U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to________.
Commission file number 0-2864
DIVERSIFIED REALTY, INC.
(Exact name of small business issuer as specified in its charter)
Montana 81-0268110
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
128 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices)
(406) 727-2600
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Class Outstanding at March 31, 2004
$.10 Par Value Common Stock 5,366,841 Shares
Transitional Small Business Disclosure Format(Check One): Yes ; No X.
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DIVERSIFIED REALTY, INC.
FORM 10-QSB INDEX
MARCH 31, 2004
Page Number
PART I
Condensed Financial Statements:
Balance Sheet March 31, 2004 2
Statements of Income and Comprehensive Income -
Three Months Ended March 31, 2004 and 2003 3
Statements of Cash Flows -
Three Months Ended March 31, 2004 and 2003 4
Notes to Financial Statements 5
Management's Discussion and Analysis
of the Statements of Income 6
Controls and Procedures 7
PART II
Other Information 8-9
Signatures 10
Exhibits 11-17
1
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DIVERSIFIED REALTY, INC.
BALANCE SHEET
AS OF MARCH 31, 2004
(Unaudited)
ASSETS
Current Assets
Cash $ 2,254,800
Marketable Securities 3,502
Accounts Receivable 52
Due From Parent Company 113,951
Prepaid Expenses 3,108
Total Current Assets 2,375,413
Property, Plant and Equipment, Net 170,026
Other Assets
Long-Term Deferred Tax Asset 6,600
Total Assets $ 2,552,039
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued
Liabilities $ 21,211
Current Deferred Income Taxes 1,427
Total Current Liabilities 22,638
Stockholders' Equity
Common Stock, $.10 Par Value,
11,000,000 shares authorized,
5,366,841 shares issued &
outstanding 536,684
Additional Paid-In-Capital 1,926,971
Retained Earnings 63,671
Accumulated Other Comprehensive
Income 2,075
Total Stockholders' Equity 2,529,401
Total Liabilities and
Stockholders' Equity $ 2,552,039
See Notes to Financial Statements.
2
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DIVERSIFIED REALTY, INC.
STATEMENTS OF INCOME
(Unaudited)
For The Three Months
Ended
March 31,
2004 2003
Operating Revenues $ 20,895 $ 21,729
Operating Expenses 21,994 13,297
Operating Income(Loss) (1,099) 8,432
Income Tax (Expense) Benefit 2,548 (1,875)
Net Income $ 1,449 $ 6,557
Other Comprehensive
Income(Loss)
Net of Income Taxes:
Unrealized Holding
Gains(Losses) 126 36
Comprehensive Income $ 1,575 $ 6,593
Basic Earnings Per Share$ 0.0003 0.0012
Weighted Average Shares 5,366,937 5,367,760
See Notes to Financial Statements.
3
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DIVERSIFIED REALTY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For The Three Months
Ended
March,
2004 2003
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Cash From Operations $ 12,407 $ 16,701
Income Taxes (Paid) in Cash (500) 0
Net Cash Provided By 11,907 16,701
Operating Activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Repurchase of Common Stock (133) (22)
Net Cash Advances
From (To) Parent Company 0 600
Net Cash Provided (Used) By
Financing Activities (133) 578
NET INCREASE IN CASH 11,774 17,279
CASH - BEGINNING OF PERIOD 2,243,026 2,237,202
CASH - END OF PERIOD $ 2,254,800 $ 2,254,481
See Notes to Financial Statements.
4
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DIVERSIFIED REALTY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2004
Note 1. Basis of Presentation
In the opinion of management, all adjustments necessary (consisting
of only normal recurring accruals) have been made to the unaudited
financial statements to present fairly the financial position as of
March 31, 2004 and the results of the Company's operations for the
three months ended March 31, 2004 and 2003 and cash flows for the
three months ended March 31, 2004 and 2003. The results of
perations for the three months ended March 31, 2004 and 2003 are
not necessarily indicative of the results to be expected for the
full year.
Parent - M Corp, Great Falls, Montana owns approximately 95% of the
outstanding shares of the Company.
Note 2. Significant Accounting Policies
For purposes of the statements of cash flows, cash equivalents
include time deposits, certificates of deposit and money market
accounts, all with original maturities of three months or less.
Comprehensive income includes net income, as well as other changes
in stockholder's equity that result from transactions and economic
events other than those with stockholders. The Company's only
significant element of other comprehensive income is unrealized
gains and losses on available-for-sale securities.
Basic earnings per share (EPS) is calculated by dividing net income
by the weighted number of common shares outstanding for the period.
Note 3. Contingencies
The Board of Directors has approved the Company's participation in
an attempt to purchase a savings and loan institution. The Company
will participate in the purchase with its parent, M Corp. Should the
purchase take place, the liquidity of the Company will be
significantly affected.
