**SECURITIES AND EXCHANGE COMMISSION**

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

 

**FORM 10-QSB**

 

 

| **ý** |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE ACT OF 1934.**                                                                                                                                                                                                                                                                                                |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|       |   | **For the quarterly period ended  September 30, 2003.**                                                                                                                                                                                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|       |   | **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 small business  issuer 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)         |

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes    ý     No    o

 

The number of shares of the issuer’s common stockoutstanding as of November 14, 2003 was 17,380,383.

 

Transitional Small Business Disclosure Format (checkone):  Yes    o      No    ý

 

 

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Table of Contents

 
| Part I   |                                                                                                                |
|----------|---------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                |
| Item 1.  | Consolidated  Financial Statements:                                                                                 |
|     | Consolidated Balance Sheets  as of September 30, 2003 and December 31, 2002 (unaudited)                             |
|     | Consolidated Statements  of Operations for the three and nine months ended September 30, 2003 and 2002  (unaudited) |
|     | Consolidated  Statement of Stockholders’ Equity for the nine months ended September 30,  2003 (unaudited)      |
|     | Consolidated  Statements of Cash Flows for the nine months ended September 30, 2003 and 2002  (unaudited)           |
|     | Notes to  Consolidated Financial Statements (unaudited)                                                             |
|     |                                                                                                                |
| Item  2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |
|     |                                                                                                                |
| Item 3.  | Controls and  Procedures                                                                                            |
|     |                                                                                                                |
| Part II  |                                                                                                                |
|     |                                                                                                                |
| Item 1.  | Legal Proceedings                                                                                                   |
|     |                                                                                                                |
| Item 6.  | Exhibits  and Reports on Form 8-K                                                                                   |

 

2

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**AMERIVEST PROPERTIES INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(unaudited)**

 
|                                                                                                                                          |   | **September  30,****2003** |        | **December  31,********2002** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-------------|-------------------------------|------------|
|                                                                                                                                          |   |                       | ** **  |                          | ** ** |
| **ASSETS**                                                                                                                                    |   |                       | ** **  |                          | ** ** |
| Investment in  real estate-                                                                                                                   |   |                       |        |                          |       |
| Land                                                                                                                                          |   | $                          | 25,844,481  |                          | $          | 20,730,999 |   |
| Buildings and  improvements                                                                                                                   |   | 170,293,571                |        | 124,597,852                   |       |
| Furniture, fixtures and equipment                                                                                                             |   | 650,255                    |        | 467,188                       |       |
| Tenant  improvements                                                                                                                          |   | 4,783,085                  |        | 2,969,044                     |       |
| Tenant leasing commissions                                                                                                                    |   | 873,528                    |        | 450,647                       |       |
| Intangible assets                                                                                                                             |   | 8,766,598                  |        | 2,153,229                     |       |
| Less: accumulated depreciation and amortization                                                                                               |   | (10,312,249                | )           | (6,383,631                    | )          |
| Net investment in real estate                                                                                                                 |   | 200,899,269                |        | 144,985,328                   |       |
|                                                                                                                                          |   |                       |        |                          |       |
| Cash and cash  equivalents                                                                                                                    |   | 1,173,644                  |        | 2,318,566                     |       |
| Escrow deposits                                                                                                                               |   | 4,974,945                  |        | 2,335,519                     |       |
| Investment in  unconsolidated affiliate                                                                                                       |   | 1,380,534                  |        | 1,390,560                     |       |
| Due from related party                                                                                                                        |   | 3,371,526                  |        | 3,257,826                     |       |
| Due from unconsolidated affiliate                                                                                                             |   | 192,949                    |        | 217,578                       |       |
| Accounts receivable                                                                                                                           |   | 366,092                    |        | 286,691                       |       |
| Deferred rents receivable                                                                                                                     |   | 1,146,681                  |        | 671,737                       |       |
| Deferred financing costs, net of accumulated amortizationof $373,686 and $130,773, respectively                                               |   | 2,170,868                  |        | 1,243,907                     |       |
| Prepaid expenses and other assets                                                                                                             |   | 568,861                    |        | 475,875                       |       |
|                                                                                                                                          |   |                       |        |                          |       |
| Total assets                                                                                                                                  |   | $                          | 216,245,369 |                          | $          | 157,183,587 |   |
|                                                                                                                                          |   |                       | ** **  |                          | ** ** |
| **LIABILITIES**                                                                                                                               |   |                       | ** **  |                          | ** ** |
| Mortgage loans  and notes payable                                                                                                             |   | $                          | 133,930,443 |                          | $          | 106,094,232 |   |
| Accounts payable  and accrued expenses                                                                                                        |   | 1,924,892                  |        | 2,384,620                     |       |
| Accrued real estate taxes                                                                                                                     |   | 2,471,513                  |        | 1,714,594                     |       |
| Prepaid rents, deferred revenue and security deposits                                                                                         |   | 2,249,088                  |        | 1,656,507                     |       |
| Dividends payable                                                                                                                             |   | 2,258,232                  |        | 1,437,834                     |       |
|                                                                                                                                          |   |                       |        |                          |       |
| Total liabilities                                                                                                                             |   | 142,834,168                |        | 113,287,787                   |       |
|                                                                                                                                          |   |                       | ** **  |                          | ** ** |
| **STOCKHOLDERS’  EQUITY**                                                                                                                |   |                       | ** **  |                          | ** ** |
| Preferred stock, $.001 par value  Authorized – 5,000,000 shares  Issued and outstanding – none                                      |   | —                     |        | —                        |       |
| Common stock, $.001 par valueAuthorized – 75,000,000 sharesIssued and outstanding –  17,375,467 and 11,060,260 shares, respectively |   | 17,375                     |        | 11,060                        |       |
| Capital in excess of par value                                                                                                                |   | 91,499,156                 |        | 55,247,483                    |       |
| Distributions in excess of accumulated earnings                                                                                               |   | (18,105,330                | )           | (11,362,743                   | )          |
|                                                                                                                                          |   |                       |        |                          |       |
| Total  stockholders’ equity                                                                                                              |   | 73,411,201                 |        | 43,895,800                    |       |
|                                                                                                                                          |   |                       |        |                          |       |
| Total liabilities and stockholders’ equity                                                                                               |   | $                          | 216,245,369 |                          | $          | 157,183,587 |   |

 

See accompanying notes toconsolidated financial statements.

