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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 10-Q

(Mark One)

   X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1997

                                       OR


       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                         Commission file number 1-22262

                             COMMERCIAL ASSETS, INC.
             (Exact name of registrant as specified in its charter)

                Maryland                                  84-1240911
    (State or other jurisdiction of                     (IRS Employer
     incorporation or organization)                  Identification No.)

  3410 South Galena Street, Suite 210                       80231
            Denver, Colorado                              (Zip Code)
(Address of Principal Executive Offices)

                                 (303) 614-9410
              (Registrant's telephone number, including area code)

                      3600 South Yosemite Street, Suite 350
                             Denver, Colorado 80237
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report.)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No ___.

             As of November 3, 1997,  10,342,009  shares of  Commercial  Assets,
Inc. Common Stock were outstanding.

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<PAGE>




                             COMMERCIAL ASSETS, INC.

                                    FORM 10-Q

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                TABLE OF CONTENTS

                                                                            PAGE
PART I.     FINANCIAL INFORMATION:

            Item 1.  Condensed Financial Statements:

                     Balance Sheets as of September 30, 1997 (Unaudited) 
                       and December 31, 1996................................   1

                     Statements  of Income  for the three and nine  months
                       ended September 30, 1997 and 1996 (Unaudited)........   2

                     Statements  of Cash Flows for the nine  months  ended
                       September 30, 1997 and 1996 (Unaudited)..............   3

                     Notes to Financial Statements (Unaudited)..............   4

            Item 2.  Management's Discussion and Analysis of
                       Financial Condition and Results of Operations........   9


PART II.    OTHER INFORMATION:

            Item 6.  Exhibits and Reports on Form 8-K.......................  15


                                      (i)
<PAGE>


<TABLE>
<CAPTION>

                             COMMERCIAL ASSETS, INC.
                            CONDENSED BALANCE SHEETS
                          (Dollar amounts in thousands)

                                                                                     September 30,     December 31,
                                                                                          1997             1996
                                                                                          ----             ----
Assets                                                                                (Unaudited)

<S>                                                                                     <C>              <C>       
   Cash and cash equivalents                                                            $    3,335       $    8,277
   Accrued interest receivable                                                                 590              597
   Restricted cash                                                                           8,174            1,982
   CMBS bonds                                                                               70,012           61,460
   Other assets, net                                                                           118               90
                                                                                        ----------       ----------

     Total Assets                                                                       $   82,229       $   72,406
                                                                                        ==========       ==========

Liabilities

   Accounts payable and accrued liabilities                                             $      111       $      189
   Management fees payable                                                                     885              298
                                                                                        ----------       ----------

     Total Liabilities                                                                         996              487
                                                                                        ----------       ----------

Stockholders' Equity

   Preferred Stock, par value $.01 per share, 25,000,000 shares authorized; no
     shares issued or outstanding                                                               --               --

   Common Stock, par value $.01 per share, 75,000,000 shares authorized;
     10,342,009 and 10,315,809 shares issued and outstanding, respectively                     104              103

   Additional paid-in capital                                                               76,724           76,559

   Cumulative dividends declared                                                           (25,565)         (20,295)
   Cumulative net income                                                                    24,970           18,941
                                                                                        ----------       ----------
      Dividends in excess of net income                                                       (595)          (1,354)
                                                                                        ----------       ----------

   Net unrealized holding gains (losses) on CMBS bonds                                       5,000           (3,389)
                                                                                        ----------       ----------

     Total Stockholders' Equity                                                             81,233           71,919
                                                                                        ----------       ----------

     Total Liabilities and Stockholders' Equity                                         $   82,229       $   72,406
                                                                                        ==========       ==========

</TABLE>

                  See Notes to Condensed Financial Statements.

                                     - 1 -
<PAGE>


                             COMMERCIAL ASSETS, INC.
                         CONDENSED STATEMENTS OF INCOME
                      (In thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                             Three Months Ended                Nine Months Ended
                                                                September 30,                    September 30,
                                                         --------------------------         -----------------------
                                                           1997              1996             1997             1996
                                                         ---------         ---------        --------         ------
Revenues

<S>                                                      <C>               <C>              <C>              <C>    
   CMBS bonds                                            $  3,423          $  2,038         $  7,660         $ 7,811
   Interest                                                    51               129              211             200
                                                         --------          --------         --------         -------

     Total Revenues                                         3,474             2,167            7,871           8,011
                                                         --------          --------         --------         -------

Expenses

   Management fees                                            886               297            1,494           1,127
   General and administrative                                 104               105              348             549
   Elimination of DERs                                         --                --               --             966
   Interest                                                    --                --               --               5
                                                         --------          --------         --------         -------

     Total Expenses                                           990               402            1,842           2,647
                                                         --------          --------         --------        --------


Net Income                                               $  2,484          $  1,765         $  6,029        $  5,364
                                                         ========          ========         ========        ========


Net income per share                                     $    .24          $    .17         $    .58        $    .52

Weighted-average shares outstanding                        10,342            10,316           10,328          10,224

Dividends per share:
   Regular dividends                                     $    .17          $    .17         $    .51        $    .51
   Special dividends                                           --               .04               --             .04
                                                         --------          --------         --------        --------
                                                         $    .17          $    .21         $    .51        $    .55
                                                         ========          ========         ========        ========

</TABLE>

                  See Notes to Condensed Financial Statements.

