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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-QSB

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

For the quarterly period ended September 30, 2003

Commission File Number:

0-25074

PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST

(Exact name of registrant as specified in its charter)


|                                                                                                                                          |  |                                                                   
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------
|Maryland
(State or other jurisdiction of incorporation)1240 Huron Road, Suite 301, Cleveland, OH
(Address of principal executive offices) |  | 39-6594066
(I.R.S. Employer Identification Number)44115
(Zip code)

Issuers telephone number: 216-430-2700 Fax number: 216-430-2702



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Check whether the issuer (1) filed all documents and 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 the filing requirements for the past 90 days.
Yes [x] No [  ]

As of November 3, 2003, 31,382,566 shares of the issuers common shares were outstanding,
including 2,859,765 common shares held in treasury.

Transitional Small Business Disclosure Format (Check one): Yes [  ] No [x]

This report contains 27 pages. There are three exhibits.



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TABLE OF CONTENTS



|                              |                                                                    |                                            |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------ | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                      
|                              |                                                                    | Consolidated Balance Sheet                
|                              |                                                                    | Consolidated Statements of Operations     
|                              |                                                                    | Consolidated Statements of Operations     
|                              |                                                                    | Consolidated Statements of Cash Flows     
|                              |                                                                    | Notes to Consolidated Financial Statements
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
|                              | ITEM 3. CONTROLS AND PROCEDURES                                   
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                         
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                 
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                           
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       
|                              | ITEM 5. OTHER INFORMATION                                         
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                          
|SIGNATURES                   
|EX-31.1  302 Cert for CEO    
|EX-31.2  302 Cert for CFO    
|EX-32.1  906 Certifications  



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PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST AND SUBSIDIARIES
FORM 10-QSB
INDEX

|                              |                                                                                                                |  |         |  | 
|----------------------------- | -------------------------------------------------------------------------------------------------------------- |  | ------- |  | 
|PART I. Financial Information |                                                                                                                |  |         | 
|                              | Consolidated Balance SheetSeptember 30, 2003 (unaudited)                                                      |  | Page 3 
|                              | Consolidated Statements of OperationsNine-months ended
September 30, 2003 and September 30, 2002 (unaudited)  |  | Page 4 
|                              | Consolidated Statements of OperationsThree-months ended
September 30, 2003 and September 30, 2002 (unaudited) |  | Page 5 
|                              | Consolidated Statements of Cash FlowsNine-months ended
September 30, 2003 and September 30, 2002 (unaudited)  |  | Page 6 
|                              | Notes to Consolidated Financial Statements                                                                     |  | Page 7 
|                              | Managements Discussion and Analysis of Financial Condition and
Plan of Operation                              |  | Page 18
|                              | Controls and Procedures                                                                                        |  | Page 25
|Part II. Other Information    |                                                                                                                |  |         | 
|                              | Changes in Securities                                                                                          |  | Page 26
|                              | Submission of Matters to a Vote of Security Holders                                                            |  | Page 26
|                              | Other Information                                                                                              |  | Page 26
|                              | Exhibits and Reports on Form 8-K                                                                               |  | Page 27
|                              | Signatures                                                                                                     |  | Page 27

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PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS




Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Balance Sheet
September 30, 2003
(unaudited)

|                                                                                                                                                                         |                                           |   |             |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | - | ----------- | ---------- | -
|ASSETS                                                                                                                                                                   |                                           |   |             |           
|Investments in real estate:                                                                                                                                              |                                           |   |             |           
|                                                                                                                                                                         | Land                                      |   | $           | 797,182    |  
|                                                                                                                                                                         | Buildings and improvements                |   |             | 3,189,227  |  
|                                                                                                                                                                         | Furniture, fixtures and equipment         |   |             | 1,277      |  
|                                                                                                                                                                         | Property held for sale, net               |   |             | 8,134,099  |  
|                                                                                                                                                                         |                                           |   |             |           
|                                                                                                                                                                         |                                           |   | 12,121,785  |           
|                                                                                                                                                                         | Accumulated depreciation and amortization |   |             | (20,038    | )
|                                                                                                                                                                         |                                           |   |             |           
|                                                                                                                                                                         | Net investments in real estate            |   |             | 12,101,747 |  
|Cash and cash equivalents                                                                                                                                                |                                           |   | 483,214     |           
|Marketable securities                                                                                                                                                    |                                           |   | 116,250     |           
|Restricted cash                                                                                                                                                          |                                           |   | 361,291     |           
|Accounts receivable                                                                                                                                                      |                                           |   | 15,069      |           
|Other assets, net                                                                                                                                                        |                                           |   | 249,547     |           
|                                                                                                                                                                         |                                           |   |             |            |  
|TOTAL ASSETS                                                                                                                                                             |                                           | $ | 13,327,118  |           
|                                                                                                                                                                         |                                           |   |             |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                     |                                           |   |             |           
|Liabilities:                                                                                                                                                             |                                           |   |             |           
|Mortgage loans payable                                                                                                                                                   |                                           | $ | 1,537,199   |           
|Mortgage loans payable and other liabilities held for assumption                                                                                                         |                                           |   | 6,743,490   |           
|Accounts payable and accrued expenses                                                                                                                                    |                                           |   | 398,524     |           
|Rents received in advance and security deposits                                                                                                                          |                                           |   | 55,289      |           
|                                                                                                                                                                         |                                           |   |             |           
|Total liabilities                                                                                                                                                        |                                           |   | 8,734,502   |           
|                                                                                                                                                                         |                                           |   |             |           
|Minority interests in consolidated subsidiaries                                                                                                                          |                                           |   | 2,326,081   |           
|                                                                                                                                                                        
|COMMITMENTS AND CONTINGENCIES                                                                                                                                            |                                           |   |             |           
|                                                                                                                                                                        
|Shareholders equity:                                                                                                                                                    |                                           |   |             |           
|Preferred Shares  $0.01 par value, 10,000,000 authorized;
280,790 Class A cumulative convertible shares issued and
outstanding, $10.00 per share liquidation preference |                                           |   | 2,808       |           
|Common Shares - $0.01 par value, 100,000,000 authorized;
31,382,566 shares issued and outstanding                                                                        |                                           |   | 313,826     |           
|Additional paid-in capital                                                                                                                                               |                                           |   | 28,035,362  |           
|Accumulated other comprehensive income, net unrealized gain on
marketable securities                                                                                     |                                           |   | 60,000      |           
|Accumulated deficit                                                                                                                                                      |                                           |   | (23,700,721 | )         
|Treasury stock, at cost                                                                                                                                                  |                                           |   | (39,769     | )         
|Unearned compensation                                                                                                                                                    |                                           |   | (2,404,971  | )         
|                                                                                                                                                                         |                                           |   |             |           
|Total shareholders equity                                                                                                                                               |                                           |   | 2,266,535   |           
|                                                                                                                                                                         |                                           |   |             |           
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                               |                                           | $ | 13,327,118  |           
|                                                                                                                                                                         |                                           |   |             |            |  

The accompanying notes are an integral part of the consolidated financial statements.

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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Operations
(unaudited)

|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |            |            |        | 
|-------------------------------------------------------------------------------- | ----------------------------------- | ------------------------- | ---------------------------------------------------------- | ---------------------------------------- | ---------- | --------------------------------------- | ---------- | ------- | ---------- | ---------- | ------ | 
|                                                                                 |                                     |                           |                                                            |                                          |            | For the nine months ended September 30,
|                                                                                 |                                     |                           |                                                            |                                          |            |                                        
|                                                                                 |                                     |                           |                                                            |                                          |            | 2003                                    |            | 2002   
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |        
|Revenues                                                                         |                                     |                           |                                                            |                                          |            |                                         |            |        
|                                                                                 | Rental revenue                      |                           | $                                                          | 144,408                                  |            |                                         | $          |        |           
|                                                                                 | Interest and other                  |                           |                                                            | 7,570                                    |            |                                         |            | 22,588  |           
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|                                                                                 | Total revenues                      |                           |                                                            | 151,978                                  |            |                                         |            | 22,588  |           
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Expenses                                                                         |                                     |                           |                                                            |                                          |            |                                         |            |        
|                                                                                 | Property, operating and maintenance |                           |                                                            | 33,014                                   |            |                                         |            |        |           
|                                                                                 | Property taxes and insurance        |                           |                                                            | 23,195                                   |            |                                         |            |        |           
|                                                                                 | Depreciation and amortization       |                           |                                                            | 35,812                                   |            |                                         |            | 15,826  |           
|                                                                                 | Interest                            |                           |                                                            | 27,975                                   |            |                                         |            | 1,015   |           
|                                                                                 | General and administrative          |                           |                                                            | 754,027                                  |            |                                         |            | 289,686 |           
|                                                                                 | Management fees                     |                           |                                                            | 6,175                                    |            |                                         |            |        |           
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|                                                                                 | Total expenses                      |                           |                                                            | 880,198                                  |            |                                         |            | 306,527 |           
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Loss from operations before minority interests                                   |                                     |                           | (728,220                                                   | )                                        |            |                                         | (283,939   | )      
|Loss allocated to minority interests                                             |                                     |                           | 41,445                                                     |                                          |            |                                         | 124,989    |        
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Loss from operations                                                             |                                     |                           | (686,775                                                   | )                                        |            |                                         | (158,950   | )      
|Gain on sale of marketable securities                                            |                                     |                           | 105,421                                                    |                                          |            |                                         | 55,889     |        
|Provision for loss on marketable securities                                      |                                     |                           |                                                           |                                          |            |                                         | (1,047,600 | )      
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Loss from continuing operations                                                  |                                     |                           | (581,354                                                   | )                                        |            |                                         | (1,150,661 | )      
|Discontinued operations:                                                         |                                     |                           |                                                            |                                          |            |                                         |            |        
|                                                                                 |                                     |                           | Loss from discontinued operations of
technology segment    |                                          |            |                                        |            |         |            | (73,355    | )     
|                                                                                 |                                     |                           | Loss from discontinued operations of
commercial properties |                                          |            | (495,158                                | )          |         |            | (1,579,676 | )     
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Net loss                                                                         |                                     |                           | (1,076,512                                                 | )                                        |            |                                         | (2,803,692 | )      
|Preferred Share Dividends                                                        |                                     |                           |                                                           |                                          |            |                                         | (315,063   | )      
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Net loss attributable to Common Shareholders                                     |                                     | $                         | (1,076,512                                                 | )                                        |            | $                                       | (3,118,755 | )      
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted |                                     | $                         | (0.08                                                      | )                                        |            | $                                       | (0.69      | )      
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Weighted average number of Common Shares
outstanding: Basic and Diluted          |                                     |                           | 13,669,351                                                 |                                          |            |                                         | 4,517,524  |        
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|Comprehensive loss:                                                              |                                     |                           |                                                            |                                          |            |                                         |            |        
|                                                                                 |                                     | Net loss                  |                                                            | $                                        | (1,076,512 | )                                       |            | $       | (2,803,692 | )         
|                                                                                 |                                     | Other comprehensive loss: |                                                            |                                          |            |                                         |            |         |            |           
|                                                                                 |                                     |                           |                                                            | Unrealized gain on marketable securities |            |                                         | 32,800     |         |            |            | 30,400 | 
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           
|                                                                                 |                                     | Comprehensive loss        |                                                            | $                                        | (1,043,712 | )                                       |            | $       | (2,773,292 | )         
|                                                                                 |                                     |                           |                                                            |                                          |            |                                         |            |         |           