 

3

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**AMERIVEST PROPERTIES INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

** **
|                                       |   | **For the  Three Months Ended   September 30,** |      | **For the  Nine Months Ended   September 30,** |   |
|--------------------------------------------|--------|-------------------------------------------------|-----------|------------------------------------------------|--------|
|                                       |   | **2003**                                        |      | **2002**                                       |   | **2003** |   | **2002** |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| REAL ESTATE OPERATING REVENUE              |   |                                            |      |                                           |   |   |   |   |   |
| Rental revenue                             |   | $                                               | 7,164,324 |                                           | $      | 3,782,972 |   | $ | 20,926,569 |   | $ | 10,937,842 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| REAL ESTATE  OPERATING EXPENSES            |   |                                            |      |                                           |   |   |   |   |   |
| Property operating expenses:               |   |                                            |      |                                           |   |   |   |   |   |
| Operating expenses                         |   | 2,050,488                                       |      | 952,445                                        |   | 5,447,781 |   | 2,725,931 |   |
| Real estate taxes                          |   | 851,974                                         |      | 381,528                                        |   | 2,407,377 |   | 1,006,350 |   |
| Management fees                            |   | 27,356                                          |      | 37,062                                         |   | 113,730 |   | 96,944 |   |
| General and administrative expenses        |   | 777,579                                         |      | 338,457                                        |   | 2,357,432 |   | 1,070,091 |   |
| Impairment of investment in real estate    |   | —                                          |      | —                                         |   | 1,465,932 |   | — |   |
| Advisory fee                               |   | —                                          |      | 251,910                                        |   | — |   | 251,910 |   |
| Interest expense                           |   | 1,839,830                                       |      | 955,557                                        |   | 5,408,007 |   | 2,774,083 |   |
| Depreciation and amortization expense      |   | 1,669,462                                       |      | 770,501                                        |   | 4,477,601 |   | 2,161,580 |   |
| Total operating expenses                   |   | 7,216,689                                       |      | 3,687,460                                      |   | 21,677,860 |   | 10,086,889 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| OTHER  INCOME/(LOSS)                       |   |                                            |      |                                           |   |   |   |   |   |
| Interest income                            |   | 43,434                                          |      | 83,064                                         |   | 61,187 |   | 135,961 |   |
| Equity in loss of unconsolidated affiliate |   | (14,537                                         | )         | (16,151                                        | )      | (38,451 | ) | (60,197 | ) |
| Total other income                         |   | 28,897                                          |      | 66,913                                         |   | 22,736 |   | 75,764 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| NET (LOSS)/INCOME                          |   | $                                               | (23,468   | )                                              | $      | 162,425 |   | $ | (728,555 | ) | $ | 926,717 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| (LOSS)/EARNINGS  PER SHARE                 |   |                                            |      |                                           |   |   |   |   |   |
| Basic                                      |   | $                                               | 0.00      |                                           | $      | 0.01 |   | $ | (0.05 | ) | $ | 0.11 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| Diluted                                    |   | $                                               | 0.00      |                                           | $      | 0.01 |   | $ | (0.05 | ) | $ | 0.10 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |   |                                            |      |                                           |   |   |   |   |   |
| Basic                                      |   | 17,356,751                                      |      | 10,925,253                                     |   | 13,777,395 |   | 8,785,796 |   |
|                                       |   |                                            |      |                                           |   |   |   |   |   |
| Diluted                                    |   | 17,356,751                                      |      | 11,092,036                                     |   | 13,777,395 |   | 8,960,471 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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**AMERIVESTPROPERTIES INC.**

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY**

**FOR THENINE MONTHS ENDED SEPTEMBER 30, 2003**

**(unaudited)**

 
|                                            |   |       |   | **Capital in    Excess of   Par Value** |   | **Distributions    in Excess of   Accumulated   Earnings** |   | **Total**  |   |
|-------------------------------------------------|--------|------------|--------|-----------------------------------------|--------|------------------------------------------------------------|--------|------------|--------|
|                                            |
| **Common  Stock**                               |
| **Shares**                                      |   | **Amount** |
|                                            |   |       |   |                                    |   |                                                       |   |       |   |   |   |
| Balance at  December 31, 2002                   |   | 11,060,260 |   | $                                       | 11,060 |                                                       | $      | 55,247,483 |   | $ | (11,362,743 | ) | $ | 43,895,800 |   |
| Issuance of  common stock:                      |   |       |   |                                    |   |                                                       |   |       |   |   |   |
| Public offering,  net of offering costs         |   | 5,750,000  |   | 5,750                                   |   | 33,261,703                                                 |   | —     |   | 33,267,453 |   |
| Warrants  exercised                             |   | 479,045    |   | 479                                     |   | 2,394,746                                                  |   | —     |   | 2,395,225 |   |
| Stock options  exercised                        |   | 30,000     |   | 30                                      |   | 143,016                                                    |   | —     |   | 143,046 |   |
| Dividend  Re-Investment Plan (“DRIP”) |   | 44,165     |   | 44                                      |   | 264,570                                                    |   | —     |   | 264,614 |   |
| Equity-based  compensation                      |   | 11,997     |   | 12                                      |   | 187,638                                                    |   | —     |   | 187,650 |   |
| Dividends  declared                             |   | —     |   | —                                  |   | —                                                     |   | (6,014,032 | )      | (6,014,032 | ) |
| Net loss                                        |   | —     |   | —                                  |   | —                                                     |   | (728,555   | )      | (728,555 | ) |
| Balance at  September 30, 2003                  |   | 17,375,467 |   | $                                       | 17,375 |                                                       | $      | 91,499,156 |   | $ | (18,105,330 | ) | $ | 73,411,201 |   |

 

See accompanying notes toconsolidated financial statements.

