicable law.

 

The Company’s operatingresults depend primarily on income from its properties, which are substantiallyinfluenced by supply and demand for such properties, operating expense levels,property level operations and the pace and price at which the Company candevelop, acquire or dispose of such properties.  Capital and credit market conditions, which affect the Company’scost of capital, also influence operating results.  See the Company’s 2003 Form 10-KSB “Item 1. Description ofBusiness” for a more complete discussion of risk factors that could impact theCompany’s future financial performance.

 

Item 3.    Quantitativeand Qualitative Disclosures About Market Risk

 

Our future earnings, cash flows and fair valuesrelevant to financial instruments depend upon prevalent market rates for thosefinancial instruments.  Market risk isthe risk of loss from adverse changes in market prices and interest rates.  We manage our market risk by matchingprojected cash inflows from operating, investing and financing activities withprojected cash outflows to fund debt service, acquisitions, capitalexpenditures, dividends and other cash requirements.  The majority of our outstanding debt obligations have fixedinterest rates which limit the risk of fluctuating interest rates.  At March 31, 2004, our interest rate riskonly related to our $42,000,000 Secured Fleet Facility and our $30,000,000Unsecured Fleet Facility, of which there was $30,650,000 and $0 outstanding,respectively.  Based on the amountsoutstanding at March 31, 2004, the annual impact of a 1% change in interestrates would be approximately $307,000.

 

Item 4.    Controlsand Procedures

 

The Company carried outan evaluation under the supervision and with participation of the Company’smanagement, including our Chief Executive Officer and Chief Financial Officer,of the effectiveness of the Company’s disclosure controls and procedurespursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of March31, 2004.  Based on their evaluation,our Chief Executive Officer and Chief Financial Officer have concluded that disclosurecontrols and procedures were effective as of the end of the period covered bythis report to ensure that information required to be disclosed by the Companyin its reports that it files or submits under the Securities Exchange Act of1934 is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commissions rules and forms.  There was no change in the Company’sinternal controls over financial reporting that occurred during the periodcovered by this report that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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Part II.             Other Information

 

Item 1.             Legal Proceedings

 

Background – On August 23,2002, a lawsuit was filed in the District Court, County of Arapahoe, Colorado,against the Company’s wholly-owned subsidiary, AmeriVest Broadway PropertiesInc., Sheridan Realty Advisors, LLC, Porter Construction Services, Inc. andothers by Jane Doe alleging that the defendants were negligent in maintainingsecurity at our Panorama Falls building. The plaintiff alleges that due to the acts and omissions of thedefendants, she was sexually assaulted and continues to suffer from physicalinjuries and mental anguish.  Theplaintiff seeks monetary relief, including exemplary damages, and pre- andpost-judgment interest as provided by law, costs of the lawsuit and such otherrelief to which the plaintiff may be justly entitled.

 

Update – On April 8, 2004,these parties entered into a formal Stipulation of Settlement, which was filedwith the Denver District Court, under which AmeriVest Broadway PropertiesInc. would receive a full release.  The Stipulation of Settlement isawaiting final judicial approval.  The Stipulation of Settlement, if soordered by the presiding judge, would have no impact to the company’sconsolidated statements of operations or consolidated financial position.

 

Item 2.             Changes in Securities and Use ofProceeds

 

During the three month period ended March 31, 2004,the Company issued 87,752 shares of common stock upon exercise of previouslyissued warrants.  The issuance of theshares of common stock was made pursuant to an exemption from registration inaccordance with Section 4(2) of the Securities Act based on a representation tous from the entity receiving the shares that such entity was a sophisticatedinvestor who was knowledgeable about our operations and financial condition andwas able to evaluate the risks and merits of receipt of the shares.

 

Item 6.             Exhibits and Reports on Form 8-K

 

(a)          Exhibits

 

10.1 Second Amendment toRevolving Credit Agreement between AmeriVest Properties Inc. and Fleet NationalBank, as administrative agent, and the lenders party thereto, dated March 16,2004.

 

10.2 First Amendment toUnsecured Revolving Credit Agreement between AmeriVest Properties Inc. andFleet National Bank, as administrative agent, and lenders party thereto, datedMarch 16, 2004.

 

10.3 Consulting Agreementbetween AmeriVest Properties Inc. and Alexander S. Hewitt, dated December 31,2003.

 

31. Certifications ofChief Executive Officer and Chief Financial Officer pursuant to section 302 ofthe Sarbanes-Oxley Act of 2002.

 

32. Certification ofChief Executive Officer and Chief Financial Officer pursuant to section 906 ofthe Sarbanes-Oxley Act of 2002.

 

(b)         Reportson Form 8-K

 

1.  CurrentReport on Form 8-K dated March 16, 2004 (filed March 24, 2004).  (Camelback Lakes)

 

2.  Currentreport on Form 8-K dated March 25, 2004 (filed March 26, 2004).

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|         | AMERIVEST PROPERTIES  INC. |
|--------------|----------------------------|
|         |                       |   |
|         |                       |   |
| May 10, 2004 |                       |   |
|         | By:                        | /s/  Kathryn L. Hale |   |
|         |                       | Kathryn L. Hale |
|         |                       | Chief Financial Officer |
|         |                       | (Principal Financial  Officer and  Principal Accounting Officer) |
|              |                            |  |  |  |  |

 

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