<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission File Number: 0-25074
STONEHAVEN REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 39-6594066
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
4101 Dahlberg Drive, Golden Valley, MN 55422
(Address of principal executive offices) (zip code)
Issuer's telephone number: 763-398-1100 Fax number: 763-398-1101
2550 University West, Suite 240, St. Paul, Minnesota 55114
(Former address)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Shares,
$0.01 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days.
Yes X No
----------- ------------
As of August 9, 2000, 5,210,388 shares of the issuer's common shares were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ; No X
----- -----
(Added by Exch Act Rel No. 31905, eff 4/26/93.)
This report contains 23 pages. There are five exhibits.
1
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I Financial Information
<S> <C>
Consolidated Balance Sheet - June 30, 2000 (unaudited) Page 3
Consolidated Statements of Operations -
six months ended June 30, 2000 and June 30, 1999 (unaudited) Page 4
Consolidated Statements of Operations -
three months ended June 30, 2000 and June 30, 1999 (unaudited) Page 5
Consolidated Statements of Cash Flows -
six months ended June 30, 2000 and June 30, 1999 (unaudited) Page 6
Notes to Consolidated Financial Statements Page 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations Page 16
PART II. Other Information
Other Information Page 21
Exhibits and Reports on Form 8-K Page 22
Signatures Page 23
</TABLE>
2
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in real estate:
Land $ 7,570,816
Buildings and improvements 30,326,983
Furniture, fixtures and equipment 381,438
---------------------------------------------------------------------------------------------------------
38,279,237
Accumulated depreciation (1,069,856)
---------------------------------------------------------------------------------------------------------
37,209,381
Cash and cash equivalents 4,010,095
Accounts receivable, net 540,915
Deferred rents receivable 131,389
Prepaid expenses and other assets 51,862
Deferred financing costs, net 198,010
Restricted cash 1,290,546
Goodwill, net 3,992,054
---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 47,424,252
---------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage loans and notes payable $ 20,650,284
Related party note payable 335,000
Accounts payable and accrued expenses 939,490
Deferred revenue and security deposits 246,895
Dividends/distributions payable 709,139
---------------------------------------------------------------------------------------------------------
Total liabilities 22,880,808
---------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 908,694
---------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred Shares - $0.01 par value, 10,000,000 authorized:
683,421 Class A cumulative convertible shares issued and outstanding,
$10.00 per share liquidation preference 6,834
Common Shares - $0.01 par value, 100,000,000 authorized;
4,985,832 shares issued and outstanding 49,859
Additional paid-in capital 32,033,255
Accumulated deficit (8,455,198)
---------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,634,750
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,424,252
---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1999
2000 (AS RESTATED)
---------------------------------------------------
<S> <C> <C>
REVENUES
Rental revenue $ 1,726,999 $ 2,667,133
Tenant recoveries 907,541 747,243
Professional services and sales of hardware and software 1,037,322 --
Interest and other 191,684 30,513
-------------------------------------------------------------------------------------------------------------------
Total revenues 3,863,546 3,444,889
-------------------------------------------------------------------------------------------------------------------
EXPENSES
Property, operating and maintenance 481,602 789,767
Advertising and promotion 4,001 32,701
Property taxes and insurance 481,909 596,233
Depreciation and amortization 945,137 645,537
Interest 939,296 1,295,213
General and administrative 1,335,136 387,480
Management fees 128,573 170,015
Costs related to professional services and sales of hardware
and software 705,293 --
Product development 293,600 --
Termination of advisory agreement -- 950,000
Nonrecurring expenses 236,165 2,613,383
-------------------------------------------------------------------------------------------------------------------
Total expenses 5,550,712 7,480,329
-------------------------------------------------------------------------------------------------------------------
Loss from operations before equity in income of
unconsolidated subsidiary and loss allocated to minority
interest (1,687,166) (4,035,440)
Equity in income of unconsolidated subsidiary 2,912 4,033
Loss allocated to minority interest 225,487 2,907,866