 

5

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**AMERIVEST PROPERTIES INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

** **
|                                                                                      |   | **For the  Nine Months Ended   September 30,** |       |
|-------------------------------------------------------------------------------------------|--------|------------------------------------------------|------------|
|                                                                                      |   | **2003**                                       |       | **2002** |   |
|                                                                                      |   |                                           |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |   |                                           |       |   |   |
| Net  (loss)/income                                                                        |   | $                                              | (728,555   | ) | $ | 926,717 |   |
| Adjustments to  reconcile net (loss)/income to net cash provided by operating activities: |   |                                           |       |   |   |
| Depreciation and  amortization expense                                                    |   | 4,477,601                                      |       | 2,161,580 |   |
| Impairment of  investment in real estate                                                  |   | 1,465,932                                      |       | — |   |
| Amortization of  deferred financing costs                                                 |   | 399,448                                        |       | 124,631 |   |
| Amortization of  warrants                                                                 |   | —                                         |       | 13,813 |   |
| Equity in loss  of unconsolidated affiliate                                               |   | 38,451                                         |       | 60,197 |   |
| Equity-based  compensation                                                                |   | 187,650                                        |       | 8,012 |   |
| Changes in  assets and liabilities:                                                       |   |                                           |       |   |   |
| Accounts  receivable                                                                      |   | (79,401                                        | )          | 191,569 |   |
| Deferred rents  receivable                                                                |   | (474,944                                       | )          | (196,998 | ) |
| Prepaid expenses  and other assets                                                        |   | 159,614                                        |       | (90,371 | ) |
| Accounts payable  and accrued expenses                                                    |   | 590,272                                        |       | 45,197 |   |
| Other accrued  liabilities                                                                |   | 1,349,500                                      |       | 314,444 |   |
| Net cash flows  provided by operating activities                                          |   | 7,385,568                                      |       | 3,558,791 |   |
|                                                                                      |   |                                           |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |   |                                           |       |   |   |
| Acquisitions and improvements of real estate, net of debt assumed                         |   | (36,617,201                                    | )          | (8,070,895 | ) |
| Deposits on real estate acquisitions                                                      |   | (120,000                                       | )          | (415,000 | ) |
| Leasing commissions paid                                                                  |   | (490,272                                       | )          | (124,249 | ) |
| Amounts received from/(paid to) unconsolidated affiliate                                  |   | 24,629                                         |       | (687,923 | ) |
| Net cash flows used in investing activities                                               |   | (37,202,844                                    | )          | (9,298,067 | ) |
|                                                                                      |   |                                           |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |   |                                           |       |   |   |
| Additions to mortgage loans and notes payable                                             |   | 91,500,000                                     |       | 2,330,201 |   |
| Payments on mortgage loans and notes payable                                              |   | (88,555,915                                    | )          | (1,687,207 | ) |
| Deposits for establishment of mortgage loans                                              |   | (132,600                                       | )          | (664,094 | ) |
| Payment of deferred financing costs                                                       |   | (1,326,409                                     | )          | (68,441 | ) |
| Net proceeds from common stock offering                                                   |   | 33,267,453                                     |       | 22,781,538 |   |
| Net proceeds from exercising of options and warrants                                      |   | 1,488,271                                      |       | 180,530 |   |
| Net change in escrow deposits                                                             |   | (2,639,426                                     | )          | (1,081,836 | ) |
| Dividends paid                                                                            |   | (4,929,020                                     | )          | (2,787,666 | ) |
| Net cash flows provided by financing activities                                           |   | 28,672,354                                     |       | 19,003,025 |   |
|                                                                                      |   |                                           |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                  |   | (1,144,922                                     | )          | 13,263,749 |   |
|                                                                                      |   |                                           |       |   |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                           |   | 2,318,566                                      |       | 1,119,355 |   |
|                                                                                      |   |                                           |       |   |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                                 |   | $                                              | 1,173,644  |   | $ | 14,383,104 |   |
|                                                                                      |   |                                           |       |   |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                        |   |                                           |       |   |   |
| Cash paid for interest                                                                    |   | $                                              | 4,735,286  |   | $ | 2,588,295 |   |
|                                                                                      |   |                                           |       |   |   |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                  |   |                                           |       |   |   |
| Mortgage loans  assumed                                                                   |   | $                                              | 24,750,000 |   | $ | 17,000,000 |   |
| Stock issued to  the Dividend Re-Investment Plan (“DRIP”)                       |   | $                                              | 264,614    |   | $ | 245,941 |   |

 

See accompanying notes toconsolidated financial statements.

 

6

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**AMERIVEST PROPERTIES INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**

**(unaudited)**

 

1.  Organization

 

AmeriVest Properties Inc. (the “Company”) isincorporated under the laws of the State of Maryland and operates as aself-administered and self-managed real estate investment trust (“REIT”).  The Company primarily invests in andoperates commercial office buildings in selective markets and leases thecommercial office buildings to small and medium size tenants.  As of September 30, 2003, the Company ownsand operates, through its wholly-owned subsidiaries, the following properties:

 
| **Property**                   |   | **Location**     |
|--------------------------------|--------|------------------|
| Financial Plaza                |   | Mesa, AZ         |
| Southwest Gas                  |   | Phoenix, AZ      |
| Chateau Plaza                  |   | Dallas, TX       |
| Centerra                       |   | Denver, CO       |
| Parkway Centre II              |   | Plano, TX        |
| Kellogg Building               |   | Littleton, CO    |
| Arrowhead Fountains            |   | Peoria, AZ       |
| AmeriVest Plaza at  Inverness  |   | Englewood, CO    |
| Sheridan Center                |   | Denver, CO       |
| Keystone Office Park           |   | Indianapolis, IN |
| Panorama Falls (a)             |   | Englewood, CO    |
| Bank of America  Buildings (b) |   | Texas            |
| State of Texas  Buildings (c)  |   | Texas            |

 

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(a)          20% of the property is owned by the Company and 80% ofthe property is owned by Freemark Abbey Panorama, LLC as a tenant in commonwith the Company.