The Board of Directors has approved a merger between a newly formed
company and Diversified Realty, Inc. in order to take the Company
private and such merger is pending. Schedule 13e-3 and Schedule
13e-3/A have been filed electronically with the Securities Exchange
Commission, and can be viewed at www.sec.com.
Note 4. Subsequent Event
Diversified Realty, Inc. owned one property, not operated as a
rental unit, in Clearwater, Florida which was listed for sale
as of March 31, 2004. On May 25, 2004 the Company sold this
property which is carried on the financial statements at a cost of
$122,000 with $60,938 in accumulated depreciation. The net
roceeds from the sale, $484,231, are currently being held by Asset
Preservation Inc. pending a like-kind exchange expected to occur
in the second or third quarter of 2004. The Company has not yet
identified the new property in connection with this exchange.
5
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DIVERSIFIED REALTY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE INCOME STATEMENT
March 31, 2004
A summary of the period-to-period changes in items included in
the statements of income is shown below.
COMPARISON OF
THREE MONTHS
ENDED
MARCH 31,
2004 AND 2003
Revenues $ (834) (3.8%)
Expenses 8,697 (65.4%)
Net Income (5,108) (77.9%)
Revenues decreased $834 (3.8%) in the first three months of 2004
as compared with the first three months of 2003 due to a 10.2%
decrease in interest revenues of $440 and a decrease in rental
income of $397 (2.3%). Operating expenses increased $8,697
(22.5%) in the first three months of 2004 as compared with the
first three months of 2003 due primarily to an increase in
travel and transportation expenses,an increase in insurance
rates, and an increase in personnel services expenses. The
provision for income tax expense decreased $4,423 (235.9%) in
the first three months of 2004 as compared with the first three
months of 2003 due to the decrease in operating income.
6
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DIVERSIFIED REALTY, INC.
CONTROLS AND PROCEDURES
MARCH 31, 2004
Evaluation of disclosure controls and procedures. Based on
an evaluation carried out under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer during the 90-day period
prior to the filing of this report, our Chief Executive Officer
and Chief Financial Officer believe that our disclosure controls
and procedures, as defined in Securities Exchange Act Rules 1
3a-14 and 15d-14, are, to the best of their knowledge, effective.
Changes in internal controls, subsequent to the date of this
evaluation. Our Chief Executive Officer and Chief Financial
Officer are not aware of any significant changes in our internal
controls over financial reporting, including any corrective
actions with regard to significant deficiencies and material
weakness, or in other factors that could significantly affect
these controls to ensure that information required to be
disclosed by us, in reports that we file or submit under the
Securities Act, is recorded, processed, summarized, and
reported within the time period specified in Securities and
Exchange Commission rules or regulations.
7
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DIVERSIFIED REALTY, INC.
PART II
OTHER INFORMATION
MARCH 31, 2004
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
8
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DIVERSIFIED REALTY, INC.
PART II
OTHER INFORMATION - CONTINUED
MARCH 31, 2004
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description Page #
3.1 Articles of Incorporation 11
3.2 By-Laws 11
10 Material Contracts 11
16 Letter on change in certifying accountant 12
31.1 Certification required under Section 302 13-14
31.2 Certification required under Section 302 15-16
32.1 Certification required under Section 906 17
32.2 Certification required under Section 906 17
(b) Reports on Form 8-K
On October 13, 2003, Dwyer & Company, CPA, PC, our independent
accountant, resigned, when the review for the period ending September
30, 2003 was completed. On February 23, 2004, we engaged Anderson
ZurMuehlen & Co., P.C. as our principal accountant to audit our
financial statements. The decision to change was approved by the
Board of Directors. Dwyer & Company, CPA, PC's report on the financial
statements for either of the past two years did not contain an adverse
opinion and was not modified as to uncertainty, audit scope or
accounting principles. A current report on Form 8-K was filed with the
SEC on February 24, 2004 regarding the change in auditors.
9
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SIGNATURES
In accordance with the requirements of section 13 or 15(d) of the
Exchange Act, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DIVERSIFIED REALTY, INC.
Registrant
Date: June 25, 2004
By: s/R. Bruce Robson
R. Bruce Robson,
President, Chairman of the Board
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities indicated on June 25, 2004.
Director s/Tyler Arneson
Tyler Arneson
Director s/S.M. McCann
S.M. McCann
Chief Financial Officer s/D. Mellinger
D. Mellinger
Chief Executive Officer s/Paul J. McCann
Paul J. McCann
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DIVERSIFIDIVERSIFIED REALTY, INC.