                                     - 2 -
<PAGE>


                             COMMERCIAL ASSETS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                              Nine Months Ended
                                                                                                September 30,
                                                                                             1997           1996
                                                                                             ----           ----

Cash Flows From Operating Activities

<S>                                                                                       <C>             <C>      
   Net income                                                                             $ 6,029         $   5,364
   Adjustments to reconcile net income to net cash flows from operating
     activities:
      Amortization of discount on CMBS bonds and other assets                              (1,542)           (1,970)
      Issuance of Common Stock for elimination of DERs                                         --               941
      Decrease in accrued interest receivable                                                   7                78
      Decrease (increase) in other assets                                                      39                (9)
      Increase (decrease) in accounts payable and accrued liabilities                         (22)               16
      Increase (decrease) in management fees payable                                          587              (290)
                                                                                          -------         ---------

Net Cash Provided By Operating Activities                                                   5,098             4,130
                                                                                          -------         ---------

Cash Flows From Investing Activities

   Acquisition of CMBS bonds                                                               (4,801)               --
   Principal collections from CMBS bonds                                                       --             9,857
                                                                                          -------         ---------

Net Cash (Used In) Provided By Investing Activities                                        (4,801)            9,857
                                                                                          -------         ---------

Cash Flows From Financing Activities

   Dividends paid                                                                          (5,270)           (3,478)
   Repayments of short-term notes payable                                                      --              (700)
   Issuance of Common Stock                                                                    31                --
                                                                                         --------         ---------

Net Cash Used In Financing Activities                                                      (5,239)           (4,178)
                                                                                         --------         ---------

Cash and Cash Equivalents

   (Decrease) increase                                                                     (4,942)            9,809
   Beginning of period                                                                      8,277               598
                                                                                          -------         ---------

   End of period                                                                         $  3,335         $  10,407
                                                                                         ========         =========

</TABLE>

                  See Notes to Condensed Financial Statements.

                                     - 3 -
<PAGE>




                             COMMERCIAL ASSETS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

A.           The Company

             Commercial Assets,  Inc. (the "Company") was incorporated under the
laws of Maryland  on August 11,  1993,  as a wholly  owned  subsidiary  of Asset
Investors Corporation,  a Maryland corporation,  which is listed on the New York
Stock Exchange, Inc. under the symbol "AIC" ("Asset Investors"). Pursuant to the
agreement dated August 20, 1993, between Asset Investors and the Company,  Asset
Investors  contributed  $75,000,000  to the  initial  capital  of  the  Company,
including  $200,000 in cash. On October 12, 1993,  Asset  Investors  distributed
approximately 70% of the outstanding  common stock, par value of $.01 per share,
of the  Company  ("Common  Stock")  as a taxable  dividend  to Asset  Investors'
stockholders.  Prior to the  distribution,  the  Company  had not engaged in any
activities other than those related to its formation.  Asset Investors currently
owns  approximately  27% of the  outstanding  Common Stock.  The Common Stock is
listed on the American Stock Exchange, Inc. under the symbol "CAX."

             The Company has historically  owned subordinate class of Commercial
Mortgage  Backed  Securities  ("CMBS  bonds").  On November 3, 1997, the Company
announced that it has restructured its portfolio of CMBS bonds. The Company sold
nine CMBS bonds,  resecuritized two CMBS bonds and the related  restricted cash,
and redeemed the remaining CMBS bond. See Subsequent Events below.

B.           Presentation of Financial Statements

             The  Condensed  Financial  Statements  of  the  Company  have  been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange  Commission.  These Condensed  Financial  Statements
reflect all adjustments, consisting of only normal recurring accruals, which, in
the  opinion  of  management,  are  necessary  to present  fairly the  financial
position and results of operations of the Company as of September 30, 1997,  for
the three and nine months then ended, and for all prior periods presented. These
statements  are  condensed  and do not include all the  information  required by
generally  accepted  accounting  principles  ("GAAP") in a full set of financial
statements.  These  statements  should be read in conjunction with the Company's
Financial  Statements and notes thereto  included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.

C.           Statements of Cash Flows

             Cash  maintained in bank  accounts,  money market funds and highly-
liquid  investments  with an  initial  maturity  of  three  months  or less  are
considered to be cash and cash equivalents for purposes of reporting cash flows.
The Company  paid  interest  expense in cash of $5,000 for the nine months ended
September 30, 1996.

             Non-cash  investing  and financing  activities  for the nine months
ended September 30, 1997 and 1996 were as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                               1997            1996
                                                                                               ----            ----
<S>                                                                                          <C>             <C>     
Principal collections on CMBS bonds transferred to restricted cash                           $  6,192        $  1,104

Unrealized holding gains on CMBS bonds                                                       $  8,389        $    943

Distributions of Common Stock                                                                $    135        $     96

</TABLE>



                                     - 4 -
<PAGE>




<TABLE>
<CAPTION>

                                                                                               1997            1996
                                                                                               ----            ----

<S>                                                                                          <C>             <C>     
Distributions of Common Stock as consideration for the elimination of DERs                   $     --        $    941

Dividends declared but not yet paid                                                          $     --        $  2,166

</TABLE>
D.           CMBS Bonds

             As of September  30, 1997 and December  31, 1996,  the  outstanding
balances  of  the  Company's  CMBS  bonds  were   $88,841,000  and  $89,297,000,
respectively,  while  unamortized  purchase  discounts,  acquisition  costs  and
allowance for credit losses totaled  $23,829,000 and $24,448,000,  respectively.
Additionally,  the Company recorded  unrealized  holding gains of $5,000,000 and
unrealized  holding  losses of  $3,389,000 on the CMBS bonds as of September 30,
1997 and December 31, 1996, respectively.