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Loss before extraordinary loss and cumulative effect of
change in accounting principle (1,458,767) (1,123,541)
Extraordinary loss -- (377,647)
Cumulative effect of change in accounting principle -- (35,565)
-------------------------------------------------------------------------------------------------------------------
Net Loss (1,458,767) (1,536,753)
Preferred Share Dividends (328,495) --
-------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders $ (1,787,262) $ (1,536,753)
-------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders before
extraordinary loss and cumulative effect of change in
accounting principle per Common Share: Basic and Diluted $ (0.46) $ (0.83)
-------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders per Common Share:
Basic and Diluted $ (0.46) $ (1.14)
-------------------------------------------------------------------------------------------------------------------
Weighted average number of Common Shares outstanding 3,923,205 1,350,730
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------
1999
2000 (AS RESTATED)
----------------------------------------------------
<S> <C> <C>
REVENUES
Rental revenue $ 939,848 $ 1,340,582
Tenant recoveries 518,664 415,576
Professional services and sales of hardware and software 576,159 --
Interest and other 85,287 16,076
-----------------------------------------------------------------------------------------------------------------------
Total revenues 2,119,958 1,772,234
-----------------------------------------------------------------------------------------------------------------------
EXPENSES
Property, operating and maintenance 268,141 433,908
Advertising and promotion 2,201 16,245
Property taxes and insurance 261,967 279,368
Depreciation and amortization 610,700 323,578
Interest 510,468 650,225
General and administrative 961,245 192,721
Management fees 70,092 87,390
Costs related to professional services and sales of hardware and
software 390,609 --
Product development 196,311 --
Termination of advisory agreement -- 950,000
Nonrecurring expenses 236,165 2,613,383
-----------------------------------------------------------------------------------------------------------------------
Total expenses 3,507,899 5,546,818
-----------------------------------------------------------------------------------------------------------------------
Loss from operations before equity in income of unconsolidated
subsidiary and loss allocated to minority interest (1,387,941) (3,774,584)
Equity in income of unconsolidated subsidiary 1,056 3,118
Loss allocated to minority interest 65,110 2,714,400
-----------------------------------------------------------------------------------------------------------------------
Loss before extraordinary loss (1,321,775) (1,057,066)
Extraordinary loss -- (377,647)
-----------------------------------------------------------------------------------------------------------------------
Net Loss (1,321,775) (1,434,713)
Preferred Share Dividends -- --
-----------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders (1,321,775) (1,434,713)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders before extraordinary
item and cumulative effect of change in accounting principle per
Common Share: Basic and Diluted $ (0.27) $ (0.78)
-----------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders per Common Share:
Basic and Diluted $ (0.27) $ (1.06)
-----------------------------------------------------------------------------------------------------------------------
Weighted average number of Common Shares outstanding 4,943,886 1,351,891
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1999
2000 (AS RESTATED)
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,458,767) $(1,536,753)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 945,137 645,537
Loss allocated to minority interest (225,487) (2,907,866)
Extraordinary loss -- 377,647
Cumulative effect of change in accounting principle -- 35,565
Equity in income of unconsolidated subsidiary (2,912) (4,033)
Net change in assets and liabilities:
Accounts receivable, net (108,172) (16,597)
Deferred rents receivable (75,727) --
Restricted cash (690,174) 163,357
Prepaid and other assets 72,029 88,201
Deferred costs -- 1,723,255
Accounts payable and accrued liabilities 45,450 (70,809)
Related party payable -- 2,182,455
Deferred revenue 168,381 1,276
Tenant security deposits 20,575 2,133
-------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,309,667) 683,368
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of and additions to real estate properties (1,359,246) (93,380)
Acquisition of furniture, fixtures and equipment (301,986) --
Disposition of real estate property and investment in
unconsolidated subsidiary, net 66,652 --
Cash proceeds received from acquisition of consolidated
subsidiary 160,759 --
Redemption of marketable securities 5,187,855 --
Investment in unconsolidated subsidiