**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

----

 

**Form 10-QSB**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15() OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September30, 2001**

 

**Commission File Number:**

 

**0-25074**

 

**STONEHAVEN REALTY TRUST**

(Exactname of registrant as specified in its charter)

 

| **Maryland**(State or other jurisdiction of  incorporation)                              |   | **39-6594066**(I.R.S. Employer Identification Number) |
|------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|
| **4150 Olson Memorial Highway, Minneapolis, MN**(Address of principal executive offices) |   | **55422** (Zip code)                             |

 

Issuer'stelephone number: 763-398-1100 Fax number: 763-398-1101

 

 

Securitiesregistered under Section 12(b) of the Act: None

 

Securitiesregistered under Section 12(g) of the Act: Common Shares, $0.01 par value

 

----

 

Check whether theissuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to the filing requirements for the past 90 days. Yes ý No o

 

As of November 5,2001, 4,517,524 shares of the issuer's common shares were outstanding.

 

Transitional SmallBusiness Disclosure Format (Check one): Yes o No ý

(Added by Exch ActRel No. 31905, eff 4/26/93.)

 

**This report contains 27 pages. There areno exhibits.**

 

 

 

**STONEHAVEN REALTY TRUST AND SUBSIDIARIES**

**FORM 10-QSB**

**INDEX**

** **
| **PART  I.  Financial Information**                                                                                   |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                       |   |
| Consolidated Balance  Sheet—September 30, 2001 (unaudited)                                                            |   |
|                                                                                                                       |   |
| Consolidated  Statements of Operations—Nine months ended September 30, 2001 and  September 30, 2000 (unaudited)  |   |
|                                                                                                                       |   |
| Consolidated  Statements of Operations—Three months ended September 30, 2001 and  September 30, 2000 (unaudited) |   |
|                                                                                                                       |   |
| Consolidated  Statements of Cash Flows—Nine months ended September 30, 2001 and  September 30, 2000 (unaudited)  |   |
|                                                                                                                       |   |
| Notes to  Consolidated Financial Statements                                                                                |   |
|                                                                                                                       |   |
| Management's  Discussion and Analysis of Financial Condition and Plan of Operation                                         |   |
|                                                                                                                       |   |
| **Part II.  Other Information**                                                                                       |   |
|                                                                                                                       |   |
| Other Information                                                                                                          |   |
|                                                                                                                       |   |
| Exhibits and  Reports on Form 8–K                                                                                     |   |
|                                                                                                                       |   |
| Signatures                                                                                                                 |   |
|                                                                                                                       |   |

 

** **

**Stonehaven Realty Trust andSubsidiaries****Consolidated Balance Sheet**

** September 30, 2001**

**(unaudited)**

** **
| **ASSETS**                                                                                                                                                                             |   |        |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|------------|
| Investments  in fixed assets:                                                                                                                                                          |   |        |       |
| Land                                                                                                                                                                                   |   | $           | 2,195,034  |   |
| Buildings  and improvements                                                                                                                                                            |   | 8,823,447   |       |
| Computer  hardware, software and other fixed assets                                                                                                                                    |   | 69,922      |       |
|                                                                                                                                                                                   |   | 11,088,403  |       |
| Accumulated  depreciation and amortization                                                                                                                                             |   | (502,965    | )          |
| Net  investments in real estate                                                                                                                                                        |   | 10,585,438  |       |
| Cash  and cash equivalents                                                                                                                                                             |   | 136,670     |       |
| Marketable  securities, net                                                                                                                                                            |   | 2,880,000   |       |
| Accounts  receivable, net                                                                                                                                                              |   | 148,881     |       |
| Restricted  cash                                                                                                                                                                       |   | 276,496     |       |
| Other  assets, net                                                                                                                                                                     |   | 78,802      |       |
| Deferred  income taxes                                                                                                                                                                 |   | 1,243,200   |       |
| **TOTAL ASSETS**                                                                                                                                                                       |   | $           | 15,349,487 |   |
|                                                                                                                                                                                   |   |        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                         |   |        |       |
| Liabilities:                                                                                                                                                                           |   |        |       |
| Mortgage loans and  notes payable                                                                                                                                                      |   | $           | 6,564,874  |   |
| Related  party notes payable                                                                                                                                                           |   | 402,000     |       |
| Income  taxes payable                                                                                                                                                                  |   | 50,000      |       |
| Accounts  payable and accrued expenses                                                                                                                                                 |   | 1,464,528   |       |
| Deferred  revenue and security deposits                                                                                                                                                |   | 135,832     |       |
| Dividends  and distributions payable                                                                                                                                                   |   | 209,139     |       |
| Total  liabilities                                                                                                                                                                     |   | 8,826,373   |       |
|                                                                                                                                                                                   |   |        | ** ** |
| Minority  interest in consolidated subsidiary                                                                                                                                          |   | **30,449**  | ** ** |
|                                                                                                                                                                                   |   |        | ** ** |
| **COMMITMENTS  AND CONTINGENCIES:  (Note 8)**                                                                                                                                     |   |        | ** ** |
|                                                                                                                                                                                   |   |        | ** ** |
| Shareholders'  equity:                                                                                                                                                                 |   |        | ** ** |
| Preferred Shares –  $0.01 par value, 10,000,000 authorized:   663,291 Class A cumulative convertible shares issued and outstanding,  $10.00 per share liquidation preference |   | 6,633       |       |
| Common Shares - $0.01  par value, 100,000,000 authorized; 4,517,524 shares issued and outstanding                                                                                      |   | 45,176      |       |
| Additional  paid-in capital                                                                                                                                                            |   | 25,184,751  |       |
| Accumulated  other comprehensive loss; net unrealized loss on marketable securities                                                                                                    |   | (1,864,800  | )          |
| Accumulated  deficit                                                                                                                                                                   |   | (16,839,326 | )          |
| Treasury  stock, at cost                                                                                                                                                               |   | (39,769     | )          |
| Total  shareholders' equity                                                                                                                                                            |   | 6,492,665   |       |
| **TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                    |   | $           | 15,349,487 |   |

 

The accompanying notesare an integral part of the consolidated financial statements.

 

 

 

**StonehavenRealty Trust and SubsidiariesConsolidated Statements ofOperations**

**(unaudited)**

 
|                                                                                                                |   | **For  the nine months ended September 30,** |       |
|---------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|------------|
|                                                                                                                |   | ** 2001**                               |       | **2000** |   |
|                                                                                                                |   |                                         |       |   |   |
| **Revenues**                                                                                                        |   |                                         |       |   |   |
| Rental  revenue                                                                                                     |   | $                                            | 895,594    |   | $ | 2,438,178 |   |
| Tenant  recoveries                                                                                                  |   | 568,061                                      |       | 1,413,101 |   |
| Professional  services and sales of hardware and software                                                           |   | 1,803,266                                    |       | 1,696,299 |   |
| Interest  and other                                                                                                 |   | 167,529                                      |       | 269,500 |   |
| Total  revenues                                                                                                     |   | 3,434,450                                    |       | 5,817,078 |   |
| **Expenses**                                                                                                        |   |                                         |       |   |   |
| Property,  operating and maintenance                                                                                |   | 176,359                                      |       | 723,549 |   |
| Advertising  and promotion                                                                                          |   | 107,821                                      |       | 129,694 |   |
| Property  taxes and insurance                                                                                       |   | 353,119                                      |       | 749,320 |   |
| Depreciation  and amortization                                                                                      |   | 1,703,642                                    |       | 1,668,977 |   |
| Interest                                                                                                            |   | 597,099                                      |       | 1,379,765 |   |
| General  and administrative                                                                                         |   | 1,474,820                                    |       | 2,148,895 |   |
| Management  fees                                                                                                    |   | 70,084                                       |       | 191,144 |   |
| Costs  related to professional services and sales of hardware and software                                          |   | 855,785                                      |       | 1,360,237 |   |
| Product  development                                                                                                |   | 114,917                                      |       | 421,456 |   |
| Nonrecurring  expenses                                                                                              |   | -                                            |       | 318,315 |   |
| Total  expenses                                                                                                     |   | 5,453,646                                    |       | 9,091,352 |   |
| Loss  from operations before equity in income of unconsolidated subsidiary and loss  allocated to minority interest |   | (2,019,196                                   | )          | (3,274,274 | ) |
| Equity  in income of unconsolidated subsidiary                                                                      |   | -                                            |       | 2,912 |   |
| Loss  allocated to minority interest                                                                                |   | 67,344                                       |       | 313,755 |   |
| Loss  from operations                                                                                               |   | (1,951,852                                   | )          | (2,957,607 | ) |
| Loss  on sale of investments in real estate                                                                         |   | (165,835                                     | )          | - |   |
| Gain  on sale of certain assets of Stonehaven Technologies                                                          |   | 807,728                                      |       | - |   |
| Loss  before provision for income taxes                                                                             |   | (1,309,959                                   | )          | (2,957,607 | ) |
| Provision  for  income taxes                                                                                   |   | (50,000                                      | )          | - |   |
| Net  Loss                                                                                                           |   | (1,359,959                                   | )          | (2,957,607 | ) |
| Preferred  Share Dividends                                                                                          |   | (315,063                                     | )          | (643,558 | ) |
| Net  loss available to Common Shareholders                                                                          |   | $                                            | (1,675,022 | ) | $ | (3,601,165 | ) |
| Net  loss available to Common Shareholders per Common Share:  Basic and Diluted                                |   | $                                            | (0.37      | ) | $ | (0.84 | ) |
| Weighted  average number of Common Shares outstanding                                                               |   | 4,517,524                                    |       | 4,288,956 |   |
|                                                                                                                     |        |                                              |            |  |  |  |  |  |  |