             In May 1996, two CMBS bonds with an outstanding  principal  balance
of $9,664,000  and net carrying value of $8,723,000  were redeemed,  eight years
earlier  than  anticipated.  The  bonds  were  acquired  on March 8,  1994,  for
$9,088,000,  or 84.25% of their outstanding  principal balance.  Since the bonds
were  redeemed at par,  $1,426,000  of  discount  amortization  was  included in
earnings during the nine months ended September 30, 1996.

             In March 1997, the Company  contributed  its ownership  interest in
two CMBS bonds (Lehman Capital Corporation Trust Certificate,  Series 1994-2 and
Series 1994-3) into a newly created trust (Blaylock Mortgage Capital Corporation
Multifamily  Trust).  Interests  in bond classes  within the same CMBS  issuance
which were owned by another  party  were also  contributed  into the trust.  The
trust then issued seven  classes of CMBS bonds  collateralized  by the CMBS bond
classes  contributed into the trust. The Company received an interest in five of
the new bond classes which corresponded to the Company's  ownership interests in
the two bonds  contributed to the trust. The Company also acquired the remaining
$5,737,000  principal  balance of two of the new bond classes rated "BB" and "B"
at a cost of $4,801,000,  which resulted in the Company having 100% ownership in
the five new subordinate classes.

             In August 1997,  three mortgages  backing one of the Company's CMBS
bonds were  prepaid.  As a result of the  prepayment,  during the three and nine
months ended September 30, 1997, the Company recognized  $482,000 of income from
a prepayment penalty received and $2,305,000 of income from accelerated discount
amortization.  The $5,853,000 of principal collections from the repaid mortgages
was  transferred  to  restricted  cash pursuant to the terms of the indenture to
support the eventual  payment of more senior classes of CMBS bonds. At September
30, 1997 and December 31, 1996,  $8,174,000 and $1,982,000,  respectively,  were
set aside in reserve  accounts and are shown as  restricted  cash on the balance
sheet.

             At September  30,  1997,  the  outstanding  balance of the mortgage
loans  collateralizing  the CMBS  bonds  was  $842,174,000  and the  outstanding
principal  balance of the CMBS bonds that are senior to the Company's CMBS bonds
was  $750,042,000.  The  aggregate  allowance for credit losses on the Company's
CMBS bonds was  $12,720,000 at both September 30, 1997 and December 31, 1996. As
of  September  30,  1997,  one  mortgage  loan with an  outstanding  balance  of
$788,000,  which  collateralized  two of the  Company's  CMBS  bonds,  has  been
foreclosed.  The Company  estimates  that the loss from this  mortgage  loan may
range from $0 to $425,000, depending upon the recovery of indemnification claims
made against the bond underwriter.


                                     - 5 -
<PAGE>

E.           Short-Term Notes Payable

             The Company's Loan and Security  Agreement  collateralized  by four
CMBS bonds (FNMA  94-M2C,  FNMA  94-M2D,  Kidder  94-M1C and Kidder  94-M1D) was
cancelled in November 1997 upon the sale and resecuritization of these bonds. No
borrowings  were  outstanding on this line at September 30, 1997 or December 31,
1996.

             The Company  also has an  unsecured  line of credit with a bank for
$1,000,000.  Advances  under  this  line  bear  interest  at  prime.  Two of the
Company's  Independent  Directors are members of the Advisory Board of the bank.
At September  30, 1997 and December 31, 1996, no advances  were  outstanding  on
this line of credit.

F.           Management Fees

             The  Company's  day-to-day  operations  are  performed by Financial
Asset  Management LLC (the  "Manager")  pursuant to a management  agreement (the
"Management Agreement") which is subject to the annual approval of a majority of
the Independent  Directors.  The Company's By-laws,  as amended,  require that a
specified  number  of the  Board of  Directors  and each  committee  thereof  be
comprised  of  persons  constituting  Independent  Directors.  Pursuant  to  the
Company's By-laws,  an Independent  Director is a person "who is not affiliated,
directly or indirectly,  with the person or entity  responsible for directing or
performing the day-to-day  business  affairs of the corporation (the "advisor"),
including a person or entity to which the advisor subcontracts substantially all
of such functions,  whether by ownership of, ownership  interest in,  employment
by, any material business or professional relationship with, or by serving as an
officer of the advisor or an affiliated business entity of the advisor."

             On September 9, 1997,  Asset Investors  announced a plan to acquire
the assets and operations of the Manager.  The  acquisition has been approved by
Asset Investors' Board of Directors (including its Independent Directors) and is
subject to a vote of Asset  Investors'  stockholders  at its  annual  meeting on
November 21, 1997. If the acquisition were consummated, it would result in Asset
Investors  assuming the operations of the Manager and its obligations  under the
Management Agreement.

             Pursuant to the Management  Agreement,  the Manager receives a Base
Fee, an Incentive Fee, an Acquisition  Fee and an  Administrative  Fee. The Base
Fee is  payable  quarterly  in an amount  equal to 1% per annum of the  "average
invested  assets" of the Company.  The  Incentive  Fee is based on the Company's
profitability and is intended to align compensation paid to the Manager with the
interests  of  the  Company's  stockholders.  The  Manager  is  entitled  to the
Incentive  Fee only  after the  Company's  stockholders  first  have  received a
threshold  return on the  Company's  "average net worth" equal to the  "Ten-Year
United  States  Treasury  rate" plus 1%. Twenty  percent of the  Company's  REIT
income  in  excess  of this  threshold  return  is paid  to the  Manager  as the
Incentive  Fee.  The  Manager  receives an  Acquisition  Fee of 1/2 of 1% of the
initial cost of each asset which the Manager  assists the Company in  acquiring.
The  Acquisition  Fee  compensates  the Manager  for  performing  due  diligence
procedures  on  portfolio  assets  acquired by the  Company.  The  Manager  also
performs certain bond  administration and other related services for the Company
pursuant to the Management Agreement and receives an Administrative Fee for such
services of up to $10,000 per annum for each of the Company's CMBS bonds. If the
Company owns more than one class of a commercial securitization,  the Manager is
entitled  to  receive  an  additional  fee of up to  $2,500  per  annum for each
additional class.