(b)         These four buildings are approximately 63% leased toBank of America.  The buildings arelocated in Clifton, Georgetown, Henderson and Mineral Wells, Texas.

(c)          Eleven of these thirteen buildings are leasedprimarily to various agencies of the State of Texas.  The buildings are located in Lubbock, El Paso (2), Clint, Temple,Bellville, Columbus, Hempstead, Mission, Arlington, Marshall, Amarillo andParis, Texas.

 

2.  Interim FinancialStatements

 

The unaudited consolidated financial statementsincluded herein were prepared from the records of the Company in accordancewith accounting principles generally accepted in the United States of Americaand reflect all adjustments which are, in the opinion of management, necessaryto provide a fair statement of the results of operations and financial positionfor the interim periods.  Such financialstatements generally conform to the presentation reflected in the Company’sForm 10-KSB filed with the Securities and Exchange Commission for the yearended December 31, 2002.  Theconsolidated results of operations for the nine months ended September 30, 2003are not necessarily indicative of the results that may be expected for the yearending December 31, 2003.  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, 2002.

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Certain prior period balances have been reclassifiedto conform to current period presentation.

 

7

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3.  New AccountingPronouncements

 

In January 2003, the FASB issued Interpretation No. 46“Consolidation of Variable Interest Entities.” The Company is required to adopt the interpretation for variableinterest entities created after January 31, 2003 and for existing variableinterest entities for the interim period beginning after September 15,2003.  This interpretation clarifies theapplication of Accounting Research Bulletin No. 51, “Consolidated FinancialStatements,” and requires the consolidation of results of variable interestentities in which the Company has a majority variable interest.  The Company does not invest in any variableinterest entities.

 

4.  Equity-Based Compensation

 

The Company applies Accounting Principles Board(“APB”) Opinion No. 25 and related interpretations in accounting for itsequity-based compensation.  Accordingly,the Company does not recognize compensation cost for options granted toemployees whose exercise price is equal to or exceeds the fair value of theunderlying stock as of the grant date and which qualify for fixed plantreatment.

 

Equity-based compensation issued to non-employees isaccounted for based on the fair value of the equity instruments issued.  The measurement date is considered to be theissuance date, or if there are performance vesting provisions, when earned.

 

The Company has adopted the disclosure-only provisionsof SFAS No. 148, “Accounting for Stock-Based Compensation — Transition andDisclosure, 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 income and net income per sharefor the three and nine months ended September 30, 2003 and 2002 would have beenchanged to the pro forma amounts indicated below:

 
|                                                               |   | **For the  Three  Months Ended  September 30,** |    | **For the  Nine  Months Ended  September 30,** |   |
|--------------------------------------------------------------------|--------|-------------------------------------------------|---------|------------------------------------------------|--------|
|                                                               |   | **2003**                                        |    | **2002**                                       |   | **2003** |   | **2002** |   |
|                                                               |   |                                            |    |                                           |   |   |   |   |   |
| Net  (loss)/income – as reported                              |   | $                                               | (23,468 | )                                              | $      | 162,425 |   | $ | (728,555 | ) | $ | 926,717 |   |
| Plus: Recognized  equity-based compensation                        |   | 66,045                                          |    | —                                         |   | 164,339 |   | — |   |
| Less: Total  equity-based compensation expense based on fair value |   | (47,398                                         | )       | (3,376                                         | )      | (140,012 | ) | (10,130 | ) |
| Net (loss)/income  – pro forma                                |   | $                                               | (4,821  | )                                              | $      | 159,049 |   | $ | (704,228 | ) | $ | 916,587 |   |
| (Loss)/earnings  per basic share – as reported                |   | $                                               | 0.00    |                                           | $      | 0.01 |   | $ | (0.05 | ) | $ | 0.11 |   |
| (Loss)/earnings  per diluted share – as reported              |   | $                                               | 0.00    |                                           | $      | 0.01 |   | $ | (0.05 | ) | $ | 0.10 |   |
| (Loss)/earnings  per basic share – pro forma                  |   | $                                               | 0.00    |                                           | $      | 0.01 |   | $ | (0.05 | ) | $ | 0.10 |   |
| (Loss)/earnings  per diluted share – pro forma                |   | $                                               | 0.00    |                                           | $      | 0.01 |   | $ | (0.05 | ) | $ | 0.10 |   |

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions used for grants: dividend yield of 8.1%to 11.3%, expected volatility of 27.0% to 30.0%, discount rate of 2.5% to 6.4%,and expected option lives of 5 years.

 

5.  Common Stock Offering

 

During June 2003, the Company sold 5,750,000 shares ofcommon stock, including 750,000 shares to cover over-allotments, at a price of$6.20 per share.  The Company receivedapproximately $33,267,000, net of underwriting commissions and expenses.  The proceeds were used to repay a portion ofthe outstanding balance on the revolving line of credit with Fleet NationalBank (the “Fleet Facility”), for capital improvements and as workingcapital.  The Company intends to useavailable amounts on the Fleet Facility to fund future property acquisitions.

 

6.  Acquisitions

 

On February 6, 2003, the Company acquired theSouthwest Gas building.  Southwest Gasis located in Phoenix, Arizona and contains 147,660 rentable square feet on7.38 acres of land.  The 

 

8

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purchase price for Southwest Gas was $17,000,000, which was paid with$11,900,000 from the Fleet Facility and $5,100,000 from a short-term loan alsofrom Fleet National Bank. 