 

 

 
|                                      |   | **For  the nine months ended September 30,** |       |
|-------------------------------------------|--------|----------------------------------------------|------------|
|                                      |   | ** 2001**                               |       | **2000** |   |
|                                      |   |                                         |       |   |   |
| Comprehensive  loss:                      |   |                                         |       |   |   |
| Net  Loss                                 |   | $                                            | (1,359,959 | ) | $ | (2,957,607 | ) |
| Other  comprehensive loss:                |   |                                         |       |   |   |
| Unrealized  loss on marketable securities |   | (3,108,000                                   | )          | - |   |
| Tax  effect                               |   | 1,243,200                                    |       | - |   |
|                                      |   | (1,864,800)                                  |       | - |   |
| Comprehensive  loss                       |   | $                                            | (3,224,759 | ) | $ | (2,957,607 | ) |

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

 

**StonehavenRealty Trust and SubsidiariesConsolidated Statements ofOperations**

**(unaudited)**

 
|                                                                                |   | **For  the three months ended September 30,** |    |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                                |   | **2001**                                      |    | **2000** |   |
|                                                                                |   |                                          |    |   |   |
| **Revenues**                                                                        |   |                                          |    |   |   |
| Rental  revenue                                                                     |   | $                                             | 202,164 |   | $ | 711,179 |   |
| Tenant  recoveries                                                                  |   | 128,585                                       |    | 505,560 |   |
| Professional  services and sales of hardware and software                           |   | 187,518                                       |    | 656,065 |   |
| Interest  and other                                                                 |   | 108,227                                       |    | 77,816 |   |
| Total  revenues                                                                     |   | 626,494                                       |    | 1,950,620 |   |
| **Expenses**                                                                        |   |                                          |    |   |   |
| Property,  operating and maintenance                                                |   | 28,355                                        |    | 241,947 |   |
| Advertising  and promotion                                                          |   | 13,623                                        |    | 125,693 |   |
| Property  taxes and insurance                                                       |   | 88,851                                        |    | 267,411 |   |
| Depreciation  and amortization                                                      |   | 145,233                                       |    | 723,840 |   |
| Interest                                                                            |   | 124,421                                       |    | 440,469 |   |
| General  and administrative                                                         |   | 401,771                                       |    | 813,758 |   |
| Management  fees                                                                    |   | 16,823                                        |    | 62,571 |   |
| Costs  related to professional services and sales of hardware and software          |   | 120,956                                       |    | 654,944 |   |
| Product  development                                                                |   | -                                             |    | 127,856 |   |
| Nonrecurring  expenses                                                              |   | -                                             |    | 82,150 |   |
| Total  expenses                                                                     |   | 940,033                                       |    | 3,540,639 |   |
| Loss  from operations before (income) loss allocated to minority interest           |   | (313,539                                      | )       | (1,590,019 | ) |
| (Income)  loss allocated to minority interest                                       |   | (17,169                                       | )       | 88,268 |   |
| Loss  from Operations                                                               |   | (330,708                                      | )       | (1,501,751 | ) |
| Gain  on sale of certain assets of Stonehaven Technologies                          |   | 807,728                                       |    | - |   |
| Income  (loss) before provision for income taxes                                    |   | 477,020                                       |    | (1,501,751 | ) |
| Provision  for income taxes                                                         |   | (50,000                                       | )       | - |   |
| Net  Income (Loss)                                                                  |   | 427,020                                       |    | (1,501,751 | ) |
| Preferred  Share Dividends                                                          |   | -                                             |    | (315,063 | ) |
| Net  income (loss) available to Common Shareholders                                 |   | $                                             | 427,020 |   | $ | (1,816,814 | ) |
| Net  income (loss) available to Common Shareholders per Common Share:  Basic   |   | $                                             | 0.09    |   | $ | (0.36 | ) |
| Net  income (loss) available to Common Shareholders per Common Share:  Diluted |   | $                                             | 0.06    |   | $ | (0.36 | ) |
| Weighted  average number of Common Shares outstanding:   Basic                 |   | 4,517,524                                     |    | 5,012,506 |   |
| Weighted  average number of Common Shares outstanding:   Diluted               |   | 6,804,551                                     |    | 5,012,506 |   |
|                                                                                     |        |                                               |         |  |  |  |  |  |  |  |

 

** **

 

 
|                                      |   | **For  the three months ended September 30,** |       |
|-------------------------------------------|--------|-----------------------------------------------|------------|
|                                      |   | **2001**                                      |       | **2000** |   |
|                                      |   |                                          |       |   |   |
| Comprehensive  income (loss):             |   |                                          |       |   |   |
| Net  Income (Loss)                        |   | $                                             | 427,020    |   | $ | (1,501,751 | ) |
| Other  Comprehensive income (loss):       |   |                                          |       |   |   |
| Unrealized  loss on marketable securities |   | (3,108,000                                    | )          | - |   |
| Tax  effect                               |   | 1,243,200                                     |       | - |   |
|                                      |   | (1,864,800)                                   |       | - |   |
| Comprehensive  loss                       |   | $                                             | (1,437,780 | ) | $ | (1,501,751 | ) |
|                                           |        |                                               |            |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

 

**Stonehaven Realty Trust and SubsidiariesConsolidated Statements of Cash Flows**

**(unaudited)**

** **
|                                                                            |   | **For  the nine months ended September 30,** |       |
|---------------------------------------------------------------------------------|--------|----------------------------------------------|------------|
|                                                                            |   | ** 2001**                               |       | **2000** |   |
| **Cash  flows from operating activities:**                                      |   |                                         |       |   |   |
| Net loss                                                                        |   | $                                            | (1,359,959 | ) | $ | (2,957,607 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:    |   |                                         |       |   |   |
| Depreciation  and amortization                                                  |   | 1,703,642                                    |       | 1,668,977 |   |
| Loss  allocated to minority interest                                            |   | (67,344                                      | )          | (313,755 | ) |
| Loss  on sales of investment of real estate                                     |   | 165,835                                      |       | - |   |
| Gain  on sale of certain assets of Stonehaven Technologies                      |   | (807,728                                     | )          | - |   |
| Equity  in income of unconsolidated subsidiary                                  |   | -                                            |       | (2,912 | ) |
| Net change in assets  and liabilities:                                          |   |                                         |       |   |   |
| Accounts  receivable, net                                                       |   | 324,633                                      |       | 24,710 |   |
| Restricted  cash                                                                |   | 757,538                                      |       | (1,466,585 | ) |
| Other  assets, net                                                              |   | 65,418                                       |       | (3,749 | ) |
| Income  taxes payable                                                           |   | 50,000                                       |       | - |   |
| Accounts  payable and accrued expenses                                          |   | (854,279                                     | )          | 486,395 |   |
| Deferred  revenue and security deposits                                         |   | (10,383                                      | )          | 170,692 |   |
| Net  cash used in operating activities                                          |   | (32,627                                      | )          | (2,393,834 | ) |
|                                                                            |   |                                         |       |   |   |
| **Cash  flows from investing activities:**                                      |   |                                         |       |   |   |
| Acquisition of and  additions to real estate properties                         |   | (43,305                                      | )          | (1,359,246 | ) |
| Acquisition of  computer hardware, software and other fixed assets              |   | (63,649                                      | )          | (857,550 | ) |
| Acquisition of  licensing agreements                                            |   | (300,000                                     | )          | - |   |
| Cash proceeds from  disposition of real estate property                         |   | 593,579                                      |       | 66,652 |   |
| Costs associated with  disposition of certain assets of Stonehaven Technologies |   | (827,738                                     | )          | - |   |
| Cash proceeds from  acquisition of consolidated subsidiary                      |   | -                                            |       | 160,759 |   |
| Redemption of  marketable securities, net                                       |   | -                                            |       | 5,188,779 |   |
| Investment in  unconsolidated subsidiary                                        |   | -                                            |       | 7,425 |   |
| Net cash (used in) provided by  investing activities                            |   | (641,113                                     | )          | 3,206,819 |   |
|                                                                            |   |                                         |       |   |   |
| **Cash  flows from financing activities:**                                      |   |                                         |       |   |   |
| Payments for financing  transactions                                            |   | -                                            |       | (61,249 | ) |
| Payments on mortgage  loans and notes payable                                   |   | (77,443                                      | )          | (422,515 | ) |
| Payments on line of  credit                                                     |   | -                                            |       | (68,466 | ) |
| Payments of related  party note payable                                         |   | -                                            |       | (415,000 | ) |
| Repurchase of Common  Shares                                                    |   | -                                            |       | (39,769 | ) |
| Dividends/distributions  paid                                                   |   | (815,063                                     | )          | (433,519 | ) |
| Proceeds from related  party note payable                                       |   | 67,000                                       |       | - |   |
| Net cash used in financing activities                                           |   | (825,506                                     | )          | (1,440,518 | ) |
|                                                                            |   |                                         |       |   |   |
| Net decrease in cash  and cash equivalents                                      |   | (1,499,246                                   | )          | (627,533 | ) |
| Cash  and cash equivalents                                                      |   |                                         |       |   |   |
| Beginning of period                                                             |   | 1,635,916                                    |       | 2,892,724 |   |
| End of period                                                                   |   | $                                            | 136,670    |   | $ | 2,265,191 |   |
|                                                                                 |        |                                              |            |  |  |  |  |  |  |

The accompanying notes arean integral part of the consolidated financial statements.