             During the nine  months  ended  September  30,  1997 and 1996,  the
Company's  total  management  fees  pursuant to the  Management  Agreement  were
$1,517,000 and $1,127,000, respectively.  Management fees during the nine months
ended  September  30,  1997 and 1996  included:  (i) Base Fees of  $527,000  and


                                     - 6 -
<PAGE>

$494,000,  respectively;  (ii)  Administrative  Fees  of  $46,000  and  $45,000,
respectively;  (iii) Incentive Fees of $921,000 and $588,000,  respectively; and
(iv)  Acquisition  Fees of $23,000 and $0,  respectively.  Acquisition  Fees are
capitalized as part of the cost of the acquired CMBS bonds.

G.           Stock Option Plan

             The  Company  has  a  Stock   Option  Plan  for  the   issuance  of
non-qualified  stock options to its  directors  and  officers.  Prior to May 30,
1996,  stock options granted under the Stock Option Plan  automatically  accrued
dividend equivalent rights ("DERs").  During the nine months ended September 30,
1996,  the  Company  incurred  $96,000 of non-cash  general  and  administrative
expenses from DERs covering  16,362 shares of Common Stock which were subject to
issuance pursuant to options granted under the Stock Option Plan.

             On May 30, 1996, the Company's  stockholders  approved an amendment
to the Stock  Option Plan which  provided  for the  issuance of Common  Stock in
exchange for the  elimination  of the accrual of DERs for options  granted under
the Stock  Option  Plan.  Pursuant  to the  amendment,  the  Company  incurred a
$966,000 charge (a $941,000  non-cash charge from the issuance of 157,413 shares
of Common Stock plus $25,000 of transaction  costs) during the nine months ended
September 30, 1996.

H.           Subsequent Events

             In November 1997,  the Company sold nine CMBS bonds,  resecuritized
two CMBS bonds and the related  restricted cash, and had the remaining CMBS bond
redeemed  by  the  issuer.   Total   proceeds  from  these   transactions   were
approximately  $77,000,000  of cash and the  Company  retained a small  residual
interest  in  the  resecuritized  CMBS  bonds.  The  combined  gain  from  these
transactions  calculated in accordance  with GAAP is  approximately  $5,000,000,
which will be included  in results of  operations  during the fourth  quarter of
1997.

             The following  unaudited  pro-forma  information  has been prepared
assuming the restructuring of the CMBS bonds had been completed at the beginning
of the periods presented. The pro-forma information is presented for information
purposes only and is not  necessarily  indicative of what would have occurred if
the  restructuring  had been  completed  as of those  dates.  In  addition,  the
pro-forma  information is not intended to be a projection of future results. The
unaudited,  pro-forma  results of operations for the nine months ended September
30, 1997 and 1996 are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                   1997                    1996
                                                                                ----------              ----------

<S>                                                                             <C>                     <C>       
Revenues                                                                        $    3,147              $    4,934
                                                                                ==========              ==========

Net income (loss) from continuing operations                                    $    2,843              $    3,419
Gain on restructuring of CMBS bonds, net of management fees
                                                                                     6,492                   6,417
                                                                                ----------              ----------

Net income                                                                      $    9,335              $    9,836
                                                                                ==========              ==========

Net income per share                                                            $      .90              $      .96
                                                                                ==========              ==========

</TABLE>

                                     - 7 -
<PAGE>

             Also in  November  1997,  the  Company  declared  a fourth  quarter
dividend  consisting of a regular dividend of $.17 per share, a special dividend
of $.26 per share and a capital gain  distribution of $.17 per share for a total
distribution of $.60 per share. The dividend is payable on December 30, 1997, to
stockholders of record on December 15, 1997.




                                     - 8 -
<PAGE>




Item 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.

             Commercial  Assets,  Inc. was  incorporated  under  Maryland law on
August 11, 1993 by Asset Investors.  The Company commenced operations on October
12, 1993, the date on which Asset Investors contributed  $75,000,000,  including
$200,000 in cash to the capital of the Company and distributed approximately 70%
of the shares of Common Stock of the Company to Asset  Investors'  stockholders.
The Company's  Common Stock is listed on the American  Stock  Exchange under the
symbol "CAX".

             Since its  inception,  the  Company  has  operated in a manner that
permitted it to qualify for the income tax  treatment  afforded to a real estate
investment  trust  ("REIT") as defined in the Internal  Revenue Code of 1986, as
amended,  (the "Code"). If it so qualifies,  the Company's taxable income ("REIT
income"),  with certain  limited  exceptions,  will not be subject to federal or
state income tax at the  corporate  level.  To qualify as a REIT under the Code,
the Company is  required,  among other  things,  to  distribute  annually to its
stockholders  at least 95% of its REIT income and to meet certain asset,  income
and stock ownership tests.

