mainbody

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from _________ to ________

Commission file number 000-30653

See accompanying notes

F-3

SECURED DIVERSIFIED INVESTMENT, LTD

Consolidated Statements of Stockholder Equity (Deficit)

For the year ended December 31, 2006

	Preferred Stock Series A				Preferred Stock Series B				Preferred Stock Series C				Common Stock				Additional Paid in		Unissued		Prepaid		Accumulated		Shareholders' Equity
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Capital		Shares		Consulting		Deficit		(Deficit)
Balance, December 31, 2004		353,918	$	3,539		8,044	$	80		12,500	$	125		750,849	$	751	$	8,462,836			$	(140,000)	$	(8,788,687)	$	(461,356)

Adjustment to share capital		-		-		-		-		-		-		-		8		(8)		-		-		-		-
Prepaid consulting		-		-		-		-		-		-		-		-		-		-		140,000		-		140,000
Shares issued for debt settlement		-		-		-		-		-		-		2,195		2		10,974		-		-		-		10,976
Shares issued for services		-		-		-		-		-		-		28,625		29		143,096		-		-		-		143,125
Shares to be issued for services		-		-		-		-		-		-		-		-		-		125,000		-		-		125,000
Shares issued for real estate settlement		-		-		-		-		-		-		938		1		18,749		-		-		-		18,766
Shares issued for real estate settlement		1,563		16		-		-		-		-		-		-		31,233		-		-		-		31,233
Shares cancelled		-		-		-		-		-		-		(1,250)		(1)		(36,749)		-		-		-		(36,750)
Shares cancelled		-		-		-		-		-		-		(12,500)		(13)		(5,003)		-		-		-		(5,000)
Options issued to directors		-		-		-		-		-		-		-		-		31,251		-		-		-		31,251
Warrants issued to President		-		-		-		-		-		-		-		-		15,663		-		-		-		15,663
Net income		-		-		-		-		-		-		-		-		-		-		-		793,828		793,828
Balance, December 31, 2005		355,480		3,555		8,044		80		12,500		125		768,857		777		8,672,041		125,000		-		(7,994,859)		806,735

Shares issued for services, previously unissued		6,250		63		-		-		-		-		-		-		124,937		(125,000)		-		-		-
Shares cancelled - Common stock		-		-		-		-		-		-		(2,037)		(2)		(11,248)		-		-		-		(11,250)
Shares cancelled - Preferred stock		-		-		-		-		(12,500)		(125)		-		-		(367,375)		-		-		-		(367,500)
Shares issued for conversion of Series C preferred stock		-		-		-		-		-		-		750,000		750		366,750		-		-		-		367,500
Shares to be issued for fractional shares adjustment		(5,752)		(58)		-		-		-		-		-		(8)		(5,694)		5,830		-		-		70
Shares issued to officers		-		-		-		-		-		-		600,000		600		17,400		-		-		-		18,000
Shares issued for consulting services		-		-		-		-		-		-		400,000		400		11,600		-		-		-		12,000
Shares issued to adjust for anti-dilution		-		-		-		-		-		-		380,000		380		(380)		-		-		-		-
Stock options expense		-		-		-		-		-		-		-		-		4,240		-		-		-		4,240
Net loss		-		-		-		-		-		-		-		-		-		-		-		(740,202)		(740,202)
Balance, December 31, 3006		355,978	$	3,559		8,044	$	80		-	$	-		2,896,820	$	2,897	$	8,812,272	$	5,830	$	-	$	(8,735,061)	$	89,577

See accompanying notes

F-4

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD

Consolidated Statements of Cash Flows

For the years ended December 31, 2006 and 2005

	2006		2005
Cash flows from operating activities:
Net income (loss)	$	(740,202)	$	793,827
Adjustment to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization		42,583		43,950
Minority interest		(25,254)		(36,070)
Impairment of real estate		248,137		214,977
Gain on equity investment		-		(104,837)
Gain on disposal of equity investment		(33,803)		(1,634,238)
(Gain) Loss on disposal of subsidiary		153,672		(342,646)
Loss on sale of note receivable		-		7,500
Gain on sale of real estate		-		(339,873)
Stocks issued for services		12,000		143,125
Shares issued for real estate settlement		-		49,999
Shares issued officers		18,000		-
Shares cancelled		(11,250)		(41,750)
Options granted		4,240		31,251
Warrants granted		-		15,663
Forgiveness of debt		(268,768)		(658,950)
Prepaid consulting		-		140,000
Unissued shares for real estate services		-		125,000
Increase (decrease) in assets and liabilities
Receivables		-		(163,161)
Prepaid expenses		(1,133)		3,708
Other assets		16,961		(216,881)
Accrued interest added to notes payable		15,042		27,513
Accounts payable and accrued expenses		(316,034)		259,109
Payroll liabilities		2,459		114,503
Net cash used by operating activities		(883,350)		(1,568,281)

Cash flow from investing activities:
Collection of notes receivable		-		71,000
Proceeds from sale of subsidiary, net of cash		-		639,357
Proceeds from (payment of) equipment and tenant improvements		-		1,000
Investment in real estate		(200,000)		-
Increase in restricted cash		574		-
Decrease in restricted cash		-		403,767
Proceeds from sale of real estate		-		1,869,044
Net cash (used in) provided by investing activities		(199,426)		2,984,168

Cash flows from financing activities:
Proceeds from line of credit		-		144,940
Payment of line of credit		-		(396,920)
Cash advanced to discontinued entity		(122,215)
Proceeds from notes receivable		32,277		(9,907.00)
Payment of mortgage payable		(19,805)		(246,310)
Payment of mortgage payable - related party		(25,000)		(60,000)
Proceeds on notes payable - related party		-		358,811
Payments on notes payable - related party		-		(2,526)
Proceeds from notes payable		-		(9,004)
Net cash used in financing activities		(134,743)		(220,916)

Net increase (decrease) in cash & cash equivalents		(1,217,519)		1,194,971

Cash & cash equivalents, beginning period		1,230,404		35,433

Cash & cash equivalents, end of period	$	12,885	$	1,230,404

Supplemental disclosures:
Cash paid for interest	$	104,592	$	144,134
Cash paid for income tax	$	800	$	800
Non-cash investing and financing activities:
Shares issued for debt	$	-	$	10,976

See accompanying notes

F-5

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

NOTE 1 - Basis of presentation and Going Concern

Basis of presentation:

The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for the presentation of financial information, and include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

Going concern:

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. However, the Company has accumulated deficit of $8,735,061 as of December 31, 2006. The Company reported net loss of $740,202 at December 31, 2006. Additionally, the Company reported cash of only $12,885 at December 31, 2006. The Company does not have adequate cash reserves to pay its existing obligations and does not appear to be able to raise the necessary capital to meet its obligations for the next 12 months. Since our inception we have been unsuccessful in pursing revenues with our investment properties. Several of our acquired properties, including the T-Rex Plaza, the Hospitality Inn, and the Katella Center, among others, were or became impaired assets that were underperforming. These properties were incapable of generating adequate revenues. A major contributing factor to the lack of revenues for these properties was high-cost of debt and ground lease obligations underlying these properties. The assets that sufficiently produced cash to service their obligations, but not sufficient cash to support the Company’s overhead, such as Decatur Center, Spencer Springs and the Cannery West, had to be sold to continue our operations, including the high costs associated with being a public company, in addition to absorbing the costs associated with our impaired assets. Current management has restructured the Company’s operations by selling many of its poorly performing properties and reducing the associated high cost of debt and ground leases. The Company significantly reduced overhead and rolled backed the stock in order to restructure the Company’s capital structure. As a result of the problems with our properties, our ability to raise capital was met with failure in several instances. Management continues with efforts to find business partners. Our company stands in financial jeopardy and may not continue as a going concern. We are not likely to raise capital and we are forced to consider other business opportunities.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 2 - Nature of Operations