 

On September 10, 2003, the Company acquired theFinancial Plaza building.  FinancialPlaza is located in Mesa, Arizona and contains 310,837 rentable square feet on6.0673 acres of land.  The purchaseprice for Financial Plaza was $39,000,000, which was paid with $24,750,000 fromthe assumption of the existing loan and the balance in cash.  

 

Subsequent to September 30, 2003, the Company acquiredan office property located in Scottsdale, Arizona.  See the “Subsequent Event” footnote for a description of thetransaction.  

 

7.  Mortgage Loans and NotesPayable

 

On February 6, 2003, the Company increased the FleetFacility from $30,000,000 to $42,000,000. Outstanding balances continue to bear interest at LIBOR plus 275 basispoints and are due on November 12, 2005. The Company had an outstanding balance of $4,220,020 with $37,779,980 ofavailability on the Fleet Facility at September 30, 2003.  The Company intends to use available amountson the Fleet Facility to fund future property acquisitions.

 

On February 6, 2003, the Company obtained a $5,100,000short-term loan from Fleet National Bank (the “Term Loan”).  This loan bore interest at LIBOR plus 500basis points and was originally due on August 6, 2003.  On August 1, 2003, the Term Loan wasrefinanced whereby the facility was increased from $5,100,000 to $15,000,000and the term was extended to November 12, 2005.  Upon closing, the Company drew down $10,000,000 under thisfacility, of which $5,100,000 was used to repay the existing balance,$4,214,408 was used to repay the mortgage loan on Panorama Falls and theremainder as working capital. Outstanding balances bear interest at LIBOR plus 450 basis points andare due on November 12, 2005.

 

On September 10, 2003, in connection with theacquisition of Financial Plaza, the Company assumed a loan with a principalbalance of $24,750,000 from Allstate Life Insurance Company.  This loan bears fixed interest at 5.25%, duein monthly installments of principal and interest of $148,314, with theoutstanding balance and accrued interest due on October 5, 2010.  This loan may be prepaid after March 5, 2007subject to a prepayment penalty as defined in the mortgage note.

 

On September 19, 2003, the Company refinanced itsvariable rate loans on Parkway Centre II, Centerra and Southwest Gas with a$39,000,000 five-year 5.13% fixed rate loan from a financial servicescompany.  This loan requires monthlypayments of principal and interest of $230,954, with the outstanding balanceand accrued interest due on October 1, 2008. This loan may be prepaid at any time subject to a prepayment penalty asdefined in the mortgage note.

 

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 leverage ratios.  The Company was in compliance with allfinancial covenants pertaining to its debt instruments during the nine monthsended September 30, 2003.

 

8.  Impairment of Investmentin Real Estate

 

During second quarter of 2003, the Company recorded a$334,592 charge for an impairment in the value of a 12,979 square foot buildingin Clint, Texas and a $1,131,340 impairment charge for a 33,312 square footbuilding in Paris, Texas.  Bothproperties are non-core assets and had been previously leased to agencies ofthe State of Texas.  The Clint buildinghas been vacant since November 2001 and the Paris building has been vacantsince December 2002.  The Company hasbeen unsuccessful in re-leasing these properties but will continue in itsefforts, however there are no near term prospects.  The Company had previously recorded a $275,000 impairment chargerelated to the Clint building in the fourth quarter of 2002 and the impairmentcharges recorded in the second quarter of 2003 have reduced the net book valuesof the properties to their estimated fair values of $100,000 and $43,000 forClint and Paris, respectively.  TheCompany arrived at the estimated fair values using the property tax assessmentvalues, values estimated by the Company’s property tax protest consultants andlocal real estate brokers.  The Companywill continue to monitor their non-core properties for any indications ofimpairment.

 

9

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9.  Subsequent Events

 

On October 7, 2003, the Company acquired theScottsdale Norte building.  ScottsdaleNorte is located in Scottsdale, Arizona and contains 79,223 rentable squarefeet on 5.451 acres of land.  Thepurchase price for Scottsdale Norte was $12,250,000, which was paid with$6,630,000 from the assumption of the existing loan and the balance incash.  This loan bears fixed interest at7.90%, due in monthly installments of principal and interest of $48,187, withthe outstanding balance and accrued interest due on April 30, 2011.  

 

In October 2003, the Company entered into a contractto acquire an office property within the next 60 days for a purchase price ofapproximately $10,500,000.  The buildingis located in Dallas, Texas and contains approximately 250,000 rentable squarefeet.  The contract is subject to anumber of contingencies and there is no assurance that this acquisition willoccur.

 

On October 31, 2003, the Company drew down theremaining $5,000,000 available under the Term Loan resulting in an outstandingbalance of $15,000,000.  

 

10

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

 

The following discussion and analysis of theconsolidated financial condition and results of operations should be read inconjunction with the consolidated financial statements and notes theretoincluded in this Form 10-QSB and elsewhere.

 

Results Of Operations

 