The accompanying notes are an integral part of the consolidated financial statements.

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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Operations
(unaudited)

|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |            |            |           | 
|----------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------- | ------------------------------------------------------------------- | ----------------------------------------------- | ------ | ---------------------------------------- | ---------- | ------- | ---------- | ---------- | --------- | 
|                                                                                          |                                     |                             |                                                                     |                                                 |        | For the three months ended September 30,
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                         
|                                                                                          |                                     |                             |                                                                     |                                                 |        | 2003                                     |            | 2002   
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |        
|Revenues                                                                                  |                                     |                             |                                                                     |                                                 |        |                                          |            |        
|                                                                                          | Rental revenue                      |                             | $                                                                   | 144,408                                         |        |                                          | $          |        |           
|                                                                                          | Interest and other                  |                             |                                                                     | 4,347                                           |        |                                          |            | 7,195   |           
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|                                                                                          | Total revenues                      |                             |                                                                     | 148,755                                         |        |                                          |            | 7,195   |           
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Expenses                                                                                  |                                     |                             |                                                                     |                                                 |        |                                          |            |        
|                                                                                          | Property, operating and maintenance |                             |                                                                     | 33,014                                          |        |                                          |            |        |           
|                                                                                          | Property taxes and insurance        |                             |                                                                     | 23,195                                          |        |                                          |            |        |           
|                                                                                          | Depreciation and amortization       |                             |                                                                     | 26,743                                          |        |                                          |            | 5,436   |           
|                                                                                          | Interest                            |                             |                                                                     | 27,975                                          |        |                                          |            |        |           
|                                                                                          | General and administrative          |                             |                                                                     | 155,277                                         |        |                                          |            | 118,716 |           
|                                                                                          | Management fees                     |                             |                                                                     | 6,175                                           |        |                                          |            |        |           
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|                                                                                          | Total expenses                      |                             |                                                                     | 272,379                                         |        |                                          |            | 124,152 |           
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Loss from operations before loss allocated to minority
interests                          |                                     |                             | (123,624                                                            | )                                               |        |                                          | (116,957   | )      
|Loss (income) allocated to minority interests                                             |                                     |                             | (1,125                                                              | )                                               |        |                                          | 100,253    |        
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Loss from operations                                                                      |                                     |                             | (124,749                                                            | )                                               |        |                                          | (16,704    | )      
|Gain on sale of marketable securities                                                     |                                     |                             | 105,421                                                             |                                                 |        |                                          |           |        
|Provision for loss of marketable securities                                               |                                     |                             |                                                                    |                                                 |        |                                          | (1,047,600 | )      
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Loss from continuing operations                                                           |                                     |                             | (19,328                                                             | )                                               |        |                                          | (1,064,304 | )      
|Discontinued operations:                                                                  |                                     |                             |                                                                     |                                                 |        |                                          |            |        
|                                                                                          |                                     |                             | Loss from discontinued operations of technology
segment             |                                                 |        |                                         |            |         |            | (23,598    | )        
|                                                                                          |                                     |                             | Income (loss) from discontinued operations of
commercial properties |                                                 |        | 54,811                                   |            |         |            | (1,415,608 | )        
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Net income (loss) attributable to Common Shareholders                                     |                                     | $                           | 35,483                                                              |                                                 |        | $                                        | (2,503,510 | )      
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Net income (loss) attributable to Common Shareholders
per Common Share: Basic and Diluted |                                     | $                           | 0.00                                                                |                                                 |        | $                                        | (0.55      | )      
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Weighted average number of Common Shares
outstanding: Basic                               |                                     |                             | 31,382,566                                                          |                                                 |        |                                          | 4,517,524  |        
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Weighted average number of Common Shares
outstanding: Diluted                             |                                     |                             | 35,487,410                                                          |                                                 |        |                                          | 4,517,524  |        
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|Comprehensive loss:                                                                       |                                     |                             |                                                                     |                                                 |        |                                          |            |        
|                                                                                          |                                     | Net income (loss)           |                                                                     | $                                               | 35,483 |                                          |            | $       | (2,503,510 | )         
|                                                                                          |                                     | Other comprehensive loss:   |                                                                     |                                                 |        |                                          |            |         |            |           
|                                                                                          |                                     |                             |                                                                     | Unrealized gain (loss) on marketable securities |        |                                          | (6,000     | )       |            |            | 1,017,600 | 
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           
|                                                                                          |                                     | Comprehensive income (loss) |                                                                     | $                                               | 29,483 |                                          |            | $       | (1,485,910 | )         
|                                                                                          |                                     |                             |                                                                     |                                                 |        |                                          |            |         |           

The accompanying notes are an integral part of the consolidated financial statements.

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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)

|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |           |         |           |  
|--------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------------------------------- | ----------------------------------------- | -------- | --------------------------------------- | --------- | ---------- | --------- | ------- | --------- | -
|                                              |                                                                              |                                                                          |                                                 |                                           |          | For the
nine-months ended September 30,
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                        
|                                              |                                                                              |                                                                          |                                                 |                                           |          | 2003                                    |           | 2002      
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |           
|Cash flows from operating activities:         |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |           
|                                              | Net loss                                                                     |                                                                          | $                                               | (1,076,512                                | )        |                                         | $         | (2,803,692 | )        
|                                              | Adjustments to reconcile net loss to net cash used
in continuing operations: |                                                                          |                                                 |                                           |          |                                         |           |            |          
|                                              |                                                                              | Discontinued operations of technology segment,
net of tax                |                                                 |                                           |         |                                         |           |            | 73,355    |        
|                                              |                                                                              | Discontinued operations of commercial
properties, net of tax             |                                                 |                                           | 495,158  |                                         |           |            | 1,579,676 |        
|                                              |                                                                              | Compensation costs paid through the issuance of
Class A Preferred Shares |                                                 |                                           | 300,000  |                                         |           |            |          |        
|                                              |                                                                              | Depreciation and amortization                                            |                                                 |                                           | 35,812   |                                         |           |            | 15,826    |        
|                                              |                                                                              | Loss allocated to minority interests                                     |                                                 |                                           | (41,445  | )                                       |           |            | (124,989  | )      
|                                              |                                                                              | Gain on sale of marketable securities                                    |                                                 |                                           | (105,421 | )                                       |           |            | (55,889   | )      
|                                              |                                                                              | Provision for loss on marketable securities                              |                                                 |                                           |         |                                         |           |            | 1,047,600 |        
|                                              | Net change in assets and liabilities:                                        |                                                                          |                                                 |                                           |          |                                         |           |            |          
|                                              |                                                                              |                                                                          | Accounts receivable                             |                                           |          | (7,528                                  | )         |            |           |        |          
|                                              |                                                                              |                                                                          | Restricted cash                                 |                                           |          | (42,682                                 | )         |            |           |        |          
|                                              |                                                                              |                                                                          | Other assets, net                               |                                           |          | 12,591                                  |           |            |           | 66,774  |          
|                                              |                                                                              |                                                                          | Accounts payable and accrued expenses           |                                           |          | 216,768                                 |           |            |           | (10,505 | )        
|                                              |                                                                              |                                                                          | Rents received in advance and security deposits |                                           |          | 55,289                                  |           |            |           |        |          
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|                                              |                                                                              |                                                                          |                                                 | Net cash used in continuing operations    |          |                                         | (157,970  | )          |           |         | (211,844  | )
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|Cash flows from investing activities:         |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |           
|                                              | Acquisition and additions to real estate properties                          |                                                                          |                                                 | (86,818                                   | )        |                                         |           |           |          
|                                              | Acquisition of computer hardware, software and
other fixed assets            |                                                                          |                                                 |                                          |          |                                         |           | (8,250     | )        
|                                              | Cash proceeds from sale of marketable securities                             |                                                                          |                                                 | 199,171                                   |          |                                         |           | 1,253,489  |          
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|                                              |                                                                              |                                                                          |                                                 | Net cash provided by investing activities |          |                                         | 112,353   |            |           |         | 1,245,239 |  
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|Cash flows from financing activities:         |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |           
|                                              | Payments on mortgage loans and notes payable                                 |                                                                          |                                                 | (7,059                                    | )        |                                         |           |           |          
|                                              | Deferred financing costs paid                                                |                                                                          |                                                 | (23,970                                   | )        |                                         |           |           |          
|                                              | Dividends/distributions paid                                                 |                                                                          |                                                 |                                          |          |                                         |           | (315,063   | )        
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|                                              |                                                                              |                                                                          |                                                 | Net cash used in financing activities     |          |                                         | (31,029   | )          |           |         | (315,063  | )
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|Net cash used in discontinued operations      |                                                                              |                                                                          | (469,405                                        | )                                         |          |                                         | (831,451  | )         
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|Net decrease in cash and cash equivalents     |                                                                              |                                                                          | (546,051                                        | )                                         |          |                                         | (113,119  | )         
|Cash and cash equivalents
Beginning of period |                                                                              |                                                                          | 1,029,265                                       |                                           |          |                                         | 1,540,766 |           
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          
|                                              | End of period                                                                |                                                                          | $                                               | 483,214                                   |          |                                         | $         | 1,427,647  |          
|                                              |                                                                              |                                                                          |                                                 |                                           |          |                                         |           |            |          

The accompanying notes are an integral part of the consolidated financial statements.

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Paragon Real Estate Equity and Investment Trust and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 - Organization

Paragon Real Estate Equity and Investment Trust, formerly Stonehaven Realty
Trust (the Company, Paragon, we, our, or us), is a real estate
company which acquires, owns and operates commercial and residential real
estate. As of September 30, 2003, we owned four commercial industrial
properties that aggregate approximately 129,000 rentable square feet and one
residential apartment complex containing 72 units. The four commercial
properties were sold on October 1, 2003.

We owned our commercial real estate investments through an operating
partnership, Wellington Properties Investments, L.P. (Wellington), of which
we are the sole general partner and own an approximate 92.9% interest. We own
our residential apartment complex through our newly-created operating
partnership, Paragon Real Estate, LP (Paragon Real Estate), of which we are
sole general partner and own a 1.0% interest.

Note 2 - Basis of Presentation

We have prepared the consolidated financial statements without audit pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
However, we believe that the included disclosures are adequate to make the
information presented not misleading. In our opinion, all adjustments
(consisting solely of normal recurring items, except for the discontinued
operations of our technology segment and the discontinued operations of our
commercial properties) necessary for a fair presentation of the financial
position of the Company as of September 30, 2003, the results of our operations
for the nine months ended September 30, 2003 and 2002, the results of our
operations for the three months ended September 30, 2003 and 2002, and of our
cash flows for the nine-month periods ended September 30, 2003 and 2002, have
been included. The results of operations for such interim periods are not
necessarily indicative of the results for a full year. For further information,
refer to our consolidated financial statements and footnotes included in the
Annual Report of Form 10-KSB/A for the year ended December 31, 2002.

Note 3 - Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

In order to conform with generally accepted accounting principles, management,
in preparation of our consolidated financial statements, is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of September
30, 2003, and the reported amounts of revenues and expenses for the nine months
and three months ended September 30, 2003 and 2002. Actual results could differ
from those estimates. Significant estimates include the valuation of
investments in real estate, marketable securities and deferred taxes, and these
significant estimates, as well as other estimates and assumptions, which may
change in the near term.

Investments in Real Estate

Our investments in real estate assets are reported at the lower of cost or
estimated net realizable value.

We periodically review our properties for impairment and provide for a
provision if impairments are determined. First, to determine if impairment may
exist, we review our properties and identify those, if any, which have had
either an event of change or event of circumstances warranting further

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assessment of recoverability. Then, we estimate the fair value of those
properties on an individual basis by capitalizing the expected net operating
income, among various other factors. Such amounts are then compared to the
propertys depreciated cost to determine whether an impairment exists.

In accordance with Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets"(FAS 144), impairment of
investments in real estate exists when the carrying amount of the investments
exceeds its fair value and is non-recoverable. Fair value of these assets is
the amount an asset could be bought or sold in a current transaction between
willing parties. Further, FAS 144 defines a component of a company to be the
operations that can be clearly distinguished from the rest of the company, and
then requires elimination from our continuing operations for those assets held
for sale or disposed of. Accordingly, one of the impacts of our adoption of
this standard is that revenues and expenses associated with our property held
for sale at September 30, 2003 are classified as discontinued operations on our
Consolidated Statements of Operations for all periods reported.

During the quarter ended June 30, 2003, we recorded non-recurring real estate
expense in the amount of $350,000. This expense represented $280,000 of tenant
improvements, $31,000 of leasing commissions and $39,000 of professional
expense incurred on our commercial properties located in Minnesota. The sale
of our 92.9% general partnership interest in these commercial properties closed
on October 1, 2003 and the amount of proceeds received was not increased as a
result of these expenditures. As a result of the sale on October 1, 2003, we
have included these costs in discontinued operations of commercial properties.

During the quarter ended September 30, 2002, management had been in discussions
with various unrelated parties concerning available alternatives of the
Company, including, among others, to sell our commercial properties. As a
result of those discussions and based on estimates made by management, as of
September 30, 2002 a write-down of $1,350,000 was recorded to adjust the
carrying value of our commercial properties to estimated fair value.

Depreciation expense is computed using the straight-line method based on the
following useful lives:

|                                  |  |       |     | 
|--------------------------------- |  | ----- | --- | 
|                                  |  | Years
|                                  |  |      
|Building and improvements         |  |       | 40  | 
|Furniture, fixtures and equipment |  |       | 3-5 | 

Expenditures for ordinary maintenance and repairs are expensed to operations as
incurred and significant renovations and improvements that improve or extend
the useful life of the asset are capitalized and depreciated over their
estimated useful life.

When a property is sold or retired, the costs and related accumulated
depreciation are removed from the accounts and the resulting gain or loss,
together with the related historical operating results, are included in
discontinued operations.

Other Assets

As of September 30, 2003, other assets include deferred financing costs
incurred to obtain and secure mortgage debt financing, deferred leasing costs
incurred in connection with commercial tenant leases, and deferred costs
associated with the disposition of real estate assets. Other assets are
carried at cost, less accumulated amortization.

The deferred financing costs are being amortized over the life of the
respective loans on a straight-line basis. Accumulated amortization related to
deferred financing costs as of September 30, 2003 was approximately $37,000.

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The deferred leasing costs are being amortized over the life of the respective
lease term on a straight-line basis. Accumulated amortization related to
deferred leasing costs as of September 30, 2003 was approximately $11,000.

As of September 30, 2003, deferred costs related to the disposition of our
commercial properties are approximately $54,000, which will be added to our
basis in our commercial properties and used in calculating our gain/loss on the
sale of those properties in October 2003.

Revenue Recognition

Rental revenue from tenants is recognized on a straight-line basis over the
term of the lease agreements regardless of when payments are due. Tenant
recoveries include payments from commercial property tenants for reimbursement
of the tenants share of real estate taxes and certain common area maintenance
costs. Such recoveries are recognized as revenue in the period the costs are
incurred.

Stock Based Compensation

At September 30, 2003, we have one stock-based employee and trustee
compensation plan, which is described more fully in our Annual Report on Form
10-KSB/A for the year ended December 31, 2002. During the nine-month period
ended September 30, 2002, the Company issued options as to 250,000 common
shares under this plan. On September 30, 2003, 200,000 options expired and were
returned to the Company. The Company accounted for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net loss, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net loss and loss per share if the Company had applied the fair
value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, as amended, to stock-based employee compensation.

|                                                                                                                                    |  |                           |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                    |  | For the nine months ended
|                                                                                                                                    |  | September 30,            
|                                                                                                                                    |  |                          
|                                                                                                                                    |  | 2003                      |            | 2002
|                                                                                                                                    |  |                           |            |     
|Net loss attributable to Common Shareholders                                                                                        |  | $                         | (1,076,512 | )    |  | $ | (3,118,755 | )
|Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects |  |                           | 32,000     |      |  |   | (44,000    | )
|                                                                                                                                    |  |                           |            |      |  |   |            |  
|Pro forma net loss attributable to Common
Shareholders                                                                              |  | $                         | (1,044,512 | )    |  | $ | (3,162,755 | )
|                                                                                                                                    |  |                           |            |      |  |   |            |  
|Net loss attributable to Common
Shareholders per Common Share:                                                                      |  |                           |            |      |  |   |            |  
|Basic and Diluted  as reported                                                                                                     |  | $                         | (0.08      | )    |  | $ | (0.69      | )
|                                                                                                                                    |  |                           |            |      |  |   |            |  
|Basic and Diluted  pro forma                                                                                                       |  | $                         | (0.08      | )    |  | $ | (0.68      | )
|                                                                                                                                    |  |                           |            |      |  |   |            |  

Income Taxes

Because we are no longer a REIT for federal income tax purposes, we now account
for income taxes using the liability method under which deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities using enacted tax rates in effect for
the period in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. We will be eligible to re-elect
REIT status on January 1, 2005.

At September 30, 2003, we have net operating losses. As of December 31, 2002,
our net operating

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losses were approximately $4,106,000. While these losses created a deferred
tax asset, a valuation allowance was applied against the asset because of the
uncertainty of whether we will be able to use these loss carry forwards, which
will expire in varying amounts through the year 2021.

We are also subject to certain state and local income, excise and franchise
taxes. The provision for state and local taxes has been reflected in general
and administrative expense in the consolidated statements of operations and has
not been separately stated due to its insignificance.

Segment Disclosure

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information.
This statement requires that a public company report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. Management views the Company as a single segment, which acquires,
owns and operates commercial and residential real estate. During 2002 we
discontinued operations of our technology segment.

Reclassification

As a result of reporting our technology segment and commercial real estate
properties as discontinued operations, certain amounts in the September 30,
2002 financial statements have been reclassified to conform to the September
30, 2003 presentation. These reclassifications had no effect on net loss or
shareholders equity as previously reported.

Note 4  Commercial and Residential Real Estate Properties

On October 1, 2003, we closed on the sale of our 92.9% general partnership
interest in our four commercial properties. Proceeds from the sale of these
properties, net of closing costs and the mortgage balances assumed by the
purchaser, were approximately $1,601,000. The proceeds from the sale were paid
in a combination of approximately $801,000 in cash and 2,859,765 of our common
shares at an average closing price for the 30 calendar days prior to June 27,
2003 of $0.28. Also as a result of the sale approximately $350,000
representing cash from the commercial real estate properties was released from
mortgage related restrictions and made available for operations.

As a result of the above transaction, these properties were classified as held
for sale at September 30, 2003. The components associated with these
properties at September 30, 2003 included the following:

|                               |  |                    |           |  
|------------------------------ |  | ------------------ | --------- | -
|Property held for sale, net    |  | September 30, 2003
|                               |  |                   
|Land                           |  | $                  | 1,790,434 |  
|Buildings and Improvements     |  |                    | 7,224,758 |  
|                               |  |                    |           |  
|                               |  |                    | 9,015,192 |  
|Less: Accumulated depreciation |  |                    | (881,093  | )
|                               |  |                    |           |  
|                               |  | $                  | 8,134,099 |  
|                               |  |                    |           |  

|                                                                 |  |                    |           | 
|---------------------------------------------------------------- |  | ------------------ | --------- | 
|Mortgage loans payable and other liabilities held for assumption |  | September 30, 2003
|                                                                 |  |                   
|Mortgage loans payable                                           |  | $                  | 6,408,826 | 
|Other liabilities                                                |  |                    | 334,664   | 
|                                                                 |  |                    |           | 
|                                                                 |  | $                  | 6,743,490 | 
|                                                                 |  |                    |           | 

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2003 Acquisition of Investments in Real Estate

Effective as of July 1, 2003, we closed the acquisition of Richton Trail
Apartments, a residential apartment complex located near Chicago, Illinois,
following approval by our shareholders of the transaction on June 30, 2003.
Our newly-established operating partnership, Paragon Real Estate, LP, acquired
the Richton Trail Apartments along with the associated mortgage from Hampton
Court Associates, LP (Hampton), a partnership controlled by James C.
Mastandrea, its general partner and our Chairman and Chief Executive Officer.
In consideration for transferring Richton Trail, Hampton received 813,938
limited partnership units of Paragon Real Estate, LP. Each unit is redeemable
after four years for cash, or, at our option, 22.881 of our common shares. We
are the general partner of Paragon Real Estate, LP.

Note 5 - Marketable Securities

Our investments in marketable securities are available-for-sale and, as of
September 30, 2003, represent 15,000 shares of Stellent common stock
(Stellent). The shares were acquired in connection with the sale of certain
assets of Stonehaven Technologies on July 10, 2001 and were recorded at $29.94
per share based on the NASDAQ closing quote of Stellent on July 9, 2001. The
shares were unregistered when acquired and Stellent subsequently registered the
shares with the Securities and Exchange Commission effective September 5, 2001.

As of September 30, 2003, the fair market value of these marketable securities
aggregated approximately $116,000 (based upon the NASDAQ closing quote of $7.75
per share on September 30, 2003). As of September 30, 2002, we recorded a
realized loss on marketable securities in the amount of $1,047,600 (based upon
the NASDAQ closing quote of $3.75 per share of Stellent on September 30, 2002).
Based on the fair market value of our marketable securities as of September
30, 2003 of $7.75 per share as compared to the fair market value as of December
31, 2002 of $4.43 per share of Stellent, we have recorded an unrealized gain on
marketable securities of $32,800.

During the month of January 2002, we sold 40,000 shares of Stellent at an
average price of $31.34 per share and recognized a gain on the sale of these
shares totaling approximately $56,000.

During the three-month period ended September 30, 2003, we sold 25,000 shares
of Stellent at an average price of $7.97 per share and recognized a gain on the
sale of these shares totaling approximately $105,000.

Subsequent to September 30, 2003, we sold 5,000 shares of Stellent at a price
of $10.00 per share and recognized a gain on the sale of these shares totaling
approximately $31,000.

We recognize gain or loss on the sale of marketable securities based upon the
first-in-first-out method.

The NASDAQ closing quote on November 3, 2003 was $9.14 per share of Stellent.

Note 6  Pro Forma Consolidated Financial Information (Unaudited)

The following pro forma condensed consolidated financial information presented
below is as if the disposition of our 92.9% general partnership interest in our
commercial properties (closed October 1, 2003) and the acquisition of the
Richton Trail Apartments (closed July 1, 2003) had occurred on January 1, 2002.
The pro forma financial information is not necessarily indicative of the
results, which actually would have occurred if the disposition and acquisition
had been consummated on January 1, 2002, nor does the pro forma information
purport to represent the results of operations for future periods. As of
September 30, 2003, all revenues and expenses associated with the commercial
properties have been recorded as discontinued operations.

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|                                                   |  |                           |         |                           |  |   |           | 
|-------------------------------------------------- |  | ------------------------- | ------- | ------------------------- |  | - | --------- | 
|                                                   |  | For the nine months ended |         | For the nine months ended
|                                                   |  | September 30,             |         | September 30,            
|                                                   |  | 2003                      |         | 2002                     
|                                                   |  |                           |         |                          
|Pro forma total revenue                            |  | $                         | 453,000 |                           |  | $ | 483,000   | 
|Pro forma loss from continuing operations          |  | $                         | 612,000 |                           |  | $ | 1,475,000 | 
|Pro forma loss attributable to Common Shareholders |  | $                         | 612,000 |                           |  | $ | 1,548,283 | 
|Pro forma loss per Common Share: Basis and Diluted |  | $                         | 0.02    |                           |  | $ | 0.05      | 

Note 7 - Mortgage Loans Payable

The mortgage loans payable relating to the Plymouth I, II & III properties of
approximately $4.2 million mature on June 30, 2004. Payments are required
monthly in the amount of approximately $23,000, which represents principal and
interest at 4.25%. The purchaser of our four commercial properties assumed the
above loans on October 1, 2003.

In connection with the acquisition of Richton Trail Apartments, we assumed a
mortgage loan payable of approximately $1.5 million which matures on October 1,
2012. Payments are required monthly in the amount of approximately $13,000,
which represents principal and interest at 7.25%.

On October 31, 2003, we completed the refinance of the Richton Trail Apartments
with KeyBank Real Estate Capital. The mortgage loan payable of $2.8 million
has an interest rate of approximately 5.87% for a term of 10 years with monthly
principal and interest payments of approximately $18,000 based on a 25-year
amortization schedule. The balance due at maturity in 2013 will be
approximately $2.1 million. The net proceeds from the loan were approximately
$1.3 million.

Note 8 - Equity/Distributions

Effective April 7, 2003, we issued 95,541 preferred shares to Duane H. Lund in
connection with his resignation as Chief Executive Officer in accordance with
the terms of his employment agreement dated March 4, 2003 and recorded
compensation expense of $300,000 as a result of the issuance and employment
termination.

On June 30, 2003, our shareholders approved the issuance of additional common
shares to James C. Mastandrea, our Chief Executive Officer, and John J. Dee,
our Chief Financial Officer, if they locate and close on our behalf future
acquisition, development or re-development transactions. Any of these
transactions would be subject to approval by our board of trustees. The common
shares they receive under the additional contribution agreement will be
restricted until we achieve specified increases in net operating income and
funds from operations and will vest immediately upon any shift in ownership,
as defined in the agreement.

Effective June 30, 2003, we issued 696,078 preferred shares to Messrs.
Mastandrea and Dee pursuant to separate restricted share agreements. Under
each restricted share agreement, the restricted shares vest upon the later of
the following dates:



| |  |  | the date our gross assets exceed $50.0 million, or                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 348,038 restricted shares will vest on March 4, 2004; 174,020
shares will vest on March 4, 2005 and the remaining 174,020 shares will
vest on March 4, 2006.

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On June 30, 2003, the holders of our preferred shares consented to waive the
dividend that would otherwise have been payable in May 2003 and to eliminate
any future dividends that would have been payable under the terms of our
preferred shares. The waiver was sought in connection with a one-time
incentive exchange offer under which we offered to exchange each of our
preferred shares for 22.881 common shares.

In May 2003, we offered preferred shareholders a one-time incentive to exchange
preferred shares into common shares, which expired June 30, 2003. Through that
exchange offer, preferred shareholders exchanged 1,174,120 of the preferred
shares, or nearly 81%, for 26,865,042 common shares. After the exchange offer
was completed, the remaining preferred shares held by investors not affiliated
with Paragon had an aggregate market value below $1 million and therefore no
longer met the minimum requirement for listing on the American Stock Exchange,
as set forth in Section 1202(b) of the Exchanges Company Guide.This
requirement was disclosed in the proxy statement as well as our intent not to
seek another trading market for the preferred shares. The Exchange suspended
trading of the preferred shares and submitted an application with the
Securities and Exchange Commission to remove the preferred shares from listing
and registration in accordance with Section 12 of the Securities and Exchange
Act of 1934. Preferred shareholders retain the right to convert each of their
shares for 3.448 common shares. The preferred shares are now on the Over the
Counter Market with the symbol PRGYP.

Note 9 - Discontinued Operations

We entered into an agreement to sell our 92.9% general partnership interest in
WPI (holder of our commercial properties). The transaction was completed on
October 1, 2003. The results of operations for these properties are presented
in the accompanying Consolidated Statement of Operations as Income/Loss from
discontinued operations and the assets and liabilities are included in
Property held for sale and Mortgage loans payable and other liabilities held
for assumption on our Consolidated Balance Sheet.

The following is a summary of the income from discontinued operations of our
commercial properties for the three and nine-month periods ended September 30,
2003 and 2002.

|                                           |  |                                 |           |                                  |  |      |            |      |  |   |          |   |  |   |            |  
|------------------------------------------ |  | ------------------------------- | --------- | -------------------------------- |  | ---- | ---------- | ---- |  | - | -------- | - |  | - | ---------- | -
|                                           |  | Nine months ended September 30, |           | Three months ended September 30,
|                                           |  |                                 |           |                                 
|                                           |  | 2003                            |           | 2002                             |  | 2003 |            | 2002
|                                           |  |                                 |           |                                  |  |      |            |     
|Revenues                                   |  | $                               | 1,004,632 |                                  |  | $    | 1,007,955  |      |  | $ | 336,873  |   |  | $ | 359,132    |  
|Operating expenses                         |  |                                 | (435,068  | )                                |  |      | (450,763   | )    |  |   | (125,296 | ) |  |   | (165,643   | )
|Depreciation and amortization              |  |                                 | (157,735  | )                                |  |      | (176,096   | )    |  |   | (55,894  | ) |  |   | (59,350    | )
|Interest expense                           |  |                                 | (251,900  | )                                |  |      | (367,299   | )    |  |   | (83,618  | ) |  |   | (124,774   | )
|General and administrative                 |  |                                 | (305,087  | )                                |  |      | (243,473   | )    |  |   | (17,254  | ) |  |   | (74,972    | )
|Non-recurring real estate
expenses         |  |                                 | (350,000  | )                                |  |      | (1,350,000 | )    |  |   |         |   |  |   | (1,350,000 | )
|                                           |  |                                 |           |                                  |  |      |            |      |  |   |          |   |  |   |            |  
|Income (loss) from
discontinued operations |  | $                               | (495,158  | )                                |  | $    | (1,579,676 | )    |  | $ | 54,811   |   |  | $ | (1,415,607 | )
|                                           |  |                                 |           |                                  |  |      |            |      |  |   |          |   |  |   |            |  

Losses from discontinued operations relating to our technology segment for the
nine-month periods ended September 30, 2003 and September 30, 2002 were
approximately $0 and $73,000, respectively. The discontinued operations
relating to our technology segment for the nine months ended September 30, 2002
were primarily composed of general and administrative expense.

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Note 10 - Loss Per Share

The Company has adopted the Statement of Financial Accounting Standards No.
128, Earnings Per Share (EPS) for all periods presented herein. Net loss
per weighted average common share outstandingbasic and net loss per weighted
average common share outstandingdiluted are computed based on the weighted
average number of common shares outstanding for the period. The weighted
average number of common shares outstanding for the nine months ended September
30, 2003 and September 30, 2002 were 13,669,351 and 4,517,524, respectively.
Common share equivalents of approximately 4.7 million and 2.9 million as of
September 30, 2003 and September 30, 2002, respectively, include outstanding
convertible preferred shares, warrants, stock options and common units, and are
not included in net loss per weighted average common share outstandingdiluted
as they would be anti-dilutive.

|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |            |  
|------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | - | --------------------------------------- | -------- | ---- | - | ---------- | ---------- | -
|                                                                                                                         |                                                                  |   | For the nine months ended September 30,
|                                                                                                                         |                                                                  |   |                                        
|                                                                                                                         |                                                                  |   | 2003                                    |          | 2002
|                                                                                                                         |                                                                  |   |                                         |          |     
|Numerator                                                                                                                |                                                                  |   |                                         |          |      |   |            |           
|Net loss from continuing operations                                                                                      |                                                                  | $ | (581,354                                | )        |      | $ | (1,150,661 | )         
|Discontinued operations:                                                                                                 |                                                                  |   |                                         |          |      |   |            |           
|                                                                                                                         | Discontinued operations of technology
segment, net of tax        |   |                                         |         |      |   |            | (73,355    | )
|                                                                                                                         | Discontinued operations of our
commercial properties, net of tax |   |                                         | (495,158 | )    |   |            | (1,579,676 | )
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           
|Net loss                                                                                                                 |                                                                  |   | (1,076,512                              | )        |      |   | (2,803,692 | )         
|Preferred Share Dividends                                                                                                |                                                                  |   |                                        |          |      |   | (315,063   | )         
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           
|Net loss attributable to Common Shareholders                                                                             |                                                                  | $ | (1,076,512                              | )        |      | $ | (3,118,755 | )         
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           
|Denominator                                                                                                              |                                                                  |   |                                         |          |      |   |            |           
|Weighted average Common Shares outstanding
at September 30, 2003 and September 30,
2002, respectively: Basic and Diluted |                                                                  |   | 13,669,351                              |          |      |   | 4,517,524  |           
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           
|Basis and Diluted EPS                                                                                                    |                                                                  |   |                                         |          |      |   |            |           
|Net loss from continuing operations                                                                                      |                                                                  | $ | (0.04                                   | )        |      | $ | (0.25      | )         
|Discontinued operations:                                                                                                 |                                                                  |   |                                         |          |      |   |            |           
|                                                                                                                         | Discontinued operations of technology
segment, net of tax        |   |                                         |         |      |   |            | (0.02      | )
|                                                                                                                         | Discontinued operations of our
commercial properties, net of tax |   |                                         | (0.04    | )    |   |            | (0.35      | )
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           
|Net loss                                                                                                                 |                                                                  |   | (0.08                                   | )        |      |   | (0.62      | )         
|Preferred Share Dividends                                                                                                |                                                                  |   |                                        |          |      |   | (0.07      | )         
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           
|Net loss attributable to Common
Shareholders  - Basic and Diluted                                                        |                                                                  | $ | (0.08                                   | )        |      | $ | (0.69      | )         
|                                                                                                                         |                                                                  |   |                                         |          |      |   |            |           

Note 11 - Commitments and Contingencies

Liquidity

As of September 30, 2003, our unrestricted cash resources were $483,000 and our
marketable securities available for sale were approximately $116,000. Our
marketable securities represented 15,000 shares of Stellent. The NASDAQ
closing quote on November 3, 2003 was $9.14 per share of Stellent.

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During the three-month period ended September 30, 2003, we sold 25,000 shares
of Stellent at an average price of $7.97 per share and recognized a gain on the
sale of these shares totaling approximately $105,000. Net proceeds from these
sales were approximately $199,000.

Subsequent to September 30, 2003, we sold 5,000 shares of Stellent at a price
of $10.00 per share and recognized a gain on the sale of these shares totaling
approximately $31,000.

On March 4, 2003, we hired two executives and on June 30, 2003 the common and
preferred shareholders elected five new Trustees. Our new management intends
to implement a business strategy that will involve nationwide real estate
acquisition, development and re-development transactions. This strategy will
be dependent on external sources of capital. Failure to obtain this capital
will materially and adversely affect the strategy and will materially and
adversely affect our operations, liquidity and financial results.

On June 30, 2003, the holders of our preferred shares consented to waive the
dividend that would otherwise have been payable in May 2003 and to eliminate
any future dividends that would have been payable under the terms of our
preferred shares. The waiver was sought in connection with a one-time
incentive exchange offer under which we will offer to exchange each of our
preferred shares for 22.881 common shares.

We recognize that the cash flow from our properties is not expected to fully
fund our future liquidity requirements. In this case, we intend to pursue
available alternatives to preserve our cash to allow the Company to meet its
ongoing obligations. Such alternatives include, among others, to pursue
additional or alternate financing or to sell our properties. There can be no
assurance that any of the alternatives will be adopted, or if adopted, will be
successful.

On October 31, 2003, we completed the refinance of the Richton Trail Apartments
with KeyBank Real Estate Capital. The mortgage loan payable of $2.8 million
has an interest rate of approximately 5.87% for a term of 10 years with monthly
principal and interest payments of approximately $18,000 based on a 25-year
amortization schedule. The balance due at maturity in 2013 will be
approximately $2.1 million. The net proceeds from the loan were approximately
$1.3 million.

On October 1, 2003, we closed on the sale of our 92.9% general partnership
interest in our four commercial properties. Proceeds from the sale of these
properties, net of closing costs and the mortgage balances assumed by the
purchaser, were approximately $1,601,000. The proceeds from the sale were paid
in a combination of approximately $801,000 in cash and 2,859,765 of our common
shares at an average closing price for the 30 calendar days prior to June 27,
2003 of $0.28. Also as a result of the sale approximately $350,000
representing cash from the commercial real estate properties was released from
mortgage related restrictions and made available for operations.

Employment Agreements

Effective as of March 4, 2003, the Compensation Committee approved three new
employment agreements. The employment agreement with Mr. Lund provided for an
annual salary of $150,000 to be paid to Mr. Lund for his services as Chief
Executive Officer through five days after the filing of the Companys December
31, 2002 Form 10-KSB. In connection with the severance provision of this
agreement, on April 7, 2003, Mr. Lund relinquished his position as Chief
Executive Officer and, in consideration for his resignation, received 95,541
preferred shares in lieu of receiving a $300,000 severance payment. The number
of shares issued was based on two times his annual salary with the price of the
preferred shares based on the average closing price for the 30 calendar days
prior to March 1, 2003. Mr. Lund received an annual salary of $60,000 for his
services from April 7, 2003 until June 15, 2003.

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The employment agreements with James C. Mastandrea and John J. Dee provide for
an annual salary of $60,000 each effective as of March 4, 2003 and in
connection therewith, Mr. Mastandrea was appointed as Chief Executive Officer
and Mr. Dee was appointed as Chief Financial Officer on April 7, 2003. The
initial terms of Messrs. Mastandrea and Dees employment are for two years and
may be extended for terms of one year through their 70th birthday. Messrs.
Mastandrea and Dees base annual salaries may be adjusted from time to time,
except that the adjustment may not be lower than the preceding years base
salary. The employment agreements provide that Messrs. Mastandrea and Dee will
be entitled to base salary and bonus at the rate in effect before any
termination for a period of three years in the event that their employment is
terminated without cause by us or for good reason by either Messrs. Mastandrea
or Dee.

The employment agreement with Steven M. Edelman, our Senior Vice President and
Chief Investment Officer, provides for an annual salary of $60,000 effective as
of May 16, 2003. The initial term of Mr. Edelmans employment is for two years
and may be extended for terms of one year through his 70th birthday. Mr.
Edelmans base annual salary may be adjusted from time to time, except that the
adjustment may not be lower than the preceding years base salary. The
employment agreement provides that Mr. Edelman will be entitled to base salary
and bonus at the rate in effect before any termination for a period of three
years in the event that his employment is terminated without cause by us or for
good reason by Mr. Edelman.

Income Tax Audit

Wellingtons income tax returns are currently under audit by the Internal
Revenue Service for the tax periods ended December 31, 1998, 1999 and 2000. We
believe the tax returns as filed appropriately state the taxable income/loss
for each year. However, there can be no assurance that changes will not result
to the taxable income/loss as originally filed. We believe that changes
proposed, if any, may affect the net operating loss carry forward amounts of
the Company but would not have any substantial effect on our cash resources.

Note 12 - Related Party Transactions

Management Fees

We maintained a property management agreement with Hoyt Properties, Inc.
(Hoyt), an entity controlled by Steven B. Hoyt, our former Chairman of the
Board, which served as Property Manager of the commercial properties owned by
us. In connection with the agreement, Hoyt managed the day-to-day operations
of properties owned by us and received a management fee for this service.
Management fees paid to Hoyt were approximately $49,000 for the nine-months
ended September 30, 2003 and 2002. On October 1, 2003 we sold our four
commercial properties managed by Hoyt. As a result, these management fees are
included in discontinued operations.

The Chairman and Chief Executive Office of Paragon is the general partner of
Hampton and owns two companies which provide services to Richton Trail
Apartments. One manages Richton Trail and the other is reimbursed, at cost,
for Richton Trial Apartments payroll related costs. The related management
fees included in the three and nine months ended September 30, 2003 was
approximately $6,000. Reimbursement, at cost, for the payroll related costs
paid to one of the companies for the three and nine months ended September 30,
2003 was approximately $12,700.

Leasing Commissions

During the nine-month period ended September 30, 2003, we paid a leasing
commission of approximately $18,000 to Hoyt in connection with two new leases
for a total of approximately 21,000 square feet.

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Rental Expense

During the nine months ended September 30, 2003 and September 30, 2002, we
recognized rental expense of approximately $8,000 and $24,000, respectively,
related to office space leased from Hoyt.

Rental Income

On January 7, 2003, one of our tenants vacated their noncontiguous space of
31,219 square feet and moved into contiguous space in a building owned by an
affiliate of Steven B. Hoyt, our former Chairman of the Board. In connection
with this move, the tenant has indicated that it intends to continue to pay
rent until the earlier of the expiration date of its lease of March 31, 2004 or
until the space is re-leased. As of September 30, 2003, we have entered into
two new leases on this vacated space. The first lease was effective March 1,
2003 for 9,154 square feet and the second lease was effective June 1, 2003 for
12,200 square feet.

Note 13  Supplemental Information to Statements of Cash Flows

|                                                                                                                  |  |                                         |            |      |  |   |         | 
|----------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---------- | ---- |  | - | ------- | 
|                                                                                                                  |  | For the nine months ended September 30,
|                                                                                                                  |  | 2003                                    |            | 2002
|                                                                                                                  |  |                                         |            |     
|Interest paid                                                                                                     |  | $                                       | 271,123    |      |  | $ | 368,315 | 
|                                                                                                                 
|Supplemental schedule of non-cash investing and
financing activities                                              |  |                                         |            |      |  |   |         | 
|The following assets and liabilities were assumed
in connection with the acquisition of Richton
Trail Apartments: |  |                                         |            |      |  |   |         | 
|Acquisition of residential real estate                                                                            |  | $                                       | (3,986,409 | )    |  | $ |        | 
|Additions to real estate                                                                                          |  |                                         | (1,277     | )    |  |   |        | 
|Mortgage note payable                                                                                             |  |                                         | 1,544,258  |      |  |   |        | 
|Minority Interest                                                                                                 |  |                                         | 2,356,610  |      |  |   |        | 
|                                                                                                                  |  |                                         |            |      |  |   |         | 
|Acquisition and additions to real estate properties                                                               |  | $                                       | (86,818    | )    |  | $ |        | 
|                                                                                                                  |  |                                         |            |      |  |   |         | 

Note 14 - Subsequent Event

On October 1, 2003, we completed the sale of our 92.9% general partnership
interest in Wellington Properties Investments, LP, which resulted in the sale
of all commercial real estate properties that we own. The proceeds from the
sale of the commercial real estate properties, net of closing costs and the
mortgage balances assumed by the purchaser, were approximately $1,601,000. The
proceeds from the sale were paid in a combination of approximately $801,000 in
cash and 2,859,765 of our common shares at an average closing price for the 30
calendar days prior to June 27, 2003 of $0.28.

On October 31, 2003, we completed the refinance of the Richton Trail Apartments
with KeyBank Real Estate Capital. The mortgage loan payable of $2.8 million
has an interest rate of approximately 5.87% for a term of 10 years with monthly
principal and interest payments of approximately $18,000 based on a 25-year
amortization schedule. The balance due at maturity in 2013 will be
approximately $2.1 million. The net proceeds from the loan were approximately
$1.3 million.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.

This report on Form 10-QSB contains forward-looking statements for the
purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934
and such may involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance, and achievements of the Company
to be materially different from results, performance or achievements expressed
or implied by such forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, there can be no assurance that these expectations
will be realized. The Company assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
Factors that could cause actual results to differ materially from managements
current expectations include, but are not limited to, changes in general
economic conditions, changes in local real estate conditions (including rental
rates and competing properties), changes in the economic conditions affecting
industries which employ tenants residing in the Companys properties, the
Companys failure to lease unoccupied space in accordance with the Companys
projections, the failure of the Company to re-lease occupied space upon
expiration of leases, changes in prevailing interest rates, the unavailability
of equity and debt financing, unanticipated costs associated with the
acquisition and integration of the Companys acquisitions, the Companys
ability to obtain adequate insurance for terrorist acts, demand for tenant
services beyond those traditionally provided by landlords, potential liability
under environmental or other laws and the other risks identified in the
Companys Annual Report on Form 10-KSB/A for the year ended December 31, 2002.

Overview

Paragon Real Estate Equity and Investment Trust, formerly Stonehaven Realty
Trust (the Company, Paragon, we, our, or us), is a real estate
company, which acquires, owns and operates commercial and residential real
estate. As of September 30, 2003, we owned four commercial industrial
properties that aggregate approximately 129,000 rentable square feet and one
residential apartment complex containing 72 units. The four commercial
properties were sold on October 1, 2003.

As of September 30, 2003, our commercial properties were 84.8% leased. We
owned our commercial real estate investments through an operating partnership,
Wellington Properties Investments, L.P. (Wellington), of which we are the
sole general partner and own an approximate 92.9% interest.

As of September 30, 2003, our residential apartment complex was 98.6% leased.
We own our residential apartment complex through an operating partnership,
Paragon Real Estate, LP (Paragon Real Estate), of which we are sole general
partner and own a 1.0% interest.

Comparison of the Nine-Month Period Ended September 30, 2003 and 2002

Revenues from Continuing Operations

As a result of the October 1, 2003 sale of our 92.9% general partnership
interest in Wellington (which holds the commercial real estate properties),
rental revenues and interest income and other income related to these
properties was reclassified to discontinued operations for the nine-month
periods ended September 30, 2003 and 2002. Richton Trail Apartments, which we
acquired on July 1, 2003, is included in continuing operations.

Rental revenue increased by approximately $144,000 or 100% for the nine-month
period ended September 30, 2003 compared to the nine-month period ended
September 30, 2002.

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Interest income and other income decreased by approximately $15,000 or 66.5% to
approximately $8,000 for the nine-month period ended September 30, 2003
compared to the nine-month period ended September 30, 2002. The decrease is
primarily due to the decrease in cash and cash equivalents, offset in part by,
the acquisition of the Richton Trail Apartments in July 2003.

Expenses from Continuing Operations

Total expenses increased from approximately $307,000 for the nine-month period
ended September 30, 2002 to $880,000 for the nine-month period ended September
30, 2003, a net increase of $573,000 described below.

As a result of the October 1, 2003 sale of our 92.9% general partnership
interest in Wellington, property taxes and insurance, depreciation and
amortization, interest and management fees related to these properties were
reclassified to discontinued operations. Richton Trail Apartments, which we
acquired on July 1, 2003, is included in continuing operations, as follows:



| |  |  | Property, operating and
maintenance - $33,000
| | - |  | ---------------------------------------------
|
| |  |  | Property taxes and insurance -  $23,000      
|
| |  |  | Depreciation and amortization - $20,000      
|
| |  |  | Interest - $27,000                           
|
| |  |  | Management fees - $6,000                     

General and administrative increased from approximately $290,000 for the
nine-month period ended September 30, 2002 to $754,000 for the nine-month
period ended September 30, 2003. The increase was primarily the result of
increased costs associated with our exploration of alternatives for growth of
the Company, coupled with a $300,000 severance expense recorded in connection
with the employment contract of Duane H. Lund, our former Chief Executive
Officer. Mr. Lund received 95,541 preferred shares in lieu of a cash payment
as a means to preserve cash. The number of shares issued was based on two
times his annual salary with the price of the preferred shares based on the
average closing price for the 30 calendar days prior to March 1, 2003.

Loss from operations before minority interests

As a result of the above, loss from operations before minority interests
increased from approximately $284,000 for the nine-month period ended September
30, 2002 to approximately $728,000 for the nine-month period ended September
30, 2003.

Loss allocated to minority interests

Loss allocated to minority interests decreased from approximately $125,000 for
the nine-month period ended September 30, 2002 to approximately $41,000 for the
nine-month period ended September 30, 2003.

Loss from operations

As a result of the above, loss from operations increased from approximately
$159,000 for the nine-month period ended September 30, 2002 to approximately
$687,000 for the nine-month period ended September 30, 2003.

Gain on sale of marketable securities

The gain on sale of marketable securities of approximately $105,000 for the
nine-month period ended September 30, 2003 was a result of our sale of 25,000
shares of Stellent common stock at an average price of $7.97 per share.

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The gain on sale of marketable securities of approximately $56,000 for the
nine-month period ended September 30, 2002 was a result of our sale of 40,000
shares of Stellent common stock at an average price of $31.34 per share.

Our Stellent stock was acquired in connection with the disposition of our
technology segment on July 10, 2001 and was valued at $29.94 per share based on
the NASDAQ closing quote per share on July 9, 2001.

Provision for loss on marketable securities

The provision for loss on marketable securities of approximately $1,048,000 for
the nine-month period ended September 30, 2002 was a result of the decline in
market value of Stellent stock. Given market conditions at that time,
management viewed the decline in value of Stellent stock as a permanent
impairment. Accordingly, we recorded a provision for loss on marketable
securities.

Loss from continuing operations

Loss from continuing operations decreased from approximately $1,151,000 for the
nine-month period ended September 30, 2002 to approximately $581,000 for the
nine-month period ended September 30, 2003.

Discontinued operations

Loss from discontinued operations of our technology segment, net of tax
was approximately $0 and $73,000 for the nine-month periods ended September 30,
2003 and 2002, respectively, and was a result of the Companys discontinued
operations of its technology segment.

Loss from discontinued operations of our commercial properties, net of tax
was approximately $495,000 and $1,580,000 for the nine-month periods ended
September 30, 2003 and 2002, respectively. The discontinued operations were a
result of our commitment to sell our 92.9% general partnership interest in
Wellington, which was subsequently sold on October 1, 2003.

As a result of the sale of our commercial properties on October 1, 2003,
we received cash in the amount of approximately $1,151,000. The cash received
represents approximately $801,000 proceeds from the sale and approximately
$350,000 cash released from mortgage related restrictions and made available
for operations.

Preferred Share Dividends

Preferred share dividends decreased from approximately $315,000 for the
nine-month period ended September 30, 2002 to $0 for the nine-month period
ended September 30, 2003. The preferred shareholders were offered a one-time
incentive to exchange each preferred share for 22.881 common shares. In
connection with the exchange offer, preferred and common shareholders approved
a proxy proposal in June 2003 to eliminate the dividend requirement of the
preferred shares.

Net loss attributable to Common Shareholders

Based on the above, the net loss attributable to common shareholders decreased
from approximately $3,119,000 for the nine-month period ended September 30,
2002 to $1,077,000 for the nine-month period ended September 30, 2003.

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Comparison of the Three-Month Period Ended September 30, 2003 and 2002

Revenues from Continuing Operations

As a result of the October 1, 2003 sale of our 92.9% general partnership
interest in Wellington (which holds the commercial real estate properties),
rental revenues and interest income and other income related to these
properties was reclassified to discontinued operations for the three-month
periods ended September 30, 2003 and 2002. Richton Trail Apartments, which we
acquired on July 1, 2003, is included in continuing operations.

Rental revenue increased by approximately $144,000 or 100% for the three-month
period ended September 30, 2003 compared to the three-month period ended
September 30, 2002.

Interest income and other income decreased by approximately $3,000 or 39.6% to
approximately $4,000 for the three-month period ended September 30, 2003
compared to the three-month period ended September 30, 2002. The decrease is
primarily due to the decrease in cash and cash equivalents, offset in part by,
the acquisition of the Richton Trail Apartments in July 2003.

Expenses from Continuing Operations

Total expenses increased from approximately $124,000 for the three-month period
ended September 30, 2002 to $272,000 for the three-month period ended September
30, 2003, a net increase of $148,000 described below.

As a result of the October 1, 2003 sale of our 92.9% general partnership
interest in Wellington, property taxes and insurance, depreciation and
amortization, interest and management fees related to these properties were
reclassified to discontinued operations. Richton Trail Apartments, which we
acquired on July 1, 2003, is included in continuing operations, as follows:



| |  |  | Property, operating - $33,000          
| | - |  | ---------------------------------------
|
| |  |  | Property taxes and insurance - $23,000 
|
| |  |  | Depreciation and amortization - $22,000
|
| |  |  | Interest - $28,000                     
|
| |  |  | Management fees - $6,000               

General and administrative increased from approximately $119,000 for the
three-month period ended September 30, 2002 to $155,000 for the three-month
period ended September 30, 2003. The increase was primarily the result of
increased costs associated with our exploration of alternatives for growth of
the Company.

Loss from operations before minority interests

As a result of the above, loss from operations before minority interests
increased from approximately $117,000 for the three-month period ended
September 30, 2002 to approximately $124,000 for the three-month period ended
September 30, 2003.

Loss allocated to minority interests

Loss allocated to minority interests decreased from approximately $100,000 for
the three-month period ended September 30, 2002 to a gain allocated to minority
interest of approximately $1,000 for the three-month period ended September 30,
2003.

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Loss from operations

As a result of the above, loss from operations increased from approximately
$17,000 for the three-month period ended September 30, 2002 to approximately
$125,000 for the three-month period ended September 30, 2003.

Gain on sale of marketable securities

The gain on sale of marketable securities of approximately $105,000 for the
three-month period ended September 30, 2003 was a result of our sale of 25,000
shares of Stellent common stock at an average price of $7.97 per share.

Our Stellent stock was acquired in connection with the disposition of our
technology segment on July 10, 2001 and was valued at $29.94 per share based on
the NASDAQ closing quote per share on July 9, 2001.

Provision for loss on marketable securities

The provision for loss on marketable securities of approximately $1,048,000 for
the three-month period ended September 30, 2002, was a result of the decline in
market value of Stellent stock. Given market conditions at that time,
management viewed the decline in value of Stellent stock as a permanent
impairment. Accordingly, we recorded a provision for loss on marketable
securities.

Loss from continuing operations

Loss from continuing operations decreased from approximately $1,064,000 for the
three-month period ended September 30, 2002 to approximately $19,000 for the
three-month period ended September 30, 2003.

Discontinued operations

Loss from discontinued operations of our technology segment, net of tax
was approximately $0 and $24,000 for the three-month periods ended September
30, 2003 and 2002, respectively, and was a result of the Companys discontinued
operations of its technology segment.

Income (loss) from discontinued operations of our commercial properties,
net of tax was approximately $55,000 and ($1,416,000) for the three-month
periods ended September 30, 2003 and 2002, respectively. The discontinued
operations were a result of our commitment to sell our 92.9% general
partnership interest in Wellington, which was subsequently sold on October 1,
2003.

As a result of the sale of our commercial properties on October 1, 2003,
we received cash in the amount of approximately $1,151,000. The cash received
represents approximately $801,000 proceeds from the sale and approximately
$350,000 cash released from mortgage related restrictions and made available
for operations.

Net loss attributable to Common Shareholders

Based on the above, the net loss attributable to common shareholders decreased
from approximately $2,504,000 for the three-month period ended September 30,
2002 to a net income attributable to common shareholders of approximately
$55,000 for the three-month period ended September 30, 2003.

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Liquidity and Capital ResourcesShort Term and Long Term Liquidity

Cash provided by operations, equity transactions, borrowings from affiliates
and lending institutions has generally provided the primary sources of
liquidity to the Company. Historically, the Company has used these sources to
fund operating expenses, satisfy its debt service obligations and fund
distributions to shareholders. For the nine-months ended September 30, 2003
and September 30, 2002, our net cash used in continuing operations totaled
approximately $158,000 and $212,000, respectively.

As of September 30, 2003, our unrestricted cash resources were $483,000 and our
marketable securities available for sale were approximately $116,000. Our
marketable securities represented 15,000 shares of Stellent. The NASDAQ
closing quote on November 3, 2003 was $9.14 per share of Stellent.

During the three-month period ended September 30, 2003, we sold 25,000 Stellent
shares at an average price of $7.97 per share and recognized a gain on the sale
of these shares totaling approximately $105,000. Net proceeds from these sales
were approximately $199,000.

Subsequent to September 30, 2003, we sold 5,000 shares of Stellent at a price
of $10.00 per share and recognized a gain on the sale of these shares totaling
approximately $31,000.

On March 4, 2003, we hired two executives and on June 30, 2003 the common and
preferred shareholders elected five new trustees. Our new management intends
to implement a business strategy that will involve nationwide real estate
acquisition, development and re-development transactions. This strategy will
be dependent on external sources of capital. Failure to obtain this capital
will materially and adversely affect the strategy and will materially and
adversely affect our operations, liquidity and financial results.

On June 30, 2003, the holders of our preferred shares consented to waive the
dividend that would otherwise have been payable in May 2003 and to eliminate
any future dividends that would have been payable under the terms of our
preferred shares. The waiver was sought in connection with a one-time
incentive exchange offer under which we will offer to exchange each of our
preferred shares for 22.881 common shares.

In May 2003, we offered preferred shareholders a one-time incentive to exchange
preferred shares into common shares, which expired June 30, 2003. Through that
exchange offer, preferred shareholders exchanged 1,174,120 of the preferred
shares, or nearly 81%, for 26,865,042 common shares. After the exchange offer
was completed, the remaining preferred shares held by investors not affiliated
with Paragon had an aggregate market value below $1 million and therefore no
longer met the minimum requirement for listing on the American Stock Exchange,
as set forth in Section 1202(b) of the Exchanges Company Guide.This
requirement was disclosed in the proxy statement as well as our intent not to
seek another trading market for the preferred shares. The Exchange suspended
trading of the preferred shares and submitted an application with the
Securities and Exchange Commission to remove the preferred shares from listing
and registration in accordance with Section 12 of the Securities and Exchange
Act of 1934. Preferred shareholders retain the right to convert each of their
shares for 3.448 common shares. The preferred shares are now on the Over the
Counter Market with the symbol PRGYP.

We recognize that the cash flow from our properties is not expected to fully
fund our future liquidity requirements. In this case, we intend to pursue
available alternatives to preserve our cash to allow the Company to meet its
ongoing obligations. Such alternatives include, among others, to pursue
additional or alternate financing or to sell our properties. There can be no
assurance that any of the alternatives will be adopted, or if adopted, will be
successful.

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On October 31, 2003, we completed the refinance of the Richton Trail Apartments
with KeyBank Real Estate Capital. The mortgage loan payable of $2.8 million
has an interest rate of approximately 5.87% for a term of 10 years with monthly
principal and interest payments of approximately $18,000 based on a 25-year
amortization schedule. The balance due at maturity in 2013 will be
approximately $2.1 million. The net proceeds from the loan were approximately
$1.3 million.

On October 1, 2003, we closed on the sale of our 92.9% general partnership
interest in our four commercial properties. Proceeds from the sale of these
properties, net of closing costs and the mortgage balances assumed by the
purchaser, were approximately $1,601,000. The proceeds from the sale were paid
in a combination of approximately $801,000 in cash and 2,859,765 of our common
shares at an average closing price for the 30 calendar days prior to June 27,
2003 of $0.28. Also as a result of the sale approximately $350,000
representing cash from the commercial real estate properties was released from
mortgage related restrictions and made available for operations.

Cash Flows

During the nine-month period ended September 30, 2003, we generated
approximately $199,000 from the sale of marketable securities, net of
commissions. Cash was used primarily for (i) cash used in continuing
operations of approximately $158,000; (ii) cash used in discontinued operations
of our commercial real estate properties of approximately $469,000; (iii)
acquisition and additions to real estate properties of approximately $87,000;
(iv) payments on mortgage loans and notes payable of approximately $7,000; and
(v) payments of deferred financing costs of approximately $24,000. As a
result, the Companys cash balance decreased by approximately $546,000 from
approximately $1,029,000 at December 31, 2002 to approximately $483,000 at
September 30, 2003.

Business Objectives and Operating Strategies

Our business plan focuses on growth by capitalizing on real estate
opportunities across the United States. These opportunities may involve the
acquisition, development, re-development, leasing or management of properties,
portfolios and real estate companies. We will seek opportunities that we
believe will provide substantial value to Paragon.

Current Tax Status

At September 30, 2003, we have net operating losses. As of December 31, 2002,
our net operating losses were approximately $4,106,000. While these losses
created a deferred tax asset, a valuation allowance was applied against the
asset because of the uncertainty of whether we will be able to use these loss
carry forwards, which will expire in varying amounts through the year 2021.

We, and certain of our subsidiaries, are also subject to certain state and
local income, excise and franchise taxes. The provision for state and local
taxes has been reflected in general and administrative expense in the
consolidated statements of operations and has not been separately stated due to
its insignificance.

Wellingtons income tax returns are currently under audit by the Internal
Revenue Service for the tax periods ended December 31, 1998, 1999 and 2000.
Management believes the tax returns as filed appropriately state the taxable
income/loss for each year. However, there can be no assurance that changes
will not result to the taxable income/loss as originally filed. Management
believes that changes proposed, if any, may affect the net operating loss carry
forward amounts of the Company but would not have any substantial effect on our
cash resources.

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ITEM 3. CONTROLS AND PROCEDURES

As of September 30, 2003, the date of this report, James M. Mastandrea, our
Chief Executive Officer and John J. Dee, our Chief Financial Officer, evaluated
the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Rule 13a-15(b) under the Securities
Exchange Act of 1934. Based upon this evaluation, Messrs. Mastandrea and Dee
concluded that, as of September 30, 2003, our disclosure controls and
procedures are effective to ensure that material information relating to the
Company and our consolidated subsidiaries is recorded, processed, summarized
and reported in a timely manner.

Further, there were no significant changes in the internal controls or, to our
knowledge, in other factors that could significantly affect such controls
subsequent to September 30, 2003.

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PART II. OTHER INFORMATION




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

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

|        |  |                                                                                           
|------- |  | ------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                           
|Number  |  | Exhibit Description                                                                       
|        |  |                                                                                           
|31.1    |  | Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002  James C.
Mastandrea
|        |  |                                                                                           
|31.2    |  | Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002  John J. Dee        
|        |  |                                                                                           
|32.1    |  | CEO/CFO Certification under Section 906 of Sarbanes-Oxley Act of 2002.                    

(b) Reports On Form 8-K

On July 15, 2003, we filed with the Securities and Exchange Commission a
Current Report on Form 8-K dated July 1, 2003 reporting our acquisition of
Richton Trail Apartments.

On October 3, 2003, we filed with the Securities and Exchange Commission a
Current Report on Form 8-K dated October 1, 2003 reporting our disposition of
our general partnership interests in four industrial properties located in
Minnesota.

No other Form 8-Ks were filed during the nine-month period ended September 30,
2003 and through November 5, 2003.




SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                       |  |                                                 |  |                         |  | 
|---------------------- |  | ----------------------------------------------- |  | ----------------------- |  | 
|                       |  | PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
|                       |  | By:                                             |  | /s/ James C. Mastandrea |  | 
|                       |  |                                                 |  |                         |  | 
|Date: November 5, 2003 |  |                                                 |  | James C. Mastandrea     |  | 
|                       |  |                                                 |  | Chief Executive Officer |  | 
|                       |  |                                                 |  |                         |  | 
|                       |  | PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
|                       |  | By:                                             |  | /s/ John J. Dee         |  | 
|                       |  |                                                 |  |                         |  | 
|Date: November 5, 2003 |  |                                                 |  | John J. Dee             |  | 
|                       |  |                                                 |  | Chief Financial Officer |  | 

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