The Company was incorporated under the laws of the state of Utah on November 22, 1978. On July 23, 2002, the shareholders approved a change in domicile from Utah to Nevada. In accordance with Nevada corporate law, a change of domicile is effected by merging the foreign corporation with and into

F-6

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

a Nevada corporation. On August 9, 2002, a merger between the Company and Book Corporation of America was completed. Upon completion of the merger Book Corporation of America was dissolved. On September 18, 2002, the OTCBB symbol for the Company’s common stock was changed from BCAM to SCDI. The shareholders also approved amendments to the Company’s Articles of Incorporation to change the par value of the Company’s Common Stock from $.005 to $.001 and to authorize 50,000,000 shares of Preferred Stock (Series A, B and C), par value $0.01. On November 15, 2002, the Company changed its fiscal year end from October 31 to December 31.

During 2002, the Company began pursuing the acquisition of ownership interests in real estate properties that are geographically and functionally diverse in order to be more stable and less susceptible to devaluation resulting from regional economic downturns and market shifts. Currently, the Company owns a shopping center in Orange, California; the Company also owns a single story office building in Newport Beach, California through its majority owned subsidiary Diversified Commercial Brokers, LLC. During the first quarter of 2006 the Company acquired two additional properties in Phoenix, Arizona.

NOTE 3 - Significant Accounting Policies

Consolidation. The accompanying consolidated financial statements include the accounts of the Company and its’ majority owned subsidiary, Diversified Commercial Brokers, LLC (53.8%). All material inter-company transactions and balances have been eliminated.

Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures; for example, the estimated useful lives of assets and the fair value of real property. Accordingly, actual results could differ from those estimates.

Credit and concentration risk. The Company maintains deposit accounts in numerous financial institutions. From time to time, cash deposits may exceed Federal Deposit Insurance Corporation limits. The Company maintains no certificates of deposit in excess of federal deposit insurance limits; however, the Company’s general operating account exceeds federal deposit insurance limits.

Revenue recognition. The Company’s revenues are derived from rental income. Rental revenues are recognized in the period services are provided.

As a lessor, the Company has retained substantially all of the risks and benefits of ownership of the Office Properties and account for our leases as operating leases. Income on leases, which includes scheduled increases in rental rates during the lease term and/or abated rent payments for various periods following the tenant’s lease commencement date, is recognized on a straight-line basis. Property leases generally provide for the reimbursement of annual increases in operating expenses above base year operating expenses (excess operating expenses), payable to the Company in equal installments throughout the year based on estimated increases. Any differences between the estimated increase and actual amounts incurred are adjusted at year end.

Cash and cash equivalents. The Company considers all short term, highly liquid investments, that are readily convertible to known amounts within ninety days as cash equivalents. The Company currently has no such investments.

Restricted cash. The Company is required by a lender to maintain a $70,000 deposit in a bank account at the lenders financial institution. The deposit and 1^st trust deed on real property serve as collateral for the loan. The deposit is returnable subject to the borrower meeting certain payment and financial reporting conditions.

F-7

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

Property and equipment. Property and equipment are depreciated over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the lease term or the estimated life of the asset. Depreciation and amortization is computed on the straight-line method. Repairs and maintenance are expensed as incurred.

Investments. The consolidated method of accounting is used for investments in associated companies in which the company’s interest is 50% or more. Under the consolidated method, the Company recognizes its share in the net earnings or losses of these associated companies as they occur rather than as dividends are received. Dividends received are accounted for as a reduction of the investment rather than as dividend income.

Fair value. The carrying value for cash, prepaid, and accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. Based upon the borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of long-term debt approximates its carrying value.

Long-lived assets. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

Issuance of shares for service. The Company accounts for the issuance of equity instruments to acquire goods and services. The stocks were valued at the average fair market value of the freely trading shares of the Company as quoted on OTCBB on the date of issuance.

Income (Loss) per share. Basic loss per share is based on the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. At December 31, 2006 and 2005, all potential common shares are excluded from the computation of diluted loss per share, as the effect of which was anti-dilutive.

Stock-based compensation. In October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The company uses the intrinsic value method prescribed by APB25 and has opted for the disclosure provisions of SFAS No.123.

In November of 2003, the Company adopted the 2003 Employee Stock Incentive Plan and the 2003 Non-Employee Director Stock Incentive Plan, (collectively the “2003 Plans”). The 2003 Plans authorized the

F-8

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

grant of stock options, restricted stock awards, stock in lieu of cash compensation and stock purchase rights covering up to a total of 15,000,000 shares of common stock to key employees, consultants, and members our Board of Directors and also provides for ongoing automatic grants of stock options to non-employee directors. Effective April 1, 2005, the 2003 Employee Plan had been eliminated. The officers rescinded their employment agreements thereby forgiving and rescinding their respective grant of options under the 2003 Employee Plan. The options were part of the 2003 employment agreements (see Footnote 12 Commitments and Contingencies Officer Employment Agreements). The former officers of the Company were collectively granted a total of $2,500,000 shares of which 1,250,000 were vested at December 31, 2004. The Company recorded the expense of the vested options at that date. However, a majority of the non-employee directors who received grants have resigned and were required to exercise such options within six months of resigning from the board or the options would expire and automatically cancel. All grants of stock options have expired and thus cancelled. There are no outstanding stock options as of December 31, 2006.

Gain recognition on sale of real estate assets. In accordance with SFAS No. 66, Accounting for Sales of Real Estate, the Company performs evaluations of each real estate sale to determine if full gain recognition is appropriate and of each sale or contribution of a property to a joint venture to determine if partial gain recognition is appropriate. The application of SFAS No. 66 can be complex and requires the Company to make assumptions including an assessment of whether the risks and rewards of ownership have been transferred, the extent of the purchaser’s investment in the property being sold, whether its receivables, if any, related to the sale are collectible and are subject to subordination, and the degree of its continuing involvement with the real estate asset after the sale. If full gain recognition is not appropriate, the Company accounts for the sale under an appropriate deferral method.

Income Taxes. Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income (loss). Valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Advertising. The Company expenses advertising costs as incurred.

Segment Reporting. Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related Information" requires use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

During 2005, the Company sold two improved real properties and our unimproved parcel of land located Dickinson, North Dakota and Las Vegas, Nevada. By the end of 2005, our remaining portfolio consisted of a 100% ownership interest in the Katella Business Center in Orange, California, and a 53.8% ownership interest in the Campus Drive Office Building in Newport Beach, California.

During the first quarter of 2006, the Company acquired investment interest in two separate properties in Arizona.