EXHIBIT 3.1
ARTICLES OF INCORPORATION
The Articles of Incorporation were signed on December 2, 1957.
There have been no amendments to the Articles of Incorporation
during the first fiscal quarter of 2004.
EXHIBIT 3.2
BY-LAWS
During the first quarter ending March 31, 2004, there were no
changes to the Diversified Realty, Inc. By-laws.
EXHIBIT 10
MATERIAL CONTRACTS
No material contracts were executed or became effective during
the first quarter of 2004.
11
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DIVERSIFIED REALTY, INC.
EXHIBIT 16
LETTER ON CHANGE IN CERTIFYING ACCOUNTANT
[DWYER & COMPANY, CPA, PC LETTERHEAD]
DWYER & COMPANY, CPA, PC [LOGO]
18 6TH street North, Suite 200, Great Falls, MT 59401
Phone (406) 453-2463 Fax (406) 727-3225
February 23, 2004
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
I have read the Form 8-K, item 4, for Diversified Realty,
Inc. (SEC File No. 0-2864) dated February 23, 2004, and I
agree with the statements made therein concerning my
resignation.
Sincerely,
/s/ Michael K. Dwyer, CPA
Michael K. Dwyer, CPA
12
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DIVERSIFIED REALTY, INC.
EXHIBIT 31.1
CERTIFICATION
I, Paul J. McCann, certify that:
1. I have reviewed this quarterly report on Form 10-QSB
of Diversified Realty, Inc.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in the quarterly report, fairly present in
all material respects the financial condition, results of operations
and cash flows of Diversified Realty, Inc., as of, and for, the
periods presented in this report.
4. Diversified Realty, Inc.'s other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) for Diversified Realty, Inc. and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to
Diversified Realty, Inc., including its consolidated subsidiaries,
is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Evaluated the effectiveness of Diversified Realty, Inc.'s
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the
period covered by this report based on such evaluation; and:
c. Disclosed in this report any change in Diversified Realty, Inc.'s
internal control over financial reporting that occurred during
Diversified Realty, Inc.'s first fiscal quarter that has materially
affected, or is reasonably likely to materially affect Diversified
Realty, Inc.'s internal control over financial reporting;
13
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DIVERSIFIED REALTY, INC.
EXHIBIT 31.1 - CONTINUED
CERTIFICATION
5. Diversified Realty Inc.'s other certifying officers and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to Diversified Realty, Inc.'s auditors
and the audit committee of Diversified Realty, Inc.'s Board of
Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect Diversified Realty,
Inc.'s ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Diversified Realty,
Inc.'s internal control over financial reporting.
Date: June 25, 2004 s/Paul J. McCann
Paul J. McCann,
Chief Executive Officer
14
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DIVERSIFIED REALTY, INC.
EXHIBIT 31.2
CERTIFICATION
I, D. Mellinger, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Diversified Realty, Inc.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in the quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of
Diversified Realty, Inc., as of, and for, the periods
presented in this report.
4. Diversified Realty, Inc.'s other certifying officers and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f) for Diversified Realty, Inc. and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to Diversified Realty, Inc., including its consolidated s
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
b. Evaluated the effectiveness of Diversified Realty, Inc.'s
disclosure control and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and:
c. Disclosed in this report any change in Diversified Realty,
Inc.'s internal control over financial reporting that occurred
during Diversified Realty, Inc.'s first fiscal quarter that
has materially affected, or is reasonably likely to materially
affect Diversified Realty, Inc.'s internal control over
financial reporting;
15
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DIVERSIFIED REALTY, INC.
EXHIBIT 31.2 - CONTINUED
CERTIFICATION
5. Diversified Realty Inc.'s other certifying officers and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to Diversified Realty, Inc.'s auditors
and the audit committee of Diversified Realty, Inc.'s Board of
Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect Diversified Realty, Inc.'s
ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Diversified Realty,
Inc.'s internal control over financial reporting.
Date: June 25, 2004 s/D. Mellinger
D. Mellinger,
Chief Financial Officer
16
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DIVERSIFIED REALTY, INC.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED UPRSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Diversified Realty, Inc.
on Form 10-QSB for the period ending March 31, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"),
I, Paul J. McCann, Chief Executive Officer of Diversified Realty, Inc.,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
and belief, that;
The report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of Diversified
Realty, Inc.
Date: June 25, 2004 s/Paul J. McCann
Paul J. McCann,
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED UPRSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Diversified Realty, Inc. on
Form 10-QSB for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
D. Mellinger, Chief Financial Officer of Diversified Realty, Inc., certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that;
The report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of Diversified
Realty, Inc.
Date: June 25, 2004 s/D. Mellinger
D. Mellinger,
Chief Financial Officer
17
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