*Comparison of the three months endedSeptember 30, 2003 to September 30, 2002:*

 
|                                        |   | **Three  Months Ended   September 30,** |      |      |   |
|---------------------------------------------|--------|-----------------------------------------|-----------|-----------|--------|
|                                        |   | **2003**                                |      | **2002**  |   | **Change** |   |
|                                        |   |                                    |      |      |   |   |   |
| Rental revenue                              |   | $                                       | 7,164,324 |      | $      | 3,782,972 |   | $ | 3,381,352 |   |
|                                        |   |                                    |      |      |   |   |   |
| Property  operating expenses:               |   |                                    |      |      |   |   |   |
| Operating  expenses                         |   | 2,050,488                               |      | 952,445   |   | 1,098,043 |   |
| Real estate  taxes                          |   | 851,974                                 |      | 381,528   |   | 470,446 |   |
| Management fees                             |   | 27,356                                  |      | 37,062    |   | (9,706 | ) |
| General and  administrative expenses        |   | 777,579                                 |      | 338,457   |   | 439,122 |   |
| Advisory fee                                |   | —                                  |      | 251,910   |   | (251,910 | ) |
| Interest expense                            |   | 1,839,830                               |      | 955,557   |   | 884,273 |   |
| Depreciation and  amortization expense      |   | 1,669,462                               |      | 770,501   |   | 898,961 |   |
| Total operating  expenses                   |   | 7,216,689                               |      | 3,687,460 |   | 3,529,229 |   |
|                                        |   |                                    |      |      |   |   |   |
| Other  income/(loss)                        |   |                                    |      |      |   |   |   |
| Interest income                             |   | 43,434                                  |      | 83,064    |   | (39,630 | ) |
| Equity in loss  of unconsolidated affiliate |   | (14,537                                 | )         | (16,151   | )      | 1,614 |   |
| Total other  income                         |   | 28,897                                  |      | 66,913    |   | (38,016 | ) |
|                                        |   |                                    |      |      |   |   |   |
| Net  (loss)/income                          |   | $                                       | (23,468   | )         | $      | 162,425 |   | $ | (185,893 | ) |

 

*Rental revenue*

 

The increase in rental revenue is due to the inclusionof the operations of the late-2002 and early-2003 property acquisitions,including Parkway Centre II (September 2002) for a full quarter in 2003,Centerra (November 2002), Chateau Plaza (November 2002), Southwest Gas(February 2003) and Financial Plaza (September 2003) for a partial month in2003.

 

*Property operating expenses*

 

Operating expenses and real estate taxes increased asa result of the above-mentioned acquisitions. 

 

Management fees are paid to third-party providers forthe property management of the Bank of America Buildings and the State of TexasBuildings.  A third-party propertymanager was used at Parkway Centre II until the contract was terminatedeffective June 30, 2003.  Beginning onJuly 1, 2003, the property is internally managed.

 

*General and administrative expenses*

 

The increase in general and administrative expenses isprimarily due to the termination of the advisory agreement with the Company’sformer advisor, Sheridan Realty Advisors, effective November 1, 2002 wherebyall of the remaining employees of Sheridan Realty Advisors became employees ofthe Company.  These employees includedexecutive and administrative personnel. Additionally, beginning in 2003, the Company began to accrueapproximately $37,000 per quarter for non-cash long-term stock compensation forcertain of the Company’s executive officers as provided by the Long-TermIncentive Plan.  Shareholders approvedthis plan at the 2003 annual meeting on May 20, 2003.  It is anticipated that general and administrative expenses willcontinue to increase as the Company continues to grow and acquire additionalassets.  

 

11

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*Advisory fee*

* *

The expense recognized in2002 represents the advisory fee earned by Sheridan Realty Advisors inconnection with the acquisition of Parkway Centre II.  Due to the termination of the advisory agreement mentioned above,these fees were eliminated effective November 1, 2002.  

 

*Interest expense*

 

The increase in interest expense is due to higheraverage outstanding mortgage debt balances in 2003, which is primarily attributableto the above-mentioned acquisitions.

 

*Depreciation and amortizationexpense*

 

The increase in depreciation and amortization expenseis due to the increase in depreciable assets resulting from the above-mentionedacquisitions.  Furthermore, the Company’sadoption of SFAS No. 141 “Business Combinations”, which, among other things,requires an allocation of the purchase price of a property to an intangibleasset representing the value associated with the in-place leases, has had andwill continue to have a significant impact on the Company’s depreciation andamortization expense as more properties are acquired.  SFAS No. 141 requires the allocation of the purchase price ofproperties to intangible assets that have shorter lives than the buildingresulting in more depreciation and amortization expense being recognized in ashorter time period for properties acquired subsequent to July 1, 2001.  The intangible asset is amortized over theremaining life of the in-place leases as opposed to being depreciated over thelife of the building, which can be up to 40 years, as it had been done prior toJuly 1, 2001.

 

*Interest income*

 

Interest income decreased due to lower averageoutstanding cash balances in interest bearing accounts in 2003.

 

*Equity in loss of unconsolidatedaffiliate*

 

The equity in loss of unconsolidated affiliaterepresents the Company’s share of the net loss of Panorama Falls.  The Company sold 80% of its interest inPanorama Falls in December 2001, retaining its current 20% interest.  The net loss of Panorama Falls has decreaseddue to improved property operations resulting from the lease up of the propertyfrom approximately 16% at the time of sale to approximately 78% at September30, 2003.

 

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*Comparison of the nine months endedSeptember 30, 2003 to September 30, 2002:*

 
|                                        |   | **Nine  Months Ended   September 30,** |       |       |   |
|---------------------------------------------|--------|----------------------------------------|------------|------------|--------|
|                                        |   | **2003**                               |       | **2002**   |   | **Change** |   |
|                                        |   |                                   |       |       |   |   |   |
| Rental revenue                              |   | $                                      | 20,926,569 |       | $      | 10,937,842 |   | $ | 9,988,727 |   |
|                                        |   |                                   |       |       |   |   |   |
| Property  operating expenses:               |   |                                   |       |       |   |   |   |
| Operating  expenses                         |   | 5,447,781                              |       | 2,725,931  |   | 2,721,850 |   |
| Real estate  taxes                          |   | 2,407,377                              |       | 1,006,350  |   | 1,401,027 |   |
| Management fees                             |   | 113,730                                |       | 96,944     |   | 16,786 |   |
| General and  administrative expenses        |   | 2,357,432                              |       | 1,070,091  |   | 1,287,341 |   |
| Impairment of  investment in real estate    |   | 1,465,932                              |       | —     |   | 1,465,932 |   |
| Advisory fee                                |   | —                                 |       | 251,910    |   | (251,910 | ) |
| Interest expense                            |   | 5,408,007                              |       | 2,774,083  |   | 2,633,924 |   |
| Depreciation and  amortization expense      |   | 4,477,601                              |       | 2,161,580  |   | 2,316,021 |   |
| Total operating  expenses                   |   | 21,677,860                             |       | 10,086,889 |   | 11,590,971 |   |
|                                        |   |                                   |       |       |   |   |   |
| Other  income/(loss)                        |   |                                   |       |       |   |   |   |
| Interest income                             |   | 61,187                                 |       | 135,961    |   | (74,774 | ) |
| Equity in loss  of unconsolidated affiliate |   | (38,451                                | )          | (60,197    | )      | 21,746 |   |
| Total other  income                         |   | 22,736                                 |       | 75,764     |   | (53,028 | ) |
|                                        |   |                                   |       |       |   |   |   |
| Net  (loss)/income                          |   | $                                      | (728,555   | )          | $      | 926,717 |   | $ | (1,655,272 | ) |