On January 6, 2006, the Company acquired a 25 percent Tenant-in-Common interest in a commercial property located in Paradise Valley, Arizona for $300,000. The tenant-in common partners include a director of the Company, 25 percent, and an unrelated third party, 50 percent and SDI 25%. The unrelated third party will be responsible for all costs of operation including, but not limited to, landscaping, maintenance, taxes, insurance, property management and debt payments.

On February 15, 2006, the Company acquired a 33.3 percent interest in a property located in Phoenix, Arizona for $200,000. The property consists of a 2,180 square foot structure on approximately 38,587

F-9

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

square feet of land. The Company’s interest was purchased from Ms Jan Wallace, an officer and director of the Company. The property will be used to house the Company’s headquarters. The Company is not responsible for any of the expenses and does not share in the revenue stream associated with these properties.

During the years ended December 31, 2006 and 2005, all of the Companies properties are located in California except for the investment properties which are located in Arizona. Properties in Arizona does not contribute to the income or expense stream of the Company.

Recent accounting pronouncements. In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company's first quarter of fiscal 2006. The Company believes that the adoption of this standard will have no material impact on its consolidated financial statements.

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the consolidated financial statements.

In March 2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:

1.	Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.

2.	Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.

3.	Permits an entity to choose ‘Amortization method’ or Fair value measurement method’ for each class of separately recognized servicing assets and servicing liabilities:

At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.

F-10

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

5.	Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.

This Statement is effective as of the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the consolidated financial statements.

In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.

In September 2006, the FASB issued SFAS 158 (“SFAS 158”), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. This statement requires an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This statement also requires an employer to measure the funded status of a plan as of the date of its year end statement of financial position, with limited exceptions. The Company will be required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year end statement of financial position is effective for fiscal years ending after December 15, 2008, or fiscal 2009 for the Company. Adoption of SFAS 158 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), "The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 will be effective for the Company on January 1, 2008. Adoption of SFAS 159 is not expected to have a material impact on the Company’s consolidated financial statements.

Reclassification

Certain items in the accompanied financial statements are reclassified for comparative purpose.

NOTE 4 - Property and Equipment

The Company acquires income-producing real estate assets in the normal course of business. During 2005, the Company sold a shopping center and vacant lot in Dickinson, North Dakota and a shopping center in Las Vegas, Nevada.

F-11

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

			Estimated Life
Buildings and improvements	$	1,648,037		39 years
Less accumulated depreciation		(116,376)
	$	1,531,661

Depreciation expense at December 31, 2006 and 2005 was $42,583 and $43,950, respectively. No interest was capitalized in either period.

During 2003, the Company acquired the T-Rex Plaza Mall and recognized an impairment loss of $448,000, representing the entire basis of the property, because the Company does not anticipate any future cash flows from existing leases. The impairment was included in “Other income (loss)” in the financial statements for the year ended December 31, 2003. On November 9, 2005, the Company sold the T-Rex Plaza Mall, Dickinson North Dakota, to an unrelated third party for total consideration of $274,840 which entailed $50,000 in cash and assumption of the underlying debt in the amount of $224,840. The Company was also released from the land lease obligation totaling $14,401 per month and the payment of property taxes in the amount of $27,834, including penalties, of which $10,039 was delinquent. The Company recorded a gain in the amount of $276,173. A commission of $5,000 was paid to Nationwide Commercial Brokers, Inc, a former subsidiary of the Company. The sale of the property netted no cash.

On October 18, 2005, the Company sold its vacant lot in Dickinson, North Dakota to Morgan Rose Investment, LLC for $110,000. The lot was acquired in connection with the sale of the Hotel in October 2004. The Company recognized a gain on the sale of the lot in the amount of $63,700. The sale of the lot resulted in the payoff of a mortgage and accrued interest to Prime Time Auctions in the amount of $61,475 and the Company netting $37,683 in cash.

During 2003, the Company acquired the Katella Business Center. The property is encumbered by a first trust deed in the amount of $370,000 bearing an interest rate of 11.5% per annum maturing June 25, 2007, and a second trust deed in the amount of $25,000 bearing an interest rate of 15% per annum. The second trust deed was paid off on January 19, 2006. In 2005, the Company recognized an impairment loss of $214,977, representing 45% of the property’s basis. The impairment was included in “Operating Expenses” in the financial statements for the year ended December 31, 2005. During 2006, the Company recognized an additional impairment loss of $248,137. In June 2007 the ground lease payment will increase to $4,760 per month with annual CPI increases, resulting in reduced cash flow of $2,300 per month. As a result of the impairments in 2005 and 2006 Katella Business Center is 100% impaired as of December 31, 2006.

NOTE 5 - Related Party Transactions

Seashore Diversified Investment Company (SDIC). Certain of the Company’s directors and officers were also directors and officers of SDIC and continue to be major shareholders of SDIC. During 2004, 2003 and 2002, SDIC advanced monies to the Company, of which $55,000 bearing interest at 9% is evidence by a note. The advance has matured and is due on demand. At December 31, 2005, the outstanding advances totaled $162,143 with $38,143 in accrued interest. However, while the Company has recorded the liability and accrued interest, it is not evidence by a written instrument. Further, SDIC, whose president and major shareholders were former officers and directors of the Company agreed and

F-12

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

acknowledge the forgiveness of all but $35,000 of the advances and accrued interest. This forgiveness was verbally granted in 2004 and again in 2005 and acknowledged in a letter dated December 13, 2005. However, in the same letter, SDIC retracted its forgiveness. SDIC has not confirmed the debt or provide the required documentation. As of December 31, 2006 the Company recognized debt forgiveness of $200,285.

Robert Leonard. In July 2005, the Company sold its entire interest in Nationwide Commercial Brokers, Inc. (“NCB”) to Robert J. Leonard, a large shareholder of the Company for $50,000. Prior to the sale, NCB had borrowed $20,000, due on demand, from Mr. Leonard during 2005 and 2004. The Company realized a loss of $21,352 from discontinued operations and a gain of $75,382 on the disposal of the subsidiary. On November 1, 2005, the Company relocated its offices to 5030 Campus Drive, Newport Beach, California, which is owned by the Company’s subsidiary, DCB. NCB assumed the Company’s former offices at 4940 Campus Drive indemnifying and holding the Company harmless from any and all claims, demands, causes of action, losses, costs (including without limitation reasonable court costs and attorneys’ fees), liabilities or damages of any kind or nature whatsoever that the Company may sustain by reason of NCB’s breach or non-fulfillment (whether by action or inaction), at any time. NCB breached the subject agreement with the Company.

Sutterfield Family Trust and C. Wayne Sutterfield (Sutterfield). At December 31, 2005, the Company owed Sutterfield, a former director and shareholder, two notes, $67,000 and $71,630 both secured by trust deeds on 5030 Campus Drive. The notes bear interest at 8% and mature on February 17 2007, and December 31, 2006, respectively. The Company is in default on the $71,630 note and subsequently on the other note of $67,000. Sutterfield is a minority owner in DCB. In addition to the interest payment on the 3^rd trust deed, the Company, pursuant to the terms of the operating agreement, pays Sutterfield a preferred return on his investment. Payments to Sutterfield in 2006 and 2005 totaled $14,034.40 and $22,177, respectively. There is also $25,003 in accrued interest payable. The Company retains the right to acquire all his interests in DCB. Pursuant to the operating agreement, the Company is responsible for any all cash flow deficiencies.