 

 

**Stonehaven Realty Trust and Subsidiaries**

 

**Notes to Consolidated FinancialStatements**

 

**Note 1—Organization**

 

Stonehaven Realty Trust (the"Company") is a real estate andtechnology company separated into two business segments: a commercial realestate segment which acquires, owns and operates commercial real estate and atechnology segment which provides information technology consulting anddocument management solutions.

 

TheCompany is a self-administered real estate investment trust (“REIT”) formed onMarch 15, 1994 under Maryland law.  InNovember 1998, the Company became an umbrella partnership REIT and formed anoperating partnership, Wellington Properties Investments, L.P. (“Operating Partnership”),of which the Company is the sole general partner and owns an approximate 92.9%interest.  Through the OperatingPartnership and certain wholly owned subsidiaries, the Company acquires, ownsand operates commercial real estate investment properties.  As of September 30, 2001, the Company ownedfour commercial industrial properties that contained approximately 129,000rentable square feet.

 

On July 10, 2001, Stonehaven Technologies, Inc.(Formerly, RESoft, Inc.) (“Stonehaven Technologies”), a Delaware company and awholly-owned subsidiary of Stonehaven Realty Trust, sold certain of its assetsto Stellent, Inc. (Formerly, IntraNet Solutions, Inc.) (”Stellent”), aMinnesota company (NASDAQ: STEL).

 

**Note 2—Basisof Presentation and Summary of Significant Accounting Policies**

 

The Company has prepared the consolidated financialstatements without audit pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnotedisclosures normally included in the financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations.  However, the Company believes that the included disclosures areadequate to make the information presented not misleading. In the opinion ofthe Company, all adjustments (consisting solely of normal recurring items)necessary for a fair presentation of the financial position of the Company asof September 30, 2001, the results of their operations for the nine months andthree months ended September 30, 2001 and 2000, and their cash flows for thenine month periods ended September 30, 2001 and 2000 have been included. Theresults of operations for such interim periods are not necessarily indicativeof the results for a full year. For further information, refer to the Company'sconsolidated financial statements and footnotes included in the Annual Reportof Form 10-KSB for the year ended December 31, 2000.

 

**Use of Estimates in the Preparation of Financial Statements**

 

In order to conform with generally accepted accountingprinciples, management, in preparation of the Company's consolidated financialstatements, is required to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities as of September 30, 2001, and the reported amounts of revenuesand expenses for the nine months and three months ended September 30, 2001 and2000. Actual results could differ from those estimates.

# ** **

# **Other Assets**

 

As of September 30,2001, other assets primarily consist of deferred financing costs incurred toobtain and secure mortgage debt financing. Other assets are carried at cost, less accumulated amortization.

 

The deferred financing costs are being amortized over thelife of the respective loans on a straight-line basis.  Accumulated amortization related to deferredfinancing costs as of September 30, 2001 was approximately $19,000.

 

As a result ofthe sale of certain assets of Stonehaven Technologies on July 10, 2001, ourability to market our royalties, and licensing agreements has beensignificantly impaired primarily due to the fact that Stellent has become anactive competitor to our technology. Stellent and other competitors have substantiallygreater resources, financial and otherwise, than we do.   As a result, the Company considers theremaining unamortized costs of these assets of approximately $1,210,000($1,800,000 net of accumulated amortization of approximately $590,000) as anoffset tothe gain on sale of certain assets of Stonehaven Techologies.

 

Further, as a result of the sale of certain assets ofStonehaven Technologies on July 10, 2001, goodwill incurred in connection withthe acquisition of Stonehaven Technologies was recorded as an offset to gain onsale of certain assets of Stonehaven Technologies.

 

**Revenue Recognition**

 

Rental revenue from tenants is recognized on astraight-line basis over the term of the lease agreements regardless of whenpayments are due.  Tenant recoveriesinclude payments from commercial property tenants for reimbursement of thetenant’s share of real estate taxes and certain common area maintenancecosts.  Such costs are recognized asrevenue in the period the costs are incurred.

 

Revenue generated from professional services and sales ofhardware and software is recognized as services and goods are provided.  Services billed in advance are recorded asdeferred revenues and recognized when revenue is earned.

 

**Product Development Costs**

 

Costs related to development of the Company’s newsoftware product are charged to product development expense as incurred.  Software development costs are capitalizedbeginning when a product’s technological feasibility has been established,which to date has been when the Company has a working model of the software,and ending, when a product is available for general release to customers.  Substantially all development costs areincurred prior to establishing a working model.  As a result, the Company has not capitalized any softwaredevelopment costs since costs have not been significant.

 

# **Income Taxes**

 

Thetax provision differs from the benefit that would ordinarily result fromapplying Federal statutory rates to the loss before taxes due to the effect ofstate income taxes and valuation allowances for deferred tax assets.  Substantially all deferred tax assets relateto net operating loss carry forwards and unrealized loss on marketablesecurities.

 

AtSeptember 30, 2001, the Company has net operating losses.  While these losses created a deferred taxasset, a valuation allowance was applied against the asset because of theuncertainty of whether or not the Company will be able to use these loss carryforwards, which will expire in varying amounts through the year 2021.

 

**Segment Disclosure**

 

In June 1997, the FASB issued Statement of FinancialAccounting Standards No. 131, “Disclosures about Segments of an Enterprise andRelated Information”.  This statementrequires that a public company report financial and descriptive informationabout its reportable operating segments. Generally, financial information is required to be reported on the basisthat it is used internally for evaluating segment performance and deciding howto allocate resources to segments, Management views the Company as two businesssegments: a commercial real estate segment which acquires, owns and operatescommercial real estate and a technology segment which provides informationtechnology consulting and document management solutions.

 

**Note 3—MarketableSecurities**

 

The Company’s investments in marketable securities areavailable-for-sale and represent 200,000 shares of common stock ofStellent.  Such shares were acquired inconnection with the sale of certain assets of Stonehaven Technologies on July10, 2001 and were recorded at an aggregate of $5,988,000 (valued at $29.94 pershare based on the NASDAQ closing quote per share of common stock of Stellenton July 9, 2001).  The shares wereunregistered when acquired and Stellent subsequently registered the shares withthe Securities and Exchange Commission effective September 7, 2001.  As of September 30, 2001, the fair marketvalue of these marketable securities aggregate $2,880,000 (based upon theNASDAQ closing quote per share of common stock of Stellent of $14.40 onSeptember 30, 2001).  As a result theCompany has recorded a gross unrealized loss of $3,108,000 net of relateddeferred tax benefit of approximately $1,243,000.

 

Through September 30, 2001, the Company had not sold anyof its available-for-sale marketable securities.

 

**Note 4—Dispositionof Certain Assets of Stonehaven Technologies and Real Estate Properties**

 

OnJuly 10, 2001, Stonehaven Technologies sold all of its interest in SmartCabinetsoftware code (software technology replicating and mapping a company’s businesslogic in web base format) and related assets including its REDocs initiatives,to Stellent pursuant to an Asset Purchase Agreement between the Company,Stonehaven Technologies and Stellent.

 

In exchange for theSmartCabinet software code and related assets, Stonehaven Technologies received200,000 unregistered shares of Stellent common stock (the "StellentShares") with a market value aggregating approximately $5,988,000 (valuedat $29.94 per share based on the NASDAQ closing quote per share on July 9,2001).  Stellent subsequently registeredthe Stellent Shares with the Securities and Exchange Commission effectiveSeptember 7, 2001.  Additionally, StonehavenTechnologies retained the right to continue to sell the SmartCabinet productwith certain retained Stellent Expedio software licenses pursuant to a ValueAdded Reseller Agreement dated September 30, 2000 between StonehavenTechnologies and Stellent.  StonehavenTechnologies will also receive a 2% royalty fee for two years for sales of theSmartCabinet product by Stellent and a 5% referral fee on sales of theSmartCabinet product to customers referred to Stellent by StonehavenTechnologies.   The Company has recordeda gain on the sale of approximately $808,000 as of September 30, 2001,  net of the unamortized costs of certain royalties, licensing agreements, and goodwill.

 

Inconnection with the transaction, Stonehaven Technologies and Mary Henschel,former President of Stonehaven Technologies, entered into a SeparationAgreement.  Ms. Henschel and most ofStonehaven Technologies' other employees are no longer employed by StonehavenTechnologies.  Further, Duane H. Lundterminated his employment with Stonehaven Technologies as of September 9,2001.  Associated costs in connection withthe agreements have been accrued as of September 30, 2001.

Stonehaven Technologies also terminatedits Exclusive Agency and Representation Agreement with Venture One Real Estate,LLC, and agreed to pay it a $262,500 termination fee.  In connection with the termination, the warrants associated withthe agreement were cancelled.

 

On March 31, 2001, the Company sold the St. Cloud,Minnesota real property to an unrelated third party.  In exchange for the real property, the Company receivedapproximately $8.3 million in cash.  Inaddition, the Company retired the related mortgage indebtedness ofapproximately $7.3 million.  The Companyhas recorded a loss on the sale of the investment in the real estate ofapproximately $166,000 as of September 30, 2001.

 

The following pro formacondensed consolidated financial information presented below is as if theacquisition of the Plymouth Properties and the dispositions of Lake Pointe,Highlander, Cold Springs, Thresher and certain assets of StonehavenTechnologies had occurred on January 1, 2000. The pro forma financial information is not necessarily indicative of theresults, which actually would have occurred if the acquisitions or dispositionshad been consummated on January 1, 2000, nor does the pro forma informationpurport to represent the results of operations for future periods.

** **
|                                               |   | **For the nine months ended  September 30,** |      |
|----------------------------------------------------|--------|----------------------------------------------|-----------|
|                                               |   | **2001**                                     |      | **2000** |   |
| Pro  forma total revenue                           |   | $                                            | 1,144,000 |   | $ | 1,375,000 |   |
| Pro  forma loss                                    |   | $                                            | 657,000   |   | $ | 858,000 |   |
| Pro  forma loss available to Common Shareholders   |   | $                                            | 972,000   |   | $ | 1,502,000 |   |
| Pro  forma loss per Common Share Basic and Diluted |   | $                                            | 0.22      |   | $ | 0.37 |   |

 

**Note 5—MortgageLoans and Notes Payable**

 

In connection withthe disposition of Cold Springs, the Company retired mortgage notes payable totalingapproximately $7.3 million.

 

As of September30, 2001, a Trustee of the Company made a loan to the Company in the amount of$67,000.  The note is short term andbears interest at the prime rate (6.00% at September 30, 2001).

 

**Note 6—Equity/Distributions**

 

On April 19, 2001, the Company declared a dividend of$0.475 per share with respect to the Class A Preferred Shares.  The dividend with respect to the Class APreferred Shares was paid on May 15, 2001 to shareholders of record on April30, 2001.

 

On October 22, 2001, the Company declared a dividend of$0.475 per share with respect to the Class A Preferred Shares.  The dividend with respect to Class APreferred Shares will be paid on November 19, 2001 to shareholders of record onNovember 5, 2001.

 

**Note 7—LossPer Share**

 

The Company has adopted the Statement of FinancialAccounting Standards No. 128, "Earnings Per Share"("EPS") for all periods presented herein. Net loss per weightedaverage Common Share outstanding—basicand net loss per weighted average Common Share outstanding—diluted is computed based on the weightedaverage number of Common Shares outstanding for the period. The weightedaverage number of Common Shares outstanding for the nine months ended September30, 2001 and September 30, 2000 were 4,517,524 and 4,288,956respectively. Common share equivalents ofapproximately 4.2 million include outstanding convertible preferred shares,warrants and stock options, and are not included in net loss per weightedaverage Common Share outstanding—dilutedas they would be anti-dilutive.

 
|                                                                                                              |   | **For  the nine months ended September 30,** |           |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------------|
|                                                                                                              |   | ** 2001**                               |           | **2000** |   |
| **Numerator**                                                                                                     |   |                                         |           |   |   |
| Net Loss                                                                                                          |   | $                                            | (1,359,959     | ) | $ | (2,957,607 | ) |
| Preferred  Share Dividends                                                                                        |   | (315,063                                     | )              | (643,558 | ) |
|                                                                                                              |   |                                         | ** **     |   | ** ** |
| **Net loss available to Common  Shareholders**                                                                    |   | **$**                                        | **(1,675,022** | **)** | **$** | **(3,601,165** | **)** |
|                                                                                                              |   |                                         |           |   |   |
| **Denominator**                                                                                                   |   |                                         | ** **     |   | ** ** |
| Weighted average  Common Shares outstanding at September 30, 2001 and 2000, respectively:  Basic and Diluted |   | 4,517,524                                    |           | 4,288,956 |   |
|                                                                                                              |   |                                         |           |   |   |
| **Basic  and Diluted EPS**                                                                                        |   |                                         |           |   |   |
| Net loss available to  Common Shareholders  - Basic and  Diluted                                             |   | $                                            | (0.37          | ) | $ | (0.84 | ) |

 

 

#### **Note8 – Commitments and Contingencies**

#### ** **

#### **LicenseAgreements**

 

In connection with license agreementsentered into by Stonehaven Technologies on September 28, 2000, StonehavenTechnologies paid $1,350,000 through the nine months ended September 30, 2001.No further payments are required in connection with these agreements.

#### ** **

During the nine months ended September30, 2001, the Company paid $300,000 in connection with certain additionallicenses agreements entered into with Stellent.  No further payments are required in connection with theseagreements.

#### ** **

#### **Legal Proceeding**

### ** **

On December 29, 2000,Stonehaven notified Odeh Muhawesh, a Trustee of the Company, that it wassuspending its payment to him under a promissory note assumed by StonehavenTechnologies. Stonehaven Technologies assumed the payment obligation inFebruary 2000 pursuant to the terms of the merger agreement between theCompany, Stonehaven Technologies and NETLink International, Inc. (“NETLink”), acompany founded and owned by Mr. Muhawesh whereby NETLink was merged intoStonehaven Technologies. Management of the Company believes Mr. Muhawesh is indefault under the merger agreement for, among other things, failure by him tocause to be transferred to Stonehaven Technologies 5% of the issued andoutstanding stock of MyFreeDesk.com, Inc.

 

On January 8, 2001, Mr.Muhawesh filed a complaint against Stonehaven Technologies in the DistrictCourt of Hennepin County, Minnesota alleging that Stonehaven Technologiesfailed to pay him $350,000 on January 1, 2001 under the terms of a promissorynote. The Company has filed a counterclaim against Mr. Muhawesh requesting,among other things, the repayment of amounts previously paid to him under thepromissory note.  Theparties are conducting discovery proceedings.

 

#### **Legal Actions**

 

Inthe normal course of business, the Company is involved in legal actions arisingfrom the ownership and administration of its properties and its technologysegment.  In management’s opinion, theliabilities, if any, that may ultimately result from such legal actions are notexpected to have a materially adverse effect on the consolidated financialposition, operations or liquidity of the Company.

 

**Note 9—RelatedParty Transactions**

 

**Management Fees**

 

The Company maintains a property management agreementwith Hoyt Properties Inc. ("Hoyt"), an entity controlled by aTrustee of the Company, to serve as Property Manager of the commercialproperties owned by the Company.  Inconnection with the agreement, Hoyt manages the day-to-day operations ofproperties owned by the Company and receives a management fee for this service.Management fees paid to Hoyt were approximately $70,000 and $145,000 for thenine months ended September 30, 2001 and September 30, 2000, respectively.

 

**Note10– Supplemental Information to Statements of Cash Flows**

** **
|                                                                                                               |   | **For  the nine months ended September 30,** |    |
|--------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
|                                                                                                               |   | ** 2001**                               |    | **2000** |   |
|                                                                                                               |   |                                         |    |   |   |
| Interest paid                                                                                                      |   | $                                            | 625,768 |   | $ | 1,206,931 |   |
| Supplemental schedule of non-cash investing and financing activities:                                              |   |                                         |    |   |   |
| The following assets and liabilities were assumed in connection with  the acquisition  of Stonehaven Technologies: |   |                                         |    |   |   |
| Furniture  and equipment                                                                                           |   | $                                            | -       |   | $ | (74,672 | ) |
| Accounts  receivable                                                                                               |   | -                                            |    | (430,888 | ) |
| Goodwill                                                                                                           |   | -                                            |    | (4,499,777 | ) |
| Other  assets                                                                                                      |   | -                                            |    | (74,604 | ) |
| Line  of credit                                                                                                    |   | -                                            |    | 68,466 |   |
| Related  party note payable                                                                                        |   | -                                            |    | 750,000 |   |
| Other  liabilities                                                                                                 |   | -                                            |    | 422,233 |   |
| Common  Shares                                                                                                     |   | -                                            |    | 9,143 |   |
| Additional  paid in capital                                                                                        |   | -                                            |    | 3,990,858 |   |
| **Cash proceeds from acquisition  of consolidated subsidiary**                                                     |   | **$**                                        | **-**   | ** ** | **$** | **160,759** | ** ** |

 

**Note10– Supplemental Information to Statements of Cash Flows - continued**

 
|                                                                                                                                                  |   | **For  the nine months ended September 30,** |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|-------------|
|                                                                                                                                                  |   | ** 2001**                               |        | **2000** |   |
|                                                                                                                                                  |   |                                         |        |   |   |
| The following assets and  liabilities were assumed in connection with the   acquisition of the Plymouth Properties and additions to other properties: |   |                                         |        |   |   |
| Purchase of real estate                                                                                                                               |   | $                                            | -           |   | $ | (6,772,313 | ) |
| Additions to real estate                                                                                                                              |   | (43,305                                      | )           | (3,254 | ) |
| Mortgage notes payable                                                                                                                                |   | -                                            |        | 4,471,694 |   |
| Minority interests                                                                                                                                    |   | -                                            |        | 794,627 |   |
| Common shares                                                                                                                                         |   | -                                            |        | 429 |   |
| Additional paid in capital                                                                                                                            |   | -                                            |        | 149,571 |   |
| **Acquisition of and additions to  real estate properties**                                                                                           |   | **$**                                        | **(43,305** | **)** | **$** | **(1,359,246** | **)** |
| The following assets and liabilities were disposed of in connection  with the dispositions of Lake Pointe, Highlander and Cold Springs:               |   |                                         |        |   |   |
| Disposition of real estate                                                                                                                            |   | $                                            | 8,184,686   |   | $ | 3,304,358 |   |
| Disposition of investment in unconsolidated  subsidiary                                                                                               |   | -                                            |        | 95,756 |   |
| Restricted cash                                                                                                                                       |   | -                                            |        | 110,566 |   |
| Deferred costs and other assets                                                                                                                       |   | 26,552                                       |        | 90,942 |   |
| Mortgage note payable                                                                                                                                 |   | (7,306,716                                   | )           | (2,699,460 | ) |
| Accounts payable and accrued liabilities                                                                                                              |   | (140,997                                     | )           | 15,000 |   |
| Security deposits                                                                                                                                     |   | (4,111                                       | )           | (43,914 | ) |
| Dividends paid                                                                                                                                        |   | -                                            |        | (45,000 | ) |
| Preferred shares                                                                                                                                      |   | -                                            |        | (950 | ) |
| Additional paid in capital                                                                                                                            |   | -                                            |        | (760,646 | ) |
| Loss on sale of investment in real estate                                                                                                             |   | (165,835                                     | )           | - |   |
| Cash proceeds from dispositions of real estate properties                                                                                             |   | $                                            | 593,579     |   | $ | 66,652 |   |
| The following assets and liabilities were disposed of in connection  with the disposition of certain assets of Stonehaven Technologies:               |   |                                         |        |   |   |
| Disposition of equipment, net                                                                                                                         |   | $                                            | 675,616     |   | $ | - |   |
| Fair market value of marketable securities  received                                                                                                  |   | (5,988,000                                   | )           | - |   |
| Deferred costs and other assets                                                                                                                       |   | 1,225,223                                    |        | - |   |
| Goodwill, net                                                                                                                                         |   | 2,451,695                                    |        | - |   |
| Gain on sale of certain assets of Stonehaven  Technologies                                                                                            |   | 807,728                                      |        | - |   |
| Costs associated with dispositions of certain assets of Stonehaven  Technologies                                                                      |   | $                                            | (827,738    | ) | $ | - |   |
| Dividends and distributions payable                                                                                                                   |   | $                                            | 209,139     |   | $ | 1,024,202 |   |
| Sales and marketing warrant valuation                                                                                                                 |   | $                                            | -           |   | $ | 682,338 |   |
| Software licensing prepaid minimum royalty                                                                                                            |   | $                                            | 300,000     |   | $ | 1,500,000 |   |
|                                                                                                                                                       |        |                                              |             |  |  |  |  |  |  |

 

 

**Note 11– Information by Business Segment**

 

In June 1997, the FASB issued Statement of FinancialAccounting Standards No. 131, “Disclosure about Segments of an Enterprise andRelated Information”.  This statementrequires that a public business enterprise report financial and descriptiveinformation about its reportable operating segments.  Generally, financial information is required to be reported onthe basis that it is used internally for evaluating segment performance anddeciding how to allocate resources to segments.  Management views the operations of its real estate properties andthe operations of Stonehaven Technologies as two segments.

 

 
|                                      |   | **Real Estate Properties** |       | **Stonehaven Technologies** |       | **Total** |       |
|-------------------------------------------|--------|----------------------------|------------|-----------------------------|------------|-----------|------------|
| **Nine  months ended September 30, 2001** |   |                       |       |                        |       |      |       |
| Revenues                                  |   | $                          | 1,522,635  |                        | $          | 1,911,815 |       | $ | 3,434,450 |   |
| Operating expenses                        |   | 599,595                    |       | 963,573                     |       | 1,563,168 |       |
| Income  from operations                   |   | $                          | 923,040    |                        | $          | 948,242   |       | $ | 1,871,282 |   |
| Segment  assets at September 30, 2001     |   | $                          | 12,281,555 |                        | $          | 3,067,932 |       | $ | 15,349,487 |   |
| **Nine  months ended September 30, 2000** |   |                       | ** ** |                        | ** ** |      | ** ** |
| Revenues                                  |   | $                          | 4,120,779  |                        | $          | 1,696,299 |       | $ | 5,817,078 |   |
| Operating  expenses                       |   | 1,664,013                  |       | 1,489,931                   |       | 3,153,944 |       |
| Income  from operations                   |   | $                          | 2,456,766  |                        | $          | 206,368   |       | $ | 2,663,134 |   |
| Segment assets at  September 30, 2000     |   | $                          | 41,402,726 |                        | $          | 6,965,407 |       | $ | 48,368,133 |   |

 

Thefollowing table reconciles income from operations for reportable segments toloss from operations as reported in the Consolidated Statements of Operations.
|                                            |   | **Nine months ended September 30,** |       |
|-------------------------------------------------|--------|-------------------------------------|------------|
|                                            |   | **2001**                            |       | **2000** |   |
| Income from operations  for reportable segments |   | $                                   | 1,871,282  |   | $ | 2,663,134 |   |
| Add:                                            |   |                                |       |   |   |
| Equity  in income of unconsolidated entities    |   | -                                   |       | 2,912 |   |
| Minority  interests                             |   | 67,344                              |       | 313,755 |   |
| Less:                                           |   |                                |       |   |   |
| General  and administrative                     |   | (1,474,820                          | )          | (2,148,895 | ) |
| Interest                                        |   | (597,099                            | )          | (1,379,765 | ) |
| Product  development                            |   | (114,917                            | )          | (421,456 | ) |
| Nonrecurring  expenses                          |   | -                                   |       | (318,315 | ) |
| Amortization                                    |   | (1,318,224                          | )          | (993,616 | ) |
| Depreciation                                    |   | (385,418                            | )          | (675,361 | ) |
| Loss  from operations                           |   | $                                   | (1,951,852 | ) | $ | (2,957,607 | ) |

 

** **

**ITEM 2****.  MANAGEMENT'S DISCUSSION ANDANALYSIS AND PLAN OF OPERATION**

 

The following discussionshould be read in conjunction with the financial statements and notes theretoincluded elsewhere herein.

 

This report on Form 10-QSB contains “forward-looking”statements within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended.Forward–looking statements are based on certain assumptions and describe futureplans, strategies and expectations of the Company.  They are generally identifiable by use of the words"believe", "expect", "intend","anticipate", "estimate", "project" or similarexpressions. These statements are not guarantees of future performance, eventsor results and involve potential risks and uncertainties. Accordingly, actualperformance, events or results may differ materially from such forward-lookingstatements. Management undertakes no obligation to update publicly anyforward-looking statements, whether as a result of new information, futureevents or otherwise.

 

Factors that could cause actual results to differ materially fromcurrent expectations include, but are not limited to, changes in generaleconomic conditions, changes in interest rates, legislative and regulatorychanges, changes in monetary and fiscal policies of the U.S. government,including policies of the U.S. Treasury and the Federal Reserve Board, changesin local real estate conditions (including rental rates and competingproperties), changes in industries in which the Company's principal tenantscompete, the failure to timely lease unoccupied space, the failure to timelyre-lease occupied spaced upon expiration of leases, the inability to generatesufficient revenues to meet debt service payments and operating expenses, theunavailability of equity and debt financing, unanticipated costs associatedwith the Company's acquisitions, potential liability under environmental orother laws and regulations, expanding a new line of business, customer demandfor online services and products, uncertainty of emerging online services,ability to meet competition, loss of existing key personnel, ability to hireand retain future personnel, the failure of the Company to manage its growtheffectively and the other risks identified in  thisfiling or other reports of the Company filed with the Securities and ExchangeCommission. These risks and uncertainties should be considered in evaluatingforward–looking statements and undue reliance should not be placed on suchstatements. Further information concerning the Company and its business,including additional factors that could materially affect the Company'sfinancial results is included in other Company filings with the Securities andExchange Commission.

 

**Overview**

 

The Company isa real estate and technology company separated into two business segments: acommercial real estate segment which acquires, owns and operates commercialreal estate and a technology segment which provides document managementsolutions and information technology consulting.

 

The Company wasformed on March 15, 1994 as a Maryland real estate investment trust. TheCompany has operated as a traditional real estate investment trust by buying,selling, owning, and operating commercial and residential properties. TheCompany derived substantially all of its revenues since inception throughFebruary 2000 from these real estate operations.

In February 2000, theCompany acquired Stonehaven Technologies, Inc. (formerly, RESoft, Inc.)  (“Stonehaven Technologies”), a Minnesotacorporation that has developed software applications and that providesinformation technology services useful in real estate and other industries.During the remainder of 2000 and through July 10, 2001, the Company developedStonehaven Technologies’ additional product offerings and included in itsoverall business focus the development and sale of Stonehaven Technologies’software product and services. On July 10, 2001, Stonehaven Technologies soldall of its interest in its SmartCabinet software code (software technologyreplicating and mapping a company’s business logic in web base format) andrelated assets, including its REDocs initiatives, to Stellent, Inc., aMinnesota company (NASDAQ:STEL) (“Stellent”) pursuant to an Asset PurchaseAgreement between the Company, Stonehaven Technologies and Stellent.

 

As a result ofthe operations of Stonehaven Technologies, the Company is no longer a REIT forfederal tax purposes but maintains its status as a REIT under Marylandlaw.   For the year ended December 31,2001, the Company expects to have taxable income as a result of the sale ofcertain assets on July 10, 2001, and as such, the Company expects to be subjectto federal and state income taxes.

 

As of September 30, 2001, our unrestricted cash resources were $137,000and our marketable securities available for sale were $2,880,000.  The Company’s marketable securitiesrepresent 200,000 shares of common stock of Stellent.  Such shares were acquired on July 10, 2001, had a fair marketvalue as of July 9, 2001 aggregating $5,988,000 and were registered effectiveas of September 7, 2001 with the Securities and Exchange Commission. We aredependent on the Stellent stock in order to meet our short-term liquidityneeds.  As such, we believe, ourCompany’s future performance will be closely tied to the performance ofStellent.

 

Our current overall objective is to focus on meeting current liquidityrequirements in order to maximize shareholder value.  Our efforts in this regard have been significantly impaired bythe deteriorating market conditions resulting from the general decline ofbusiness conditions over the last year as evidenced by the decline in the valueof Stellent’s common stock.

 

In order to meet ongoing obligations of the Company and transaction costsassociated with the sale of certain assets of Stonehaven Technologies, asof  September 30, 2001 a Trustee of theCompany made a loan to the Company in the amount of $67,000 and subsequent toSeptember 30, 2001 an Officer of the Company made a loan to the Company ofapproximately $100,000 and the Company sold 30,000 shares of common stock ofStellent.  Additionally, the Company hasreserved 50,000 shares of common stock of Stellent to meet its futureobligations.

 

We intend to maintainand operate our remaining commercial properties, which are 88.4% leased atSeptember 30, 2001, due to the expected cash flow results.  However, the cash flow from our propertiesis not expected to fully fund our future liquid requirements, including amongother factors, our ongoing general and administrative costs and our dividendcommitment to our Class A Preferred shareholders.

 

We furtherintend to continue to operate as a document management consulting anddevelopment company, however, in a much more limited capacity. Since the saleof certain assets of Stonehaven Technologies on July 10, 2001, our ability tomarket our licensing agreements and other related assets has been significantlyimpaired primarily due to the fact that Stellent has become an activecompetitor to our licensed technology. Stellent and other competitors havesubstantially greater resources, financial and otherwise, than we do.

 

On October 22, 2001, the Company declared a dividend of$0.475 per share with respect to the Class A Preferred Shares.  The dividend with respect to Class APreferred Shares will be paid on November 19, 2001 to shareholders of record onNovember 5, 2001.

 

We continue to explore and evaluate allavailable alternatives, including, among others, to buy or selladditional properties or assets, to develop and sell future technology productsor expand through the acquisition of new technology products, to pursueadditional or alternate financing, whether debt or equity, or to continue to meet the ongoing dividendrequirement of our Class A Preferred Shares.Therecan be no assurance that any of the alternatives will be adopted, or ifadopted, will be successful. Additionally, we may determine not to adopt any additional businessinitiative.

 

 

**Real Estate Segment**

 

As of September 30, 2001,the Company owned the following four commercial real estate propertiescontaining approximately 129,000 rentable square feet:

 

•      A26,186 square-foot light industrial facility in Plymouth, Minnesota

 

•      A26,186 square-foot light industrial facility in Plymouth, Minnesota

 

•      A26,186 square-foot light industrial facility in Plymouth, Minnesota

 

•      A50,291 square-foot light industrial facility in Burnsville, Minnesota

 

 The Company’s interest in the real propertiesis held through Wellington Properties Investments, LP (the “OperatingPartnership”).  The Company is the solegeneral partner of the Operating Partnership and, as of September 30, 2001,held a 92.9% interest in the Operating Partnership.

 

On March 31, 2001, the Company sold the St. Cloud,Minnesota real property to an unrelated third party.  In exchange for the real property, the Company receivedapproximately $8.3 million in cash.  Inaddition, the Company retired the related mortgage indebtedness ofapproximately $7.3 million.  The Companyhas recorded a loss on the sale of the investment in the real estate ofapproximately $166,000 as of September 30, 2001.

 

**Technology Segment**

 

As of September30, 2001, the Company holds Stonehaven Technologies which, since 1991, hasoffered various information technology services and has been a reseller ofvarious computer hardware and software products. Stonehaven Technologies,through July 10, 2001, has continued to provide similar service offerings andin addition, introduced a proprietary product, REDocsTM, that adds certainfeatures to existing document management software products.  OnJuly 10, 2001, Stonehaven Technologies sold all of its interest in SmartCabinetsoftware code (software technology replicating and mapping a company’s businesslogic in web base format) and related assets including its REDocs initiatives,to Stellent pursuant to an Asset Purchase Agreement between the Company,Stonehaven Technologies and Stellent.

 

In exchange for the SmartCabinet softwarecode and related assets, Stonehaven Technologies received 200,000 unregisteredshares of Stellent common stock (the "Stellent Shares") with a marketvalue aggregating approximately $5,988,000 (valued at $29.94 per share based onthe NASDAQ closing quote per share on July 9, 2001).  Stellent subsequently registered the Stellent Shares with theSecurities and Exchange Commission effective September 7, 2001.  Additionally, Stonehaven Technologiesretained the right to continue to sell the SmartCabinet product with certainretained Stellent Expedio software licenses pursuant to a Value Added ResellerAgreement dated September 30, 2000 between Stonehaven Technologies andStellent.  Stonehaven Technologies willalso receive a 2% royalty fee for two years for sales of the SmartCabinetproduct by Stellent and a 5% referral fee on sales of the SmartCabinet productto customers referred to Stellent by Stonehaven Technologies.   The Company has recorded a gain on the saleof the investment of certain assets of Stonehaven Technologies of approximately$808,000 as of September 30, 2001, net of the unamortized costs of certain royalties, licensing agreements, and goodwill.

In connection with the transaction,Stonehaven Technologies and Mary Henschel, former President of StonehavenTechnologies, entered into a Separation Agreement.  Ms. Henschel and most of Stonehaven Technologies' other employeesare no longer employed by Stonehaven Technologies. Further, Duane H. Lundterminated his employment with Stonehaven Technologies as of September 9,2001.  Associated costs in connectionwith the agreements have been accrued as of September 30, 2001.

 

Stonehaven Technologies also terminatedits Exclusive Agency and Representation Agreement with Venture One Real Estate,LLC, and agreed to pay it a $262,500 termination fee.  In connection with the termination, the warrants associated withthe agreement were cancelled.

 

**Income Taxes**

 

The Company isnow subject to federal and state income taxes. See income tax disclosure in Note 2 of the financial statements foreffect on operations.

 

**Results of Operations**

 

The Company’s revenues include the following:rental revenues, tenant recoveries, revenues from technology consultingservices, and revenues from sales of hardware and software.

 

*Comparison of the Nine Month PeriodEnded September  30, 2001 and 2000:*  Rental revenue decreased by approximately$1,543,000 or 63.3% for the nine month period ended September 30, 2001 comparedto the nine month period ended September 30, 2000. Tenant recoveries decreased by approximately$845,000 or 59.8% for the nine month period ended September 30, 2001 comparedto the nine month period ended September 30, 2000.  The decreased rental revenueand tenant recoveries were primarily a result of the Company's dispositions ofLake Pointe on June 30, 2000, Thresher on December 31, 2000 and ColdSprings on March 30, 2001, offset, in part, by the acquisition of the PlymouthProperties on February 29, 2000.  Professionalservices and sales of hardware and software increased by approximately $107,000or 6.3% for the nine month period ended September 30, 2001 compared to the ninemonth period ended September 30, 2000. The increase is primarily the result of the Company’s increased salesduring 2001 offset in part by the disposition of certain assets of StonehavenTechnologies on July 10, 2001.  Interestincome and other income decreased by $102,000 during these same periodsprimarily due to the use of cash and cash equivalents, offset, in part, byreimbursed expenses received from Stellent in relation to the sale of certainassets of Stonehaven Technologies on July 10, 2001.

 

Total expenses decreasedfrom approximately $9,091,000 for the nine month period ended September 30,2000 to $5,454,000 for the nine month period ended September 30, 2001, a netdecrease of $3,637,000 as described below.

•      Decreasedcosts of approximately $504,000, in costs related to professional services andsales of hardware and software, were primarily a result of decreased costsrelating to hardware sales and the disposition of certain assets of StonehavenTechnologies offset, in part, by the allocation of costs associated withpersonnel between costs related to professional services and sales of hardwareand software and product development.

•      Decreasedcosts of approximately $22,000, related to advertising and promotion, wereprimarily a result of the disposition of certain assets of StonehavenTechnologies on July 10, 2001.

•      Decreasedcosts of approximately $307,000, related to product development, were primarilya result of the allocation of costs associated with personnel between productdevelopment and costs related to professional services and sales of hardwareand software.

•      Decreasedcosts of approximately $547,000, $396,000, $121,000, $674,000 and $783,000,related to property, operating and maintenance, property taxes and insurance,management fees, general and administrative and interest expense, respectively,were primarily a result of the dispositions of Lake Pointe on June 30, 2000,Thresher on December 31, 2000, Cold Springs on March 30, 2001 and certainassets of Stonehaven Technologies on July 10, 2001.  The decreases were offset, in part, by the acquisitions of thePlymouth Properties on February 29, 2000.

•      Nonrecurringcharges of approximately $318,000 incurred during 2000 primarily related tocosts associated with abandonment of projects and the severance packageassociated with the disposition of Lake Pointe on June 30, 2000.

•      Depreciation and amortization increased from approximately$1,669,000 for the period ended September 30, 2000 to $1,704,000 for thecomparable period in 2001, an increase of $35,000 or 2.1%, primarily as aresult of the Company's amortization of the non-refundable prepaid minimumroyalties, and the increased depreciation from the Plymouth Properties acquiredin 2000.  All of these increases wereoffset, in part, by reduced depreciation resulting from the dispositions ofLake Pointe on June 30, 2000, Thresher on December 31, 2000, Cold Springs onMarch 30, 2001 and certain assets of Stonehaven Technologies on July 10, 2001.

 

There was no equity inincome of unconsolidated subsidiary for the nine month period ended September30, 2001 as compared to $2,912 for the nine month period ended September 30,2000 due to the sale and transfer of the Company's 8% interest in Highlander onJune 30, 2000.

 

The loss on sale ofinvestment in real estate of $166,000 was a result of the additional lossrecognized on the sale of the St. Cloud, Minnesota property.   A portion of the loss from the sale of theSt. Cloud, Minnesota property was accrued as of December 31, 2000.

 

The gain on sale of certainassets of Stonehaven Technologies of $808,000 was a result of the dispositionof certain assets of Stonehaven Technologies.

 

As a result of the abovefactors, the loss from operations before equity in income of unconsolidatedsubsidiary and loss allocated to minority interest decreased from approximately$3,274,000 for the nine month period ended September 30, 2000 to approximately$2,019,000 for the nine month period ended September 30, 2001.  Additionally, the net loss available toCommon Shareholders decreased from approximately $3,601,000 for the nine monthperiod ended September 30, 2000 to $1,675,000 for the nine month period endedSeptember 30, 2001.

 

*Comparison of the Three Month PeriodEnded September 30, 2001 and 2000:*  Rental revenue decreased by approximately $509,000 or 71.6% forthe three month period ended September 30, 2001 compared to the three monthperiod ended September 30, 2000.  Tenant recoveries decreased byapproximately $377,000 or 74.6% for the three month period ended September 30,2001 compared to the three month period ended September 30, 2000.  Thedecreased rental revenue and tenant recoveries were primarily a result of theCompany's dispositions of Lake Pointe on June 30, 2000, Thresher onDecember 31, 2000 and Cold Springs on March 30, 2001, offset, in part, by theacquisition of the Plymouth Properties on February 29, 2000.  Professional services and sales ofhardware and software decreased by approximately $469,000 or 71.4% for thethree month period ended September 30, 2001 compared to the three month periodended September 30, 2000.  The decreaseis primarily the result of the disposition of certain assets of StonehavenTechnologies on July 10, 2001.  Interestincome and other income increased by $30,000 during these same periodsprimarily a result of reimbursed expenses received from Stellent in relation tothe sale of certain assets of Stonehaven Technologies on July 10, 2001, offset,in part, by the use of cash and cash equivalents.

 

Total expenses decreasedfrom approximately $3,541,000 for the three month period ended September 30,2000 to $940,000 for the three month period ended September 30, 2001, a netdecrease of $2,601,000 described below.

•      Decreasedcosts of approximately $112,000, related to advertising and promotion, wereprimarily a result of the disposition of certain assets of StonehavenTechnologies on July 10, 2001.

•      Decreasedcosts of approximately $534,000, in costs related to professional services andsales of hardware and software, were primarily a result of decreased costsrelating to hardware sales and the disposition of certain assets of StonehavenTechnologies offset, in part, by the allocation of costs associated withpersonnel between costs related to professional services and sales of hardwareand software and product development.

•      Decreasedcosts of approximately $128,000, related to product development, were primarilya result of the allocation of costs associated with personnel between productdevelopment and costs related to professional services and sales of hardwareand software.

•      Decreasedcosts of approximately $214,000, $178,000, $46,000, $412,000 and $316,000,related to property, operating and maintenance, property taxes and insurance,management fees, general and administrative and interest expense, respectively,were primarily a result of the dispositions of Lake Pointe on June 30, 2000,Thresher on December 31, 2000, Cold Springs on March 30, 2001 and certainassets of Stonehaven Technologies on July 10, 2001.  The decreases were offset, in part, by the acquisitions of thePlymouth Properties on February 29, 2000.

•      Nonrecurringcharges of approximately $82,000 incurred during 2000 primarily related tocosts associated with abandonment of projects and the severance packageassociated with the disposition of Lake Pointe on June 30, 2000.

•      Depreciation and amortization decreased from approximately$724,000 for the period ended June 30, 2000 to $145,000 for the comparableperiod in 2001, an decrease of $579,000 or 80.0%, primarily as a result of theCompany's sale of certain assets of Stonehaven Technologies, and reduceddepreciation resulting from the dispositions of Lake Pointe, Thresher and ColdSprings.  All of the decreased wereoffset, in part, by amortization of the non-refundable prepaid minimumroyalties, and the increased depreciation from the Plymouth Properties acquiredin 2000.

 

The gain on sale of certainassets of Stonehaven Technologies of $808,000 was a result of the dispositionof certain assets of Stonehaven Technologies.

 

As a result of the abovefactors, the loss from operations before (income) loss allocated to minorityinterest decreased from approximately $1,590,000 for the three month periodended September 30, 2000 to approximately $314,000 for the three month periodended September 30, 2001.  Additionally,the net loss available to Common Shareholders decreased from approximately$1,817,000 for the three month period ended September 30, 2000 to net incomeavailable to Common Shareholders of $427,000 for the three month period endedSeptember 30, 2001.

 

**Liquidity and Capital Resources**

*Short Term and Long Term Liquidity*

 

Cash provided byoperations, equity transactions, and borrowings from affiliates and lendinginstitutions have generally provided the primary sources of liquidity to theCompany. Historically, the Company has used these sources to fund operating expenses,satisfy its debt service obligations and fund distributions to shareholders.

 

As of September 30, 2001, our unrestricted cash resources were $137,000and our marketable securities available for sale were $2,880,000.  The Company’s marketable securitiesrepresent 200,000 shares of common stock of Stellent.  Such shares were acquired on July 10, 2001, had a fair marketvalue as of July 9, 2001 aggregating $5,988,000 and were registered effectiveas of September 7, 2001 with the Securities and Exchange Commission. We aredependent on the Stellent stock in order to meet our short-term liquidityneeds.  As such, we believe, ourCompany’s future performance will be closely tied to the performance ofStellent.

 

Our current overall objective is to focus on meeting current liquidityrequirements in order to maximize shareholder value.  Our efforts in this regard have been significantly impaired bythe deteriorating market conditions resulting from the general decline ofbusiness conditions over the last year as evidenced by the decline in the valueof Stellent’s common stock.

 

In order to meet ongoing obligations of the Company and transaction costsassociated with the sale of certain assets of Stonehaven Technologies, as ofSeptember 30, 2001 a Trustee of the Company made a loan to the Company in theamount of $67,000 and subsequent to September 30, 2001 an Officer of theCompany made a loan to the Company of approximately $100,000 and the Companysold 30,000 shares of common stock of Stellent.  Additionally, the Company has reserved 50,000 shares of commonstock of Stellent to meet its future obligations.

 

We intend to maintainand operate our remaining commercial properties, which are 88.4% leased atSeptember 30, 2001, due to the expected cash flow results.  However, the cash flow from our propertiesis not expected to fully fund our future liquid requirements, including amongother factors, our ongoing general and administrative costs, tenantimprovements and our dividend commitment to our Class A Preferred shareholders.

 

We furtherintend to continue to operate as a document management consulting anddevelopment company, however, in a much more limited capacity. Since the saleof certain assets of Stonehaven Technologies on July 10, 2001, our ability tomarket our licensing agreements and other related assets has been significantlyimpaired primarily due to the fact that Stellent has become an activecompetitor to our licensed technology. Stellent and other competitors have substantially greater resources, financialand otherwise, than we do.

 

On October 22, 2001, the Company declared a dividend of$0.475 per share with respect to the Class A Preferred Shares.  The dividend with respect to Class APreferred Shares will be paid on November 19, 2001 to shareholders of record onNovember 5, 2001.

 

We continue to explore and evaluate allavailable alternatives, including, among others, to buy or selladditional properties or assets, to develop and sell future technology productsor expand through the acquisition of new technology products, to pursueadditional or alternate financing, whether debt or equity, or to continue to meet the ongoing dividendrequirement of our Class A Preferred Shares.  There can be no assurance that any of thealternatives will be adopted, or if adopted, will be successful.  Additionally, we may determine not to adoptany additional business initiative.

 

On April 19, 2001, theCompany declared a dividend of $0.475 per share with respect to the Class APreferred Shares.  The dividend with respectto the Class A Preferred Shares was paid on May 15, 2001 to shareholders ofrecord on April 30, 2001.

 

**Cash Flows**

 

During the nine monthperiod ended September 30, 2001, the Company generated (i) approximately$594,000 from net cash proceeds in connection with the disposition of ColdSprings and (ii) $67,000 from proceeds from related party note payable.  These cash flows coupled with ourunrestricted cash funds were used primarily for (i) cash used in operatingactivities of approximately $33,000, including payments of minimum royalty onlicensing agreement totaling $1,350,000; (ii) acquisition of and additions toreal estate properties of approximately $43,000; (iii) acquisition of computerhardware, software and other fixed assets of approximately $64,000; (iv)acquisition of licensing agreements of approximately $300,000; (v) costsassociated with the disposition of certain assets of Stonehaven Technologies ofapproximately $828,000; (vi) payments on mortgage loans and notes payable ofapproximately $77,000; and (vii) distributions to holders of Class A PreferredShares of approximately $815,000.  As aresult, the Company's cash balance decreased by approximately $1,499,000 fromapproximately $1,636,000 at December 31, 2000 to $137,000 at September 30,2001.

 

**PARTII.  OTHER INFORMATION**

 

ITEM 1.  LEGAL PROCEEDINGS

 

OnDecember 29, 2000, Stonehaven notified Odeh Muhawesh, a Trustee of the Company,that it was suspending its payment to him under a promissory note assumed byStonehaven Technologies. Stonehaven Technologies assumed the payment obligationin February 2000 pursuant to the terms of the merger agreement between theCompany, Stonehaven Technologies and NETLink International, Inc. (“NETLink”), acompany founded and owned by Mr. Muhawesh whereby NETLink was merged intoStonehaven Technologies. Management of the Company believes Mr. Muhawesh is indefault under the merger agreement for, among other things, failure by him tocause to be transferred to Stonehaven Technologies 5% of the issued and outstandingstock of MyFreeDesk.com, Inc.

 

On January 8, 2001, Mr.Muhawesh filed a complaint against Stonehaven Technologies in the DistrictCourt of Hennepin County, Minnesota alleging that Stonehaven Technologiesfailed to pay him $350,000 on January 1, 2001 under the terms of a promissorynote. The Company has filed a counterclaim against Mr. Muhawesh requesting,among other things, the repayment of amounts previously paid to him under thepromissory note.  The parties areconducting discovery proceedings.

 

ITEM 2.  CHANGES IN SECURITIES

 

a.  None

 

b.  None

 

c.  None

 

d.  None

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.  SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS

 

The followingmatters were submitted to a vote of security holders on November 8, 2001:

 
| (a)    |   | Meeting  type and date:                          |   | Annual  Meeting of Shareholders, November 8, 2001 |   |
|--------|--------|--------------------------------------------------|--------|---------------------------------------------------|--------|
|   |   |                                             |   |                                              |   |
| (b)    |   | Trustees  elected at meeting:                    |   | Paul  T. Lambert                                  |   |
|   |   |                                             |   |                                              |   |
| (c)    |   | Description  of each matter voted on at meeting: |   |                                              |   |

 

Results ofvote:
| Paul  T. Lambert |   |                              |   |      |   |
|------------------|--------|-----------------------------------|--------|-----------|--------|
|             |   | For                               |   | 4,654,546 |   |
|             |   | Against  or withheld              |   | 153,862   |   |
|             |   | Abstentions  and broker non-votes |   | 2,018,246 |   |

 

ITEM 5.  OTHER INFORMATION  

 

None  

 

ITEM 6.  EXHIBITSAND REPORTS ON FORM 8-K  

 

**(a) Exhibits**

 
| **Exhibit Number** |   | **Exhibit****Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|--------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| 3.1                |   | Declaration of Trust (filed with the Company's  Registration Statement on Form SB–2 (Commission File No. 33–82888C)  and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                   |   |
| 3.2                |   | Bylaws  of the Company (filed with the Company's Registration Statement on Form SB–2  (Commission file No. 33–82888C and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                   |   |
| 3.3                |   | Articles  of Amendment and Restatement of the Declaration of Trust (filed as Exhibit E  with the Company's Schedule 14A on November 6, 1998 and incorporated herein  by reference)                                                                                                                                                                                                                                                                                                     |   |
| 10.1               |   | Agreement  of Limited Partnership of the Operating Partnership dated as of August 31,  1998 (filed as Exhibit C with the Company's Schedule 14A on November 6, 1998  and incorporated herein by reference)                                                                                                                                                                                                                                                                             |   |
| 10.2               |   | Contribution  Agreement between the Operating Partnership and WMC dated as of August 31,  1998 (filed as Exhibit B with the Company's Schedule 14A on November 6, 1998  and incorporated herein by reference)                                                                                                                                                                                                                                                                          |   |
| 10.3               |   | Master  Registration Rights Agreement dated as of August 31, 1998 (filed as Exhibit E  of Exhibit C with the Company's Schedule 14A on November 6, 1998 and  incorporated herein by reference)                                                                                                                                                                                                                                                                                         |   |
| 10.4               |   | Amended  and Restated Contribution Agreement between the Company, the Operating  Partnership, AREE and other limited partnership Unit recipients dated as of  August 31, 1998 (filed as Exhibit A with the Company's Schedule 14A on  November 6, 1998 and incorporated herein by reference)                                                                                                                                                                                           |   |
| 10.5               |   | Purchase  Agreement by and between Maple Grove Apartment Homes, Inc. and The Shelard  Group, Inc., dated July 2, 1999 (filed with the Company's Current Report on  Form 8–K on November 23, 1999 and incorporated herein by reference)                                                                                                                                                                                                                                            |   |
| 10.6               |   | Agreement  and Plan of Reorganization dated as of February 25, 2000, by and among the  Company, NTLI Acquisition Corporation, a Delaware corporation, NETLink  International, Inc., a Minnesota corporation and Odeh A. Muhawesh, Mary  Henschel, Alan Schmidt, Ahmad Yassine, Patrick Archbold, Ann Wessels, Art  Carruth, Patricia Hewitt, Thomas walker and Sherry Ajax (filed as Exhibit 2.2  with the Company's Form 8-K on March 17, 2000 and incorporated herein by  reference) |   |
| 10.7               |   | Contribution  Agreement between Wellington Partners, L.P., the Company and Plymouth  Partners II, LLC and other LP Unit Recipients dated as of February 29, 2000  (filed as Exhibit 2.3 with the Company's Form 8-K on March 17, 2000 and  incorporated herein by reference)                                                                                                                                                                                                           |   |
| 10.8               |   | Stock  Exchange Agreement between the Company and Wellington Management Corporation  effective June 30, 2000 (filed with the Company's Current Report on Form 8–K  on July 14, 2000 and incorporated herein by reference)                                                                                                                                                                                                                                                         |   |
| 10.9               |   | Exclusive  Agency and Representation Agreement between RESoft, Inc. and Venture One Real  Estate, LLC (filed with the Company's Quarterly Report for the period  September 30, 2000 on Form 10–QSB filed on November 14, 2000 and  incorporated herein by reference)                                                                                                                                                                                                              |   |
| 10.10              |   | Membership  Unit Purchase Agreement dated December 29, 2000, between theCompany,  Wellington Properties Investments, L.P., and Steven B. Hoyt, Bruce K. Hoyt,  Donald Ringrose, and Richard Wolsfeld (filed with the Company's Current  Report as Exhibit 10.1 on Form 8–K on January 16, 2001 and incorporated  herein by reference)                                                                                                                                             |   |
| 10.11              |   | Purchase  Agreement between CSC of Minnesota, LLC and IRET Properties dated January 8,  2001. (filed with the Company’s Quarterly Report for the period June 30, 2001  on Form 10-QSB filed August 14, 2001)                                                                                                                                                                                                                                                                      |   |
| 10.12              |   | Asset  Purchase Agreement between the Company, RESoft, Inc., and IntraNet Solutions,  Inc. (filed with the Company’s Current Report Form 8-K filed on July 18, 2001  and incorporated herein by reference)                                                                                                                                                                                                                                                                        |   |
| 10.13              |   | Termination  Agreement between RESoft, Inc. and Venture One Real Estate, LLC (filed with  the Company’s Current Report Form 8-K filed on July 18, 2001 and incorporated  herein by reference)                                                                                                                                                                                                                                                                                     |   |
|               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |

 

**(b) Reports On Form 8-K**

 

During the three monthsended September 30, 2001 and through November 5, 2001, the Company filed thefollowing report:

 

OnJuly 18, 2001, the Company reported the sale of Stonehaven Technologies Inc.’s(formerly RESoft, Inc.) interest in SmartCabinet software code (softwaretechnology replicating and mapping a company’s business logic in web baseformat) and related assets including its REDocs initiatives, to Stellent, Inc.(formerly IntraNet Solutions, Inc.).

 

 

**SIGNATURES**

 

                In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                   | Stonehaven  Realty Trust |                                                              |
|------------------------|--------------------------|-------------------------------------------------------------------|
|                   | By:                      | /s/ Duane H. Lund                                                 |   |
| Date: November 9, 2001 |                     | Duane H. Lund*Chief  Executive Officer  Chief Accounting Officer* |   |
|                        |                          |                                                                   |  |  |