* *

*Rental revenue*

 

Rental revenue increased as a result of theabove-mentioned acquisitions.

 

*Property operating expenses*

 

Operating expenses and real estate taxes increased asa result of the above-mentioned acquisitions. 

 

See above for a discussion of management fees.

 

*General and administrative expenses*

 

The increase in general and administrative expenses isprimarily due to the above-mentioned termination of the advisory agreement withthe Company’s former advisor, Sheridan Realty Advisors.  It is anticipated that general andadministrative expenses will continue to increase as the Company continues togrow and acquire additional assets.  

 

*Impairment of investment in realestate*

 

The charges recognized in 2003 represent theimpairment in the value of two buildings in Clint and Paris, Texas.  Both properties are non-core assets and hadbeen previously leased to agencies of the State of Texas.  The Company has been unsuccessful in re-leasingthese properties since the State vacated upon their lease expirations andtherefore has reduced the net book values of the properties to its bestestimate of their current market values. The Company will continue to monitor their non-core properties for anyindications of impairment. 

 

*Advisory fee*

 

The expense recognized in2002 represents the advisory fee earned by Sheridan Realty Advisors inconnection with the acquisition of Parkway Centre II.  Due to the termination of the advisory agreement mentioned above,these fees were eliminated effective November 1, 2002.

 

*Interest expense*

 

The increase in interest expense is due to higheraverage outstanding mortgage debt balances in 2003, which is primarilyattributable to the above-mentioned acquisitions.

 

13

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*Depreciation and amortizationexpense*

 

The increase in depreciation and amortization expenseis due to the increase in depreciable assets resulting from the above-mentionedacquisitions, as well as the adoption of SFAS 141 as described above.

 

*Interest income*

 

Interest income decreased due to lower averageoutstanding cash balances in interest bearing accounts in 2003.  

 

*Equity in loss of unconsolidatedaffiliate*

 

The net loss of Panorama Falls has decreased due toimproved property operations as described above.  

 

Liquidity and Capital Resources

 

*Operating Activities*

 

Net cash flows from operations were approximately$7,386,000 for the nine months ended September 30, 2003.  The increase from the prior year period isprimarily due to the inclusion of the operations of the late-2002 andearly-2003 property acquisitions.  Thisis the primary source to fund dividend payments, debt service and capital expenditures.  Management believes that the cash flow fromthe Company’s existing properties will be sufficient to meet its workingcapital needs for this year and beyond. 

* *

*Investing Activities*

 

Net cash flows used in investing activities wereapproximately $37,203,000 for the nine months ended September 30, 2003, ofwhich $17,000,000 was used to acquire Southwest Gas and approximately$14,550,000, net of the debt assumed, was used to acquire Financial Plaza.  Approximately $1,150,000 was used tocomplete the construction of the fourth building at Keystone Office Park andthe remainder is primarily composed of capital improvement, tenant improvementand leasing commission costs.

 

*FinancingActivities*

 

Net cash flows from financing activities wereapproximately $28,672,000 for the nine months ended September 30, 2003.  Of this amount, approximately $33,267,000represents the net proceeds from the June 2003 common stock offering.  The remainder is primarily composed of dividendpayments, scheduled principal payments on mortgage loans, payment of financingcosts related to the refinancings and new loan, and payments into escrowaccounts as required by certain lenders, offset by the proceeds from theexercising of options and warrants.  

 

The Company had an outstanding balance of $4,220,020with $37,779,980 of availability on the revolving line of credit with FleetNational Bank at September 30, 2003. The Company intends to use available amounts under this line of creditto fund future property acquisitions.  

 

The Company desires to acquire additional properties.  In order to do so, it will utilize currentsources of debt financing and possibly incur additional debt and/or obtainadditional equity capital.  The Companyalso intends to obtain credit facilities for short and long-term borrowing withcommercial banks or other financial institutions.  The issuance of such securities or increase in debt to acquireadditional properties, of which there is no assurance, could adversely affectthe amount of cash available to pay dividends to stockholders.  

 

14

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*Scheduled Debt Maturities andInterest Rate Information*

 

The following table details the scheduled maturitiesof mortgage loans and notes payable outstanding as of September 30, 2003: 

 
| 2003       |   | $          | 507,261     |   |
|------------|--------|------------|-------------|--------|
| 2004       |   | 2,226,153  |        |
| 2005       |   | 16,590,387 |        |
| 2006       |   | 16,575,134 |        |
| 2007       |   | 2,481,212  |        |
| Thereafter |   | 95,550,296 |        |
| Total      |   | $          | 133,930,443 |   |

 

As of September 30, 2003, approximately 89% of thetotal mortgage loans outstanding are fixed rate loans with a weighted-average interestrate of approximately 6.3% and 11% are variable rate loans with aweighted-average interest rate of approximately 5.1%.  The Company intends to refinance some of its variable rate debtto fixed rate debt upon stabilization of the underlying mortgaged properties.

 

New Accounting Pronouncements

 

In January 2003, the FASB issued Interpretation No. 46“Consolidation of Variable Interest Entities.” The Company is required to adopt the interpretation for variableinterest entities created after January 31, 2003 and for existing variableinterest entities for the interim period beginning after September 15,2003.  This interpretation clarifies theapplication of Accounting Research Bulletin No. 51, “Consolidated FinancialStatements,” and requires the consolidation of results of variable interestentities in which the Company has a majority variable interest.  The Company does not invest in any variableinterest entities.

 

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 theseestimates under different assumptions or conditions.  

 

Critical accounting policies are defined as those thatare reflective of significant judgments and uncertainties, which wouldpotentially result in materially different results under different assumptionsand conditions.  The Company believesthat its critical accounting policies include those items described below.

 

*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.  

 

15

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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, leasing commissions and other intangible assets |   | Term of related lease      |

 

Maintenance and repairs areexpensed as incurred and improvements are capitalized.  The cost of assets sold or retired and therelated accumulated depreciation and/or amortization are removed from theaccounts and the resulting gain or loss is reflected in operations in theperiod in which such sale or retirement occurs.  Allocating the purchase price of a property to the differentcomponents of investment in real estate, determining whether expenditures meetthe criteria for capitalization and assigning depreciable lives is consideredto be critical because it requires management 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.

 

Forward-Looking Statements

 

Certain statements in this Form 10-QSB that are nothistorical facts are “forward-looking statements” as that term is defined underthe Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on the Company’scurrent expectations, beliefs, assumptions, estimates and projections about theindustry and markets in which the Company operates.  Words such as “expects,” “anticipates,” “intends,” “plans,”“believes,” “seeks,” “estimates” and variations of such words and similarexpressions are intended to identify such forward-looking statements.  Information concerning expected investmentbalances, expected funding sources, planned investments, forecasted dates andrevenue and expense growth assumptions are examples of forward-lookingstatements.  These statements are notguarantees of future performance and involve certain risks, uncertainties andassumptions, which are difficult to predict and many of which are beyond theCompany’s control.  Therefore, actualoutcomes and results may differ materially from what is expressed, forecastedor implied in such forward-looking statements. The Company undertakes no obligation to update publicly anyforward-looking statements, whether as a result of new information, futureevents or otherwise, except 

 

16

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as required by applicable law.  

 

The Company’s operating results depend primarily onincome from its properties, which are substantially influenced by supply anddemand for such properties, operating expense levels, property level operationsand the pace and price at which the Company can develop, acquire or dispose of suchproperties.  Capital and credit marketconditions, which affect the Company’s cost of capital, also influenceoperating results.  See the Company’s2002 Form 10-KSB “Item 1. Business” for a more complete discussion of riskfactors that could impact the Company’s future financial performance.  

 

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Item 3.    Controlsand Procedures

 

The Company carried out an evaluation under thesupervision and with participation of the Company’s management, including ourChief Executive Officer and Chief Financial Officer, of the effectiveness ofthe Company’s disclosure controls and procedures pursuant to Rule 13a-15 underthe Securities Exchange Act of 1934 as of September 30, 2003.  Based on their evaluation, our ChiefExecutive 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 financialreporting.  

 

**Part II.   Other Information**

 

Item 1.   Legal Proceedings

 

No changes  

 

Item 2.   Changes in Securities and Use ofProceeds

 

During the 3 month period ended September 30, 2003,the Company issued 5,500 shares of common stock upon exercise of previouslyissued warrants.  The issuance of the shares of common stock was madepursuant to an exemption from registration in accordance with Section 4(2) ofthe Securities Act based on a representation to us from the entity receivingthe shares that such entity was a sophisticated investor who was knowledgeableabout our operations and financial condition and was able to evaluate the risksand merits of receipt of the shares.

 

Item 6.   Exhibitsand Reports on Form 8-K

 

(a)    Exhibits

 

31. Certifications of Chief Executive Officer andChief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of2002. 

 

32. Certification of Chief Executive Officer and ChiefFinancial Officer pursuant to section 906 of the Sarbanes-Oxley Act of2002.  

 

(b)    Reports on Form 8-K

 

1.  CurrentReport on Form 8-K dated September 10, 2003 (filed September 16, 2003).  This Current Report included disclosuresunder “Item 2. Acquisition or Disposition of Assets” and “Item 7. FinancialStatements and Exhibits.”  The financialstatements were included in an amendment to this Current Report, describedbelow.  (Financial Plaza)  

 

2.  CurrentReport on Form 8-K dated September 10, 2003 (filed November 7, 2003).  This Current Report consisted of anamendment to the Current Report on Form 8-K dated September 10, 2003 filed onSeptember 16, 2003 and included disclosures under “Item 7. Financial Statementsand Exhibits.”  The financial statementsincluded were an Independent Auditors’ Report; Statement of Revenue and CertainExpenses for the six months ended June 30, 2003 (unaudited) and for the yearended December 31, 2002; Notes to Statement of Revenue and Certain Expenses;Pro Forma Consolidated Balance Sheet as of December 31, 2002 (unaudited); ProForma Consolidated Statement of Operations for the six months ended June 30,2003 (unaudited); Pro Forma Consolidated Statement of Operations for the yearended December 31, 2002 (unaudited); Notes to Pro Forma Consolidated FinancialStatements (unaudited); Statement of Estimated Taxable Operating Results andCash to be Made Available by Operations for the Year ended December 31, 2002(unaudited); and Note to Statement of Estimated Taxable Operating Results andCash to be Made Available by Operations (unaudited).  (Financial Plaza)   

 

SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|              |   | AMERIVEST PROPERTIES INC. |
|-------------------|--------|---------------------------|
|              |   |                      |
|              |   |                      |
| November 14, 2003 |   |                      |
|              |   | By:                       |    /s/ D. Scott Ikenberry |   |
|              |   |                      | D. Scott  Ikenberry |
|              |   |                      | Chief Financial  Officer |
|              |   |                      | (Principal Financial  Officer and  Principal Accounting Officer) |

 

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