In December 2004, the Company sold 37% interest, equal to $350,000, in its Spencer Springs subsidiary to Biddle and Robert Leonard (large shareholder) for $200,000. In March 2005, the Company sold its remaining interest in Spencer Springs to Biddle for $577,777, comprised of $300,000 in cash and a promissory note for $277,777 accruing interest at 3% per annum, all due and payable on October 28, 2007. Biddle repaid the note, including accrued interest, in full on May 2, 2005. The note was secured by a $950,000 second trust deed on a shopping center located in Las Vegas, Nevada, formerly owned by the Company (Spencer Springs). The Company realized a income of $3,491 from discontinued operations and a gain of $285,125 on the disposal of the subsidiary.

Prime Time Auctions, Inc (Prime Time). Prime Time is a shareholder of the Company. To date there is one outstanding loan due Prime Time totaling $25,000 which bears interest at 15%, secured by the Katella Business Center and maturing January 1, 2006. The note was repaid in full including all accrued interest and late fees on January 19, 2006.

On October 23, 2006, the Company issued 400,000 bonus shares to its Chief Executive Officer and 200,000 bonus shares to its Chief Financial Officer. These shares were recorded at the fair market value close to the date of issuance and charged to operations.

NOTE 6 - Mortgages Payable

F-13

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

Mortgage note, bearing interest at 11.5%, due on June 25, 2007, secured by 1^st trust deed on Katella Center	$	370,000
Mortgage note, bearing interest at the “1 year constant maturity treasury rate” plus 3.5%, adjusting annually, currently 8.0%, principal and interest monthly, maturing February 2, 2013, secured by 1^st trust deed on 5030 Campus		661,174
Mortgage note, bearing interest at 8%, due on Feb. 4, 2008, secured by 2^nd trust deed on 5030 Campus		110,000
Total mortgages payable	$	1,141,174

Interest expense on the Mortgages payable amounted to $104,592 and $138,963 for the year ended December 31, 2006 and 2005, respectively.

NOTE 7 - Mortgages Payable - Related Parties

Mortgage note, bearing interest at 8%, due on Feb. 17, 2007, secured by 5030 Campus Drive	$	67,000
Mortgage note, bearing interest at 8%, due on Dec. 31, 2006, secured by 3^rd trust deed on 5030 Campus		71,630
Total mortgages payable- related parties	$	138,630

Interest expense on the Mortgages payable - related parties amounted to $31,441 and $38,521 for the year ended December 31, 2006 and 2005, respectively. The Company is in default on both the notes as of December 31, 2006.

NOTE 8 - Stockholders’ Equity

In February 2003, the Company created three series of preferred stock, all of which are convertible at the option of the holder: (1) Series A consisting of 7,500,000 shares with a par value of $0.01, a liquidation preference of $1.00 per share, convertible into an equal number of common shares 36 months after issuance, with the same voting rights as common stock; (2) Series B consisting of 20,000,000 shares with a par value of $0.01, a liquidation preference of $0.50 per share, and convertible into an equal number of common shares 24 months after issuance; and (3) Series C consisting of 22,500,000 shares with a par value of $0.01, a liquidation preference of $3.00 per share, and convertible into an equal number of common shares 24 months after issuance. In the event the price of common stock is less than the purchase price of the preferred stock on the conversion date, the holder is entitled to convert at a rate equal to the purchase price divided by the common stock price.

On August 19, 2004, the Company obtained a written consent from the holders of a majority of its outstanding shares of Common Stock and Series B Preferred Stock to amend the Certificate of Designation. Such consent amends the terms of the Series B Preferred Stock to permit the Board of Directors to permit conversion of the Series B Preferred Stock into Common Stock prior to the expiration of the two-year prohibition on conversion. All 250,000 shares of Series C Preferred Stock also consented to the amendment. The amendment to the Certificate of Designation became effective October 28, 2004. After approval to amend the Certificate of Designation, 5,839,479 shares of Series B Preferred Stock were converted to Common Stock.

On August 1, 2006, our Board of Directors resolved to amend the Articles of Incorporation pursuant to Nevada Revised Statues 78.207 to decrease the number of authorized shares of our common stock, par

F-14

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

value $.001, from 100,000,000 to 5,000,000 shares. Correspondingly, our Board of Directors affirmed a reverse split of twenty to one in which each shareholder will be issued one common share in exchange for each twenty common share of their currently issued common stock. At the same time and under the same authority, our Board of Directors resolved to amend the Articles of Incorporation to decrease the number of authorized shares of our preferred stock, par value $0.01, from 50,000,000 to 2,500,000 shares. Correspondingly, our Board of Directors affirmed a reverse split of twenty to one in which each shareholder will be issued one common share in exchange for each twenty common share of their currently issued common stock. A record date of August 14, 2006 was established in order to provide the NASD ten days notice pursuant to Rule 10b-17 of the Securities and Exchange Act of 1934 as amended. All shareholders of this record date will receive one share of our common stock for each twenty shares owned. These share certificates will be issued upon surrender. On August 1, 2006, we filed a Certificate of Amendment to the Articles of Incorporation with the Nevada Secretary of State to reflect the decrease in authorized shares. Under Nevada Revised Statutes 78.207, shareholder approval was not required.

On October 24, 2006, our Board of Directors unanimously approved an amendment of our Articles of Incorporation to increase our total authorized capital stock from 7,500,000 shares to 102,500,000 shares in connection with an increase in our authorized common stock from 5,000,000 shares to 100,000,000 shares. The amendment will not effect a change to our 2,500,000 shares of authorized preferred stock. On October 27, 2006, holders of a majority of the outstanding shares of voting capital stock executed a written stockholder consent approving the amendment.

All the issued and outstanding shares have been retroactively restated for the effect of the reverse stock split of 20:1.

During the year ended December 31, 2006 and 2005, the Company had the following equity transaction:

On February 2, 2006, Iomega converted its 250,000 shares of Series C Preferred Stock for 15,000,000 shares of the Company’s common stock. The shares were converted at a price of $0.05 per share.

On October 24, 2006, the Company issued 400,000 shares for consulting services. These shares were issued at the fair market value close to the date of issuance and charged to operations.

On May 17, 2005, the Company issued 938 shares of restricted common stock and 1,563 shares of Preferred Series A preferred stock for previously transacted real estate. The Series A and common shares were issued at a price of $0.05 per share.

On May 23, 2005, the Company issued 1250 restricted shares of common stock for public relations services. The shares were issued at market price of $0.013 per share.

On June 7, 2005, the Company issued 2,195 restricted shares of common stock for debt repayment. The shares were issued at market price of $0.013 per share.

On June 7, 2005, the Company issued 4,625 restricted shares of common stock for various real estate services. The shares were issued at market price of $0.013 per share.

On June 7, 2005 the Company issued 22,250 shares of restricted stock for consulting and public relation services. The shares were issued at market price of $0.013 per share.

On June 7, 2005, the Company issued 500 restricted shares of common stock for web design and internet services. The shares were issued at market price of $0.013 per share.

On September 9, 2005, the Chief Financial Officer returned 12,500 shares of common stock to the Company for cancellation and return to unissued and authorized shares. The shares were cancelled October 11, 2005.

On December 22, 2005, the Chief Executive Officer and President returned 1,250 shares of common stock to the Company for cancellation and return to unissued and authorized shares. The shares were cancelled January 14, 2006.