             The Company's  day-to-day  operations are performed by the Manager,
pursuant to the Management Agreement, which is subject to the annual approval of
a  majority  of  the  Independent  Directors.  The  Manager  is  subject  to the
supervision of the Board of Directors of the Company. As part of its duties, the
Manager presents the Company with asset acquisition  opportunities and furnishes
the Board of Directors with information concerning the acquisition,  performance
and disposition of assets.  The Company has no employees.  Certain  employees of
the Manager  have been  designated  officers of the  Company.  The Manager  also
currently  manages Asset  Investors,  but on September 9, 1997,  Asset Investors
announced  a plan to acquire  the  assets and  operations  of the  Manager.  The
acquisition is subject to a vote of Asset Investors'  stockholders at its annual
meeting on November 21, 1997.  If the  acquisition  were  consummated,  it would
result  in Asset  Investors  assuming  the  operations  of the  Manager  and its
obligations under the Management Agreement.

             On   November  3,  1997,   the   Company   sold  nine  CMBS  bonds,
resecuritized  two CMBS  bonds and  redeemed  the  remaining  CMBS  bond.  Total
proceeds from these transactions were approximately  $77,000,000 of cash and the
Company retained a small residual interest in the resecuritized  CMBS bonds. The
combined  gain from these  transactions  is  approximately  $5,000,000  for GAAP
income purposes and  approximately  $2,000,000 for REIT income purposes and will
be included in the Company's fourth quarter 1997 earnings.

             The Company is currently  evaluating its  investment  opportunities
for the proceeds  from  restructuring  its  portfolio.  Its plans are to acquire
equity  interests in real estate,  but the specific class of real estate has not
yet been  determined.  The  Company  believes  that even though the cash on cash
returns to be earned from equity  interests  in real estate may be less than the
returns earned on the portfolio of subordinate classes of CMBS bonds, the change
in portfolio assets will reduce the Company's  exposure to credit risks and may,
under  certain  circumstances,  result in  increased  opportunities  for capital
appreciation of the real estate assets acquired.

             Presented below is a schedule of the CMBS bonds previously owned by
the Company as of September  30, 1997 and  December 31, 1996 (dollar  amounts in
thousands).




                                     - 9 -
<PAGE>




<TABLE>
<CAPTION>

                                                                           Weighted-
                                                                 Maturity   Average               Senior      Outstanding Balance at
                        Description                     Coupon     Date      Life (1)   Rating  CMBS Bonds(2)   9/30/97     12/31/96
-----------------------------------------------------   ------   -------- ----------    ------  -----------   ----------------------
Fannie Mae Multifamily REMIC Trust 1994-M2
<S>         <C>                                          <C>       <C>       <C>                  <C>           <C>        <C>     
     Class C(4)                                          7.99%     1/2001    3.3 yrs.  Unrated    $   293,184   $ 10,627   $ 10,704
     Class D(4)                                          8.18%     1/2004    6.1       Unrated                    32,269     38,384
DLJ Mortgage Acceptance Corporation
     Series 1994-MF4, Class B-3                          8.50%     4/2001    3.5          B            89,296      3,136      3,136
     Series 1994-MF4, Class C                            8.50%     4/2001    3.5       Unrated                     4,183      4,183
Kidder, Peabody Acceptance Corporation I
     Series 1993-M2, Class E(5)                          8.88%     8/2021    2.9          BB           79,744     10,000     10,000
Kidder, Peabody Acceptance Corporation I
     Series 1994-M1, Class C                             8.25%    11/2002    3.8          B           166,900      8,930      8,930
     Series 1994-M1, Class D                             8.25%    11/2002    4.1       Unrated                     7,655      7,655
Lehman Capital Corporation Trust Certificate
     Series 1994-2(3)                                                                                                 --      2,143
     Series 1994-3(3)                                                                                                 --      4,162
Blaylock Mortgage Capital Corporation Multifamily Trust
     Series 1997-A Class B-3 (3)                         6.42%    10/2003    6.1          BB          120,918      5,352         --
     Series 1997-A Class B-4 (3)                         6.42%    10/2003    6.1          B                        3,345         --
     Series 1997-A Class B-5 (3)                         6.42%    10/2003    6.1          B-                       1,003         --
     Series 1997-A Class B-6 (3)                         6.42%    10/2003    6.1         CCC                       1,003         --
     Series 1997-A Class B-7 (3)                         6.42%    10/2003    6.1       Unrated                     1,338         --
                                                         ----                ---                  -----------   --------   --------
     Total outstanding balance                           8.04%               4.8 yrs.             $   750,042     88,841     89,297
                                                         ====                ===                  ===========

Unamortized discount (6)                                                                                         (11,499)   (12,077)
Allowance for credit losses (6)                                                                                  (12,720)   (12,720)
Unamortized acquisition costs (6)                                                                                    390        349
                                                                                                                --------   --------
     Amortized cost                                                                                               65,012     64,849
Net unrealized holding losses (6)                                                                                  5,000     (3,389)
                                                                                                                --------   --------
     Total net book value                                                                                       $ 70,012   $ 61,460
                                                                                                                ========   ========

------------------------------------------------------------------
<FN>

1    Remaining weighted-average life at September 30, 1997.
2    The outstanding  principal balance at September 30, 1997, of the CMBS bonds
     senior to the  Company's  subordinate  CMBS  bond  classes.  The  amount is
     aggregated for classes from a single issuance.
3    In March 1997, the Company contributed Lehman Series 1994-2 and 1994-3 to a
     trust and in turn received  Blaylock Classes B-5, B-6 and B-7 and a partial
     interest in Classes B-3 and B-4. At the same time, the Company acquired the
     remaining interests in Blaylock Classes B-3 and B-4.
4    Payment of principal and interest is not  guaranteed  by FNMA.  The Company
     owns the trust receipt, which has an interest in these two bonds.
5    The Company has a 75.2% ownership interest in this CMBS bond.
6    The amounts are specifically identified to individual CMBS bonds.
</FN>
</TABLE>