NOTE 9 - Stock Incentive Plans

F-15

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

In November 2003, the Board of Directors adopted and the Shareholders approved two stock incentive plans: the Secured Diversified Investment, Ltd. 2003 Employee Stock Incentive Plan (2003 Employee Plan) and the Secured Diversified Investment, Ltd. 2003 Non-employee Directors Stock Incentive Plan (2003 Directors Plan). The Plans authorized the grant of stock options, restricted stock awards, stock in lieu of cash compensation and stock purchase rights covering up to a total of 15,000,000 shares of common stock to key employees, consultants, and members our Board of Directors and also provides for ongoing automatic grants of stock options to non-employee directors. Effective April 1, 2005, The 2003 Employee Plan had been eliminated. The officers rescinded their employment agreements thereby forgiving the entire amount of their accrued salaries, shares issued and their grant of options under the 2003 Employee Plan. The former officers of the Company were collectively granted stock options totaling 2,500,000 shares of which 1,250,000 were vested at December 31, 2004. The Company recorded the expense of the vested options See Footnote 12 Commitments and Contingencies Officer Employment Agreements and Footnote 13 Litigation.

The 2003 Director Plan has also been eliminated in 2006. However, a majority of the non-employee directors who received grants have resigned and were required to exercise such options within six months of resignation or the options would expire and automatically cancel. At December 31, 2006, all grants of stock options have expired and been cancelled.

NOTE 10 - Warrants

At December 31, 2006, the Company had the following subscriptions for warrants outstanding:

Date	Number of Warrants	Exercise Price	Expiration Date
April 4, 2005	400,000	Range from $0.50 to $2.00	April 4, 2010

Following is a summary of the warrant activity:

	Warrants Outstanding		Aggregate Intrinsic Value
Outstanding at December 31, 2005		400,000	$	-
Granted		-
Forfeited		-
Exercised		-
Outstanding at December 31, 2006		400,000	$	-

Following is a summary of the status of warrants outstanding at December 31, 2006:

Outstanding Warrants			Exercisable Warrants
Exercise Price	Number	Remaining Contractual Life	Weighted Average Exercise Price	Number	Weighted Average Exercise Price
$ 0.50 - $2.00	400,000	3.25 years	$ 1.25	75,000	$1.25

F-16

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

At December 31, 2005, the Company recorded an expense of $15,663.

The fair value was calculated using the Black-Scholes option pricing model assuming no dividends, a risk-free interest rate of 6.5%, an expected life of 5 years and expected volatility of 100%.

NOTE 11 - Stock Options

On April 7, 2006, the Company settled its litigation with Luis Leon. The settlement included a grant of 7,500 (adjusted for post split effect) stock options. The Company adopted 2006 stock option plan in June 2006 and on August 8, 2006 issued 7,500 (adjusted for post split effect) options at a strike price of $0.01 to Luis Leon under the ‘2006 Stock Option Plan of Secured Diversified Investment, Ltd.

As of December 31, 2006, the following is a summary of the stock option activity:

	Options Outstanding		Weighted Average Exercise Price		Agregate Intrinsic Value
Outstanding at December 31, 2005	-	$	-	$	-
Granted	7,500	$	0.01		-
Forfeited	-		-		-
Exercised	-		-		-
Expired	(7,500)
Outstanding at December 31, 2006	-	$	-	$	-

As of December 31, 2006 the Company recorded $4,240 in stock options expense.

The fair value was calculated using the Black-Scholes option pricing model assuming no dividends, a risk-free interest rate of 6.5%, an expected life of 0.6 years and expected volatility of 100%.

NOTE 11 - Loss Per Share

Following is a reconciliation of net income (loss) and weighted average number of shares outstanding, in the computation of income (loss) per share for the years ended December 31, 2006 and 2005.

F-17

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

	2006		2005
Net income (loss)	$	(740,202)	$	793,828
Less preferred stock dividends		-		-

Net income (loss) available to common shareholders	$	(740,202)	$	793,828

Basic weighted average shares outstanding		1,697,249		765,278
Dilutive potential common shares		-		397,000
Diluted weighted average shares outstanding		1,697,249		1,162,278

Basic weighted net income (loss) per share	$	(0.44)	$	1.04
Basic and diluted net income (loss) per share	$	(0.44)	$	0.68

Potential common shares excluded from diluted weighted average shares outstanding because of their anti-dilutive nature:
Convertible Series A, B and C preferred stock and warrants granted, not yet exercised		620,000		20,000
		620,000		20,000

NOTE 12 - Commitment and Contingencies

Lease agreements. The Company is obligated under various ground leases (Katella Center and 5030 Campus). Future ground lease payments will be adjusted by a percentage of the fair market value of the land.

Future annual minimum lease payments and principal payments under existing agreements are as follows:

	3rd Party Lease Obligation		Related Party Debt		3rd Party Debt		Officer Salaries		Total
2007	92,472		67,000		370,000		21,000		550,472
2008	92,472		-		110,000		-		202,472
2009	92,472		-		22,764		-		115,236
2010	92,472		-		22,764		-		115,236
2011	92,472		-		22,764		-		115,236
	$	369,888	$	67,000	$	525,528	$	21,000	$	983,416

The lease expenses were $79,290 and $222,657 for the year ended December 31, 2006 and 2005, respectively.

On November 1, 2005, the Company relocated its offices to 5030 Campus Drive, Newport Beach, California. 5030 Campus is owned by the Company’s subsidiary, Diversified Commercial Brokers. Nationwide Commercial Brokers, a former subsidiary of the Company owned by Robert Leonard a major shareholder of the Company, assumed the Company’s former offices at 4940 Campus Drive and

F-18

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

indemnify and hold the Company harmless from any and all claims, demands, causes of action, losses, costs (including without limitation reasonable court costs and attorneys’ fees), liabilities or damages of any kind or nature whatsoever that the Company may sustain by reason of Nationwide Commercial Brokers’ breach or non-fulfillment (whether by action or inaction), at any time. Nationwide has breached the agreement.

Officer employment agreements. During 2003, the Company executed employment agreements with its officers that extend through 2006. On May 11, 2005 and effective April 1, 2005, the officers have rescinded their employment agreements and forgiven the entire amount of their accrued salaries and their respective grant of options under the Company’s 2003 Employee Stock Incentive Plan. The Company entered into new employment agreements with the officers. Shares and stock options issued under the previous agreements will be rescinded. The employment agreements will provide for a reduced issuance of common stock and options vesting over the term of the agreement. Since then three officers have agreed to resign, and the Company has decided to set aside $177,000 in contingent liabilities as potential payout and settlement to these officers. The Company is now in a dispute with these former officers (See Note 13 - Litigation).

Unpaid taxes. The Company has not paid approximately $19,909 in property taxes and penalties on 5030 Campus Drive. These amounts are currently delinquent. At December 31, 2006, the Company had $3,465 in unpaid payroll tax liabilities. These payroll tax liabilities have been paid subsequent to December 31, 2006.

NOTE 13 - Litigation

On January 11, 2005, the Company terminated the employment of Luis Leon, formerly the Chief Executive Officer of the Company. On April 6, 2005, Luis Leon filed a complain against the Company in the Superior Court of California, County of Orange, alleging causes of action for breach of contract, promissory estoppels, intentional misrepresentation, violations of the California Labor Code. The Complaint seeks damages in an amount including $116,359 of unpaid salary, $16,667 for one month unpaid vacation time, $5,548.27 for unpaid insurance benefits through August 15, 2005, reimbursable expenses of $288 plus a statutory penalty of $16,666. Mr. Leon also seeks a grant of options to purchase 250,000 of Company Common Stock. On April 7, 2006, the Company settled its litigation with former CEO Luis Leon. The matter was settled for $65,000 and a grant of options for 7,500 shares at a strike price of $0.01 per share. Each party will be responsible for its respective legal costs. The Company recorded stock options expense of $4,240 during the year ended December 31, 2006.

On January 13, 2006, Alliance Title Company, Inc. (“Alliance”) filed a complaint in the matter of Alliance Title Company, Inc. v. Secured Diversified Investment, Ltd. (case no. 06CC02129) in the Superior Court of California, County of Orange. The complaint alleges that Alliance, our escrow agent, was entrusted with $267,000 pursuant to escrow instructions, and that a mutual written agreement among the parties to the escrow was required to properly disperse the funds. Alliance further alleges that no instructions were provided to disperse the funds, but instead, competing claims for the funds were made by Secured Diversified Investment, Ltd., Clifford L. Strand, William S. Biddle, Gernot Trolf, Nationwide Commercial Brokers, Inc., and Prime Time Auctions, Inc. Alliance has deposited the funds with the court and has asked for a declaration of rights regarding the funds. Alliance has requested that its reasonable costs and attorney’s fees be paid from the deposited funds.

This matter was dismissed by Alliance Title Company in open court in February 2007.

The Company received $33,803 as its share out of the funds and recognized as gain on equity

F-19

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

investment as of December 31, 2006.

On January 20, 2006, Clifford L. Strand, William S. Biddle, Gernot Trolf, our former management, and Nationwide Commercial Brokers, Inc., our former subsidiary (collectively, “Plaintiffs”), filed a complaint in the matter of Clifford L. Strand v. Secured Diversified Investment, Ltd. (case no. 06CC02350) in the Superior Court of California, County of Orange. The complaint contains causes of action for fraud and misrepresentation, negligent misrepresentation, breach of contract, breach of the covenant of good faith and fair dealing, conversion, common counts, money had and received, and declaratory relief. These allegations arise out of the hold over of funds at issue in Alliance Title Company, Inc. v. Secured Diversified Investment, Ltd. (case no. 06CC02129), described above. To date, however, the matters have not been consolidated. The Company has set aside $177,000 in contingent liabilities as potential payout and settlement to these officers. As of December 31, 2006 the Company paid $45,000 to William S. Biddle and $42,000 to Gernot Trolf.

This matter has been settled as of April 5, 2007 (See note 20 for details)

On March 10, 2006, some of our shareholders, including Clifford L. Strand, Robert J. Leonard, William S. Biddle, and Gernot Trolf (collectively, “Plaintiffs”) filed a complaint in the matter of William S. Biddle v. Secured Diversified Investment, Ltd. (case no. 06CC03959) in the Superior Court of California, County of Orange. Plaintiff seek declaratory relief as to whether we are a foreign corporation under California Corporation Code Section 2115(a) and whether Plaintiff’s alleged demand for our shareholder list and for an inspection of the accounting books and records and minutes of shareholders , board of directors and committees of such board is governed under California Corporation Code Sections 1600 and 1601. The Company is contesting this case vigorously and is proceeding with discovery. At this time, the Company cannot make any evaluation of the outcome of this litigation.

NOTE 14 -Equity Investments in Real Estate

The Company entered into a tenant-in-common agreement on May 14, 2004 with Denver Fund, I to purchase a shopping center in Las Vegas, Nevada. The Company owned a 51% interest in the property and accounts for this interest under the equity method. Both parties to the agreement are jointly and severally liable for the obligations of the property and share in management decisions. The agreement provided the minority tenant with a preferential return on profits while operating losses are allocated based upon the pro-rata ownership interest. The shopping center was sold December 2, 2005 and the Company realized a gain of $1,634,238.

For the year ended December 31, 2005, the property generated total revenues of $748,898 and a net operating loss of $806,807 attributable to a sales commission of $540,000 and a loan prepayment penalty of $300,518 upon sale of the property. The sale of the property generated a gain of $3,204,388. The Company’s 51% of gain on sale totaled $1,634,238, which is included in other income and losses in the accompanying consolidated statements of operations. The Company recorded a gain on equity investment of $104,837 and netted $1,831,361 in cash.

Note 15 - Sale of a Subsidiary

Spencer Springs - In March 2005, the Company sold its remaining interest in Spencer Springs to William S. Biddle, who at the time was an officer and director of the Company, for $577,777, $300,000 in cash and a promissory note for $277,777 accruing interest at 3% per annum, all due and payable on October 28, 2007. The note was secured by a $950,000 second trust deed on Spencer Springs Retail Center located in Las Vegas, Nevada, formerly owned by the Company. On May 2, 2005, Biddle paid off the outstanding obligation plus all interest. As a result of the sale the Company recorded a gain on

F-20

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

disposal of $290,161. Previously, in December 2004, the Company sold a 37%, or $350,000, interest in Spencer Springs for $200,000 to Biddle and Robert Leonard, a shareholder.

Nationwide Commercial Brokers Incorporated - In July 2005, the Company sold its entire interest in Nationwide Commercial Brokers to Robert J. Leonard, a shareholder of the Company for $50,000. The Company realized a loss of $21,352 from discontinued operations and a gain of $75,382 on the disposal of the subsidiary.

Diversified Commercial Mortgage Corp. - In July 2005, the Company sold its entire interest in Diversified Commercial Mortgage, Inc. to Nationwide Commercial Brokers for $1,000. Diversified Commercial Brokers was dormant since inception and had no operating history, assets or liabilities. The Company realized a gain of $975 on the disposal of the subsidiary.

During 2006 the Company established a new wholly owned subsidiary, Secured Lending, LLC, to engage in mortgage banking activities in the state of Arizona. The new subsidiary was incorporated on June 15^th, 2006 and it began funding loans in July. However, Secured Lending was not able to sustain its mortgage banking activities and these relationships were mutually terminated. The Company discontinued its mortgage banking activity at December 31, 2006. The Company recognized a loss of $153,672 as a result of discontinued operations and recorded net assets held for sale of $23,544.

Note 16 - Note Receivable

In 2005, the Company accepted payment of $42,500 on an original note in the amount of $50,000 secured by a second trust deed on a commercial property located in Alexandria, Minnesota. The Company recorded a loss of $7,500 on the short payment.

The Company was a holder of a promissory note secured by a first mortgage deed on a single family residence in the amount of $33,798. The Company sold the note to an unrelated party in March 2005 for $28,000. The loss of $5,798 was included in loss on sale of notes in the accompanying financial statements as of December 31, 2005.

NOTE 17 - Notes Payable

On October 18, 2005, the Company sold its vacant lot in Dickinson, North Dakota to Morgan Rose Investment, LLC for $110,000 and recorded a gain of $63,700. The sale of the lot resulted in the payoff of a mortgage to Prime Time Auctions, a shareholder, in the amount of $60,000, bearing an interest rate of 15 percent per annum, plus any remaining accrued interest. The Company netted $37,683 in cash

On November 9, 2005, the Company sold the T-Rex Plaza Mall, Dickinson North Dakota, to an unrelated third party for total consideration of $274, 840. The Company received $50,000 and the remainder was used to pay off an existing loan secured by the property. The sale of the property resulted in a reduction of secured debt with an outstanding balance of $224,840, bearing an interest rate of 12 percent per annum, and a release from the land lease obligation totaling $14,401 per month. Because the property was 100% impaired, the Company recorded a gain on sale of $276,173. The Company netted no cash from the sale of the property.

On December 2, 2005, the Company sold the Cannery West Shopping Center, Las Vegas, Nevada. The sale of the property results in the pay off of a $4,019,672 note bearing an interest rate of 7.52 percent per annum secured by a first trust deed. The payoff of the note resulted in a prepayment penalty of $300,518. The sale also resulted in the payoff of a $50,000 note bearing an interest rate of 18 percent per annum to the Sutterfield Family Trust of which the trustee Wayne Sutterfield is a shareholder and former director.

Note 18 - Forgiveness of Debt

During 2003, the Company executed employment agreements with its officers that extend through 2006. On May 11, 2005 and effective April 1, 2005, the officers have rescinded their employment agreements

F-21

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

and forgiven the entire amount of their accrued salaries. The accrued salaries forgiven totaled $658,950:

The forgiveness of the accrued salaries also resulted in the reversal of $56,672 in accrued payroll tax expense.

During 2006 the Company recorded debt forgiveness of $268,768 against reversal of various old debts which passed statute of limitations.

Note 19 - Income Taxes

No provision was made for Federal income tax for the year ended December 31, 2006 and 2005, since the Company had significant net operating loss. For the year ended December 31, 2006, the Company incurred net loss carry forward for tax purposes of $2,990,000. However, for the year ended December 31, 2005 the Company incurred net loss carry forward for tax purposes of approximately $2,498,000. The net operating losses carry forwards may be used to reduce taxable income through the year 2025. The availability of the Company’s net operating loss carry forwards are subject to limitation if there is a 50% or more positive change in the ownership of the Company’s stock. The provision for income taxes consists of the state minimum tax imposed on corporations.

Temporary differences that give rise to deferred tax assets and liabilities at December 31, 2006 and 2005, comprised of depreciation and amortization and net operating loss carry forward. The gross deferred tax asset balance as of December 31, 2006 is approximately $2,050,258. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry forwards cannot reasonably be assured.

The components of the net deferred tax asset are summarized below:

	December 31, 2006		December 31, 2005
Deferred tax asset
Net operating losses	$	2,050,258	$	1,710 000
Less: valuation allowance		(2,050,258)		(1,710,000)
	$	-	$	-

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

	December 31, 2006		December 31, 2005

Tax expense (credit) at statutory rate-federal		(34) %		(34) %
State tax expense net of federal tax		(6)		(6)
Changes in valuation allowance		40		40
Tax expense at actual rate		-		-

Income tax expense consisted of the following:

	2006		2005
Current tax expense:
Federal	$	-	$	-
State		800		800
Total Current	$	800	$	800

F-22

Table of Contents

SECURED DIVERSIFIED INVESTMENT, LTD.

Notes to Consolidated Financial Statements

Deferred tax credit:
Federal	$	153,000	$	313,000
State		44,000		89,000
Total deferred	$	197,000	$	402,000
Less: valuation allowance		(197,000)		(402,000)
Net Deferred tax credit		-		-
Tax expense	$	800	$	800

Note 20 - Subsequent Events

On February 17, 2006, the $67,000 note, secured by 5030 Campus Drive, payable to the Sutterfield Family Trust (Wayne Sutterfield) matured. The note is in default.

On April 29, 2007, the Company’s subsidiary Diversified Commercial Brokers, LLC, opened escrow to sell the office building located at 5030 Campus Drive, Newport Beach, California. The sales price is $1,300,000.

On January 5, 2007, the Company entered into a Confidential Settlement and General Release Agreement (the “Settlement Agreement”) with Mr. Clifford L. Strand to resolve litigation in the matters of Clifford L. Strand v. Secured Diversified Investment, Ltd. (case no. 06CC02350) in the Superior Court of California, County of Orange, as well as other claims involving Mr. Strand and our company as set forth in the Agreement. The Settlement Agreement with Mr. Strand provides that a stipulation and order of disbursement will be filed on the remaining $89,998 as follows: $80,000 to Mr. Strand and $9,998 to our company. In addition, Mr. Strand expressly waived any and all rights he may have had in connection with reemployment with our company, and agreed to refrain from pursuing complaints against our company and our officers and directors in any court or government agency. Further, Mr. Strand granted an irrevocable proxy in connection with any shares of stock beneficially owned by him.

F-23

Table of Contents

Nevada	80-0068489
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

12202 North Scottsdale Road, Phoenix, AZ	85054
(Address of principal executive offices)	(Zip Code)

Issuer’s telephone number: 949 851-1069

Securities registered under Section 12(b) of the Exchange Act:
Title of each class	Name of each exchange on which registered
None	Not Applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001
(Title of class)

		Page
PART I
Item 1.	Description of Business	3
Item 2.	Description of Property	7
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	13
PART II
Item 5.	Market for Common Equity and Related Stockholder Matters	13
Item 6.	Management’s Discussion and Analysis or Plan of Operation	15
Item 7.	Financial Statements	22
Item 8.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	23
Item 8A.	Controls and Procedures	23
Item 8B.	Other Information	24
PART III
Item 9.	Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act	24
Item 10.	Executive Compensation	28
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 12.	Certain Relationships and Related Transactions	31
Item 13.	Exhibits	32
Item 14.	Principal Accountant Fees and Services	32

Property	Occupancy Rate	Average Rent/Sq. Ft.
The Katella Center*	100%	$1.34
Campus Drive Office Building	100%	$1.77
Lincoln Drive property	100%	$3.69
Cactus Road property	Vacant	N/A

Secured Diversified Investment, Ltd.
(Name of small business issuer in its charter)

Property	Year	Number of Leases Expiring	Total Square Footage of Expiring Leases	Total Annual Rental Covered by Expiring Leases	% of Gross Annual Rental
The Katella Center	2007 2008 2009 2010 2011	4 3 - - -	3,048 7,212 - - -	$50,715 $109,289 - -	27.2% 72.8% - - -
Campus Drive Office Building⁽¹⁾	2007 2008 2009 2010 2011	3 1 - 1 -	1,889 1,306 - 3,463 -	$56,760 $31,200 - $77,616 -	30.9% 16.5% - 42.2% -
Lincoln Drive property	2007 2008 2009 2010 2011	1 - 2 - -	1,024 - 3,391 - -	$36,000 - $159,600 - -	18.4% - 81.6% - -
Cactus Road property	N/A	N/A	N/A	N/A	N/A