                                     - 10 -
<PAGE>




  RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

REIT Income

             REIT  income is taxable  income  computed as  prescribed  for REITs
prior to the dividends paid  deduction.  The Company's REIT income for the three
and nine months ended  September 30, 1997, was  $4,124,000  ($.40 per share) and
$7,990,000  ($.77 per share),  respectively,  compared with $1,986,000 ($.19 per
share) and $6,591,000  ($.64 per share),  respectively,  for the same periods in
1996.  The primary reason for the increase was higher income from CMBS bonds and
expenses  incurred  for the  elimination  of DERs in 1996  partially  offset  by
increased management fees.

             REIT  income  from CMBS bonds for the three and nine  months  ended
September 30, 1997,  was $5,062,000  ($.49 per share) and  $9,621,000  ($.93 per
share),  respectively,  compared with $2,259,000 ($.22 per share) and $9,106,000
($.89 per share),  respectively,  for the same periods in 1996.  The increase in
REIT  income from CMBS bonds was due to August  1997  prepayments  on one of the
CMBS bonds and  earnings on CMBS bonds  acquired in March 1997 offset by the May
1996  redemption of two CMBS bonds and prepayments on one other CMBS bond during
the first half of 1996.

             In May 1996, two CMBS bonds with an outstanding  principal  balance
of $9,664,000 were redeemed eight years earlier than  anticipated.  As a result,
the yield on the bonds  increased to 18.1% from an originally  expected yield of
11.8%.  During the nine months ended September 30, 1996, the Company's  earnings
for these bonds were $1,837,000.

             In 1997 and 1996,  the Company  received  principal  prepayments on
mortgages backing two of its CMBS bonds. For these particular bonds, the Company
previously had elected,  under the Code, to limit the amount of  amortization of
the  market   discount  to  the  lesser  of   principal   received  or  computed
amortization.  During the nine  months  ended  September  30,  1997,  there were
$5,853,000   of  principal   prepayments   compared  to  $755,000  of  principal
prepayments for the same period in 1996. Primarily, as a result of the elections
and prepayments,  amortization  during the three and nine months ended September
30, 1997,  was  $2,257,000 and  $1,639,000,  respectively,  higher than the same
periods in 1996. In addition,  a prepayment penalty fee of $482,000 was received
during the three and nine months ended September 30, 1997.

             In March 1997, the Company  contributed  its ownership  interest in
two CMBS bonds (Lehman Capital Corporation Trust Certificate,  Series 1994-2 and
Series 1994-3) into a newly created trust (Blaylock Mortgage Capital Corporation
Multifamily  Trust).  Interests  in bond classes  within the same CMBS  issuance
which were owned by another  party  were also  contributed  into the trust.  The
trust then issued seven  classes of CMBS bonds  collateralized  by the CMBS bond
classes  contributed into the trust. The Company received an interest in five of
the new bond classes, which corresponded to the Company's ownership interests in
the two bonds  contributed to the trust. The Company also acquired the remaining
$5,737,000  principal  balance of two of the new bond classes rated "BB" and "B"
at a cost of $4,801,000,  which resulted in the Company having 100% ownership in
the  five  new  subordinate  classes.  As a  result  of  the  restructuring  and
acquisition,  revenues from these CMBS bonds  increased by $73,000 and $168,000,
respectively,  during the three and nine months ended  September  30,  1997,  as
compared to the same periods in 1996.

             Interest  income  during the three and nine months ended  September
30,  1997,  was  $51,000  ($.00  per  share)  and  $211,000  ($.02  per  share),


                                     - 11 -
<PAGE>

respectively,  compared  with $129,000  ($.01 per share) and $200,000  ($.02 per
share),  respectively,  for the same periods in 1996. Interest income during the
three months ended  September  30, 1997,  was lower than the same period in 1996
because of the $4,801,000 of short-term investments used to acquire interests in
Blaylock  Classes  B-3 and B-4 in  March  1997.  The  Company  anticipates  that
interest income will increase while the proceeds from the  restructuring  of the
CMBS bond  portfolio  are invested in cash  equivalents.  See  "FORWARD  LOOKING
INFORMATION" below.

             The Company's  management  fees were $886,000  ($.09 per share) and
$1,494,000 ($.14 per share),  respectively,  for the three and nine months ended
September 30, 1997, compared with $297,000 ($.03 per share) and $1,127,000 ($.11
per share), respectively, for the same periods in 1996. Specifically,  Incentive
Fees  increased  by $559,000 and  $333,000,  respectively,  Administrative  Fees
increased by $3,000 and $1,000, respectively, and Base Fees increased by $27,000
and $33,000, respectively. The increases in Incentive Fees were primarily due to
increases in REIT income of $2,138,000 and $1,399,000,  respectively. The impact
of the  increase  in REIT  income was  partially  offset by an  increase  in the
average  Ten-Year U.S.  Treasury Rate during the nine months ended September 30,
1997, as compared to the same period in 1996 which had the effect of raising the
threshold  above which  Incentive  Fees are paid.  The increase in Base Fees was
primarily due to the $4,801,000  acquisition of Blaylock bonds in March 1997 and
unrealized holding gains on the CMBS bonds causing the net carrying value of the
bonds to increase.

             The Company  incurred  $23,000 of Acquisition  Fees during the nine
months  ended  September  30,  1997,  relating to the  purchase of  interests in
Blaylock  Classes  B-3 and  B-4.  These  Acquisition  Fees are  capitalized  and
amortized over the life of the related bonds. No Acquisition  Fees were incurred
during the nine months ended September 30, 1996.

             General and  administrative  expenses of the Company were  $103,000
($.01 per share) and $348,000 ($.03 per share), respectively,  for the three and
nine months ended  September 30, 1997,  compared with $105,000  ($.01 per share)
and  $617,000  ($.06 per  share),  respectively,  for the same  periods in 1996.
General and  administrative  expenses  decreased  during the nine  months  ended
September  30,  1997,  compared  with the  same  period  in  1996,  due to lower
shareholder relations expenses, lower consulting and accounting expenses and the
elimination  of DER  expense  pursuant  to the May 1996  amendment  to the Stock
Option Plan.

             On May 30, 1996, the Company's  stockholders  approved an amendment
to the Stock Option Plan at their annual meeting permitting the Company to issue
shares of Common  Stock in the second  quarter  of 1996 to the  holders of stock
options  who  voluntarily  gave up their DERs.  The  amendment  also  eliminated
provisions  in the Stock Option Plan that would have  permitted  the issuance of
DERs in  connection  with stock options  granted in the future.  The issuance of
Common Stock in exchange  for the right to receive DERs  resulted in a one-time,
non-cash  charge to income of  $966,000  ($941,000  for the  issuance of 157,413
shares of Common  Stock plus  $25,000 of  transaction  costs)  during the second
quarter of 1996.

             During the nine months ended September 30, 1996,  interest  expense
on the Company's short-term notes payable was $5,000 ($.00 per share). There was
no interest  expense  during the nine  months  ended  September  30,  1997.  The
decrease is the result of repayment of  short-term  borrowings  during the first
half of 1996.

                                     - 12 -
<PAGE>

Dividend Distributions

             In September 1997, the Company declared a third quarter dividend of
$.17 per share which was paid on September 30, 1997, to  stockholders  of record
on  September  18,  1997.  This was the twelfth  consecutive  regular  quarterly
dividend of $.17 per share.

             As a result  of the  restructuring  of the  CMBS  bonds  and  other
transactions,  in November 1997,  the Company  announced that its regular fourth
quarter  1997  dividend  will be $.17 per share  plus a $.26 per  share  special
dividend.  Additionally,  the  Company  will pay a $.17 per share  capital  gain
distribution subject to tax on the stockholders at their applicable capital gain
tax rates.  These  distributions  add to a total fourth quarter 1997 dividend of
$.60 per share,  which will be paid on December 30,  1997,  to  stockholders  of
record on December 15, 1997.

             The Company  plans to invest the proceeds  from  restructuring  its
CMBS bond portfolio in cash equivalents until equity  investments in real estate
are acquired.  The returns from such interim investments are expected to be less
than the  Company's  historical  returns from its CMBS bonds.  Accordingly,  the
Company's quarterly dividends are expected to decline to $.13 per share in 1998,
assuming no reinvestment of the proceeds in real estate and consistent levels of
operating expenses and interim investment  returns.  However,  if the Company is
able to invest the  proceeds  in classes of real  estate  that  generate  higher
returns  than  those  earned  from the  interim  investments,  future  quarterly
dividends  may  improve  from  these  projected  levels.  See  "FORWARD  LOOKING
INFORMATION" below.

Reconciliation of REIT Income and Book Income

             The Company  computes its income in accordance  with the Code (REIT
income) and in accordance with GAAP (book income). As a REIT, the Company's REIT
income  is  the  basis  upon  which  the  Code  requires  the  Company  to  make
distributions to its stockholders.  However,  because the Company's Common Stock
is registered with the Securities and Exchange  Commission,  the Company is also
required to report its financial position and income in accordance with GAAP.

             During the three and nine months ended  September  30,  1997,  REIT
income exceeded book income by $1,640,000  ($.16 per share) and $1,961,000 ($.19
per share),  respectively.  Substantially  all of this difference is due to: (i)
the method of recording  credit losses,  which for REIT income  purposes are not
deducted  until they occur (as of September  30, 1997, no credit losses had been
realized)  and which for book income  purposes are  estimated and reflected as a
reduction  of revenues in the form of lower  discount  amortization  included in
interest  income from CMBS  bonds;  and (ii) the method of  amortizing  purchase
price  discounts,   which  for  REIT  income  purposes  is  subject  to  certain
limitations not applicable for book income purposes.

             For the three and nine months ended September 30, 1997, the Company
earned book income  computed in  accordance  with GAAP of  $2,484,000  ($.24 per
share) and $6,029,000 ($.58 per share),  respectively,  compared with $1,765,000
($.17 per share) and  $5,364,000  ($.52 per share),  respectively,  for the same
periods in 1996.  The variances in book income  between 1997 and 1996 are due to
reasons  previously  discussed.  However,  because of the  different  methods of
amortizing purchase price discounts for GAAP and REIT purposes, the redemptions,
prepayments  and  purchases of CMBS bonds noted above caused GAAP  revenues from
CMBS bonds for the three and nine months ended  September  30, 1997, to increase
by $887,000  and  decrease by  $428,000,  respectively,  as compared to the same
periods in 1996.

                                     - 13 -
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

             The Company uses its cash flows from operating activities and other
capital  resources to provide  working  capital to support its  operations,  for
making  distributions  to its  stockholders,  for the  acquisition  of portfolio
assets and for the repayment of short-term borrowings. For the nine months ended
September 30, 1997 and 1996,  cash flows provided by operating  activities  were
$5,098,000 and $4,130,000,  respectively.  As of September 30, 1997, the Company
had $3,335,000 in cash and cash equivalents.

             In November  1997, the Company  restructured  its portfolio of CMBS
bonds by  selling  nine CMBS  bonds,  resecuritizing  two CMBS  bonds and having
redeeming the remaining CMBS bonds redeemed by the issuer. The net proceeds from
these transactions were approximately $77,000,000.

             The Company's Loan and Security  Agreement  collateralized  by four
CMBS bonds (FNMA  94-M2C,  FNMA  94-M2D,  Kidder  94-M1C and Kidder  94-M1D) was
cancelled in November 1997 upon the sale and resecuritization of these bonds. No
borrowings  were  outstanding on this line at September 30, 1997 or December 31,
1996.

             The Company  also has an  unsecured  line of credit with a bank for
$1,000,000.  Advances  under  this  line  bear  interest  at  prime.  Two of the
Company's  Independent  Directors are members of the Advisory Board of the bank.
At September  30, 1997 and December 31, 1996, no advances  were  outstanding  on
this line of credit.

             The Company is currently  evaluating its  investment  opportunities
for the proceeds  from  restructuring  its  portfolio.  Its plans are to acquire
equity  interests in real estate,  but the specific class of real estate has not
yet been  determined.  The  Company  believes  that even though the cash on cash
returns to be earned from equity  interests  in real estate may be less than the
returns earned on the portfolio of subordinate classes of CMBS bonds, the change
in portfolio assets will reduce the Company's  exposure to credit risks and may,
under  certain  circumstances,  result in  increased  opportunities  for capital
appreciation  of the real estate  assets  acquired.  There is no  assurance  the
Company will be able to identify new asset acquisition  opportunities  that meet
the Company's acquisition criteria. See "FORWARD LOOKING INFORMATION" below.

             Until the Company invests in equity  interests in real estate,  the
proceeds from the  restructuring  of the CMBS bond portfolio will be invested in
cash equivalents.  As a result,  the Company  anticipates that earnings and cash
flow will be lower than 1996 and the first  nine  months of 1997.  See  "FORWARD
LOOKING INFORMATION" below.

             As a  REIT,  the  Company  is  required,  among  other  things,  to
distribute annually to its stockholders at least 85% of ordinary REIT income and
95% of capital gains income.  The dividends must be declared during the tax year
and  distributed  by January 31 of the  subsequent  year. The remaining REIT and
capital  gains  income is  required  to be  distributed  prior to filing the tax
return for the year. To meet these  requirements,  in November 1997, the Company
declared  a total  fourth  quarter  dividend  of $.60 per share  comprised  of a
regular  dividend of $.17 per share, a special dividend of $.26 per share, and a
capital gain distribution of $.17 per share.  Undistributed earnings at December
31, 1997, after distribution of the fourth quarter dividend,  are expected to be
$1,121,000 or $.11 per share and will be  distributed in 1998. By qualifying for
the  favorable  tax  treatment  accorded  to a REIT and by  distributing  to its
stockholders  100% of the Company's REIT income,  the Company generally will not


                                     - 14 -
<PAGE>

be required  to pay income tax at the  corporate  level.  See  "FORWARD  LOOKING
INFORMATION" below.

                           FORWARD LOOKING INFORMATION

         The statements  contained in this Form 10-Q  Quarterly  Report that are
not  historical  facts are  forward-looking  statements  within  the  meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange  Act of 1934.  These  forward-looking  statements  are based on current
expectations,  estimates and projections about the industry and markets in which
the Company operates,  management's  beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates,"  variations of such words and similar  expressions  are intended to
identify such forward-looking statements. These statements are not guarantees of
future  performance  and involve  certain risks,  uncertainties  and assumptions
which are  difficult  to predict.  Therefore,  actual  outcomes  and results may
differ  materially from what is expressed or forecasted in such  forward-looking
statements.  Operating  results depend primarily on income from equity interests
in  real  estate,   cash  equivalents  and  CMBS  bonds,  which,  in  turn,  are
substantially  influenced  by the risks  inherent  on owning real estate or debt
secured by real estate  including,  among other  things:  (i) the demand for and
supply of real estate assets, which meet the Company's investment criteria; (ii)
operating  expense  levels;  (iii)  interest rate levels;  and (iv) the pace and
price at which the Company can acquire or develop  real estate  assets.  Capital
and credit market conditions,  which affect the Company's cost of capital,  also
influence operating results.

                                     PART II
                                OTHER INFORMATION



Item 6.           EXHIBITS AND REPORTS ON FORM 8-K.

           (a)    Exhibits:

Exhibit No.       Description

     27           Financial Data Schedule.


           (b)    Reports on Form 8-K:

                  No Current  Reports  on Form 8-K were filed by the  Registrant
                  during the period  covered  by this  Quarterly  Report on Form
                  10-Q.







                                     - 15 -
<PAGE>




                                    SIGNATURE

             Pursuant to the  requirements  of the  Securities  Exchange  Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                                              COMMERCIAL ASSETS, INC.
                                              (Registrant)



Date:  November 10, 1997                      By  /s/ Diane Schott Armstrong
                                                ----------------------------
                                                Diane Schott Armstrong
                                                Controller


                                     - 16 -