Property	Tenants	Business	Sq. Ft. Rental (% of Total)	Rent/Sq. Ft.
The Katella Center	Strings by Judith Ted Nguyen Bloomers Cookies	Clothing mfg Remodelling Retail and Baking	4,445 / 46.0% 2,170 / 22.5% 1,262 / 13.1%	$1.30 $1.34 $1.37
Campus Drive Office Building	Borders & Associates Coast to Coast	Architects Copying Office	3,463 / 40.0% 1,306/ 15.1%	$1.97 $2.00
Lincoln Drive property	Joel D. Designs Fazoql Hague Showcase	Florists & Gift Shop Furniture Sales Furniture & Gift Shop	1,024 / 23.2% 1,472 / 33.3% 1,919 / 43.5%	$2.93 $4.96 $3.13
Cactus Road property	N/A	N/A	N/A	N/A

Fiscal Year Ending December 31, 2006
Quarter Ended	High $	Low $
March 31, 2006	0.1495	0.02
June 30, 2006	0.03	0.03
September 30, 2006	0.03	0
December 31, 2006	0.15	0

Fiscal Year Ended December 31, 2005
Quarter Ended	High $	Low $
March 31, 2005	0.45	0.30
June 30, 2005	0.30	0.25
September 30, 2005	0.25	0.25
December 31, 2005	0.25	0.05

	A	B	C
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))
Equity compensation plans approved by security holders	0	0	1,000,000
Equity compensation plans not approved by security holders	400,000	$0.50-$2.00	0
Total	400,000	$0.50-$2.00	1,000,000

Audited Financial Statements:
F-1	Report of Independent Registered Public Accounting Firm

F-2	Balance Sheet as of December 31, 2006

F-3	Statements of Operations - Years Ended December 31, 2006 and December 31, 2005

F-4	Statement of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2006 and December 31, 2005

F-5	Statements of Cash Flows for the Years Ended December 31, 2006 and December 31, 2005

F-6	Notes to Financial Statements

ASSETS

Properties, net of accumulated depreciation of $167,298	$	1,531,661
Cash and cash equivalents		12,885
Prepaid expenses		10,907
Restricted cash		72,288
Net assets held for sale		23,544
Total Assets	$	1,651,285

LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable	$	1,141,174
Mortgages payable, related parties		138,630
Notes payable, related parties		3,275
Interest payable		39,433
Payroll liabilities		3,465
Accounts payable, accrued expenses and other liabilities		145,861
Total Liabilities		1,471,838

Commitments & contingencies		-

Minority Interest		89,870

STOCKHOLDERS' EQUITY
Series A Preferred Stock, 375,000 shares authorized, $0.01 par value, 355,978 issued & outstanding		3,559
Series B Preferred Stock, 1,000,000 shares authorized, $0.01 par value, 8,044 issued & outstanding		80
Series C Preferred Stock, 1,125,000 shares authorized, $0.01 par value, none outstanding		-
Common Stock, 100,000,000 shares authorized, $0.001 par value, 2,896,820 issued and outstanding		2,897
Paid In Capital		8,812,272
Unissued Shares		5,830
Accumulated Deficit		(8,735,061)
Total Stockholders' equity		89,577
Total Liabilities & Stockholders' equity	$	1,651,285

	2006		2005
REVENUES
Rental income	$	336,945	$	549,205

OPERATING EXPENSES
Litigation expense		-		60,000
Impairment loss		248,137		214,977
General and administrative costs		850,600		2,431,903
Total operating expenses		1,098,737		2,706,880

Operating loss		(761,792)		(2,157,675)

Other Income and Losses
Interest expense		(137,921)		(193,894)
Interest income		574		28,846
Gain on disposal of equity investment		33,803		1,634,238
Gain on equity investment		-		104,838
Gain on sale of real estate		-		339,873
Loss on sale of note		-		(7,500)
Minority interest		25,254		36,070
Debt forgiveness		268,768		-
Other income		(15,216)		666,385
Total other income (losses)		175,262		2,608,856

Net income (loss) from continuing operations		(586,530)		451,181

Discontinued operations:
Loss from discontinued operations including gain (loss) on disposal of subsidiary		(153,672)		342,647

Net income (loss)	$	(740,202)	$	793,828

Net income (loss) per share, continuing operations	$	(0.35)	$	0.59
Net income (loss) per share, discontinued operations	$	(0.09)	$	0.45
Basic earnings (loss) per common share	$	(0.44)	$	1.04
Basic weighted average number of shares of common stock outstanding		1,697,249		765,278

Diluted earnings (loss) per common shares	$	(0.44)	$	0.68
*Diluted weighted average number of shares of common stock outstanding		1,697,249		1,162,280

*Basic & diluted weighted average number of shares are same for the year ended December 31, 2006 due to its anti-dilutive nature

Name	Age	Position(s) and Office(s) Held
Jan Wallace	52	Chief Executive Officer, President, and Director
Munjit Johal	51	Chief Financial Officer
Peter Richman	40	Director
Jay Kister	32	Director

Name and principal position	Number of late reports	Transactions not timely reported	Known failures to file a required form
Jan Wallace Chief Executive Officer, President, Director	0	1	0
Munjit Johal Chief Financial Officer	0	1	0
Peter Richman Director	0	0	1
Patrick McNiven Former Director	1	0	1
Jay Kister Director	1	0	0

SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Jan Wallace ⁽¹⁾ President & CEO	2006 2005	180,000 8,641	- -	600,000 -	- ^-	- -	- -	- -	60000 8,641
Munjit Johal CFO	2006 2005	84,000 79,000	- -	200,000	- -	- -	- -	- -	30000 79,000

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS						STOCK AWARDS
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Jan Wallace	400,000	-	-	$0.50-$2,00	3/10/2010	-	-	-	-
Munjit Johal ⁽¹⁾	-	-	-	-	-	-	-	-	-

DIRECTOR COMPENSATION
Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Non-Qualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Jan Wallace	-	-	-	-	-	-	-
Peter Richman	-	-	-	-	-	-	-
Patrick McNiven ⁽¹⁾	-	-	-	-	-	-	-
Jay Kister	-	-	-	-	-	-	-

Title of class	Name and address of beneficial owner ⁽¹⁾	Amount of beneficial ownership	Percent of class*
Executive Officers & Directors:
Common	Jan Wallace ⁽²⁾	1,000,000 shares	27.3%
Common	Peter Richman	0 shares	0%
Common	Jay Kister ⁽³⁾	5,998 shares	Less than 1%
Common	Munjit Johal	200,000 shares	6.1%
Total of All Directors and Executive Officers:		1,205,998 shares	33%
More Than 5% Beneficial Owners:
Common	Kelly Black 7349 N. Scottsdale Road, #515 Scottsdale, Arizona 85283	201,250 shares	6.1%
Common	Donald Schwall 8326 Geary Boulevard San Francisco, California 94121	400,000 shares	10.9%

Exhibit Number	Description
10.1	Confidential Settlement and General Release Agreement dated January 5, 2007 ⁽¹⁾
10.2	Confidential Settlement and General Release Agreement dated September 20, 2006 ⁽²⁾
10.3	Secured Lending, LLC Lease Agreement dated July 1, 2006 ⁽²⁾
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Secured Diversified Investment, Ltd.

By:	/s/ Jan Wallace	By:	/s/ Munjit Johal
	Jan Wallace Chief Executive Officer and Director June 11, 2007		Munjit Johal Chief Financial Officer June 11, 2007

By:	/s/ Jan Wallace	By:	/s/ Jay Kister
	Jan Wallace Director June 11, 2007		Jay Kister Director June 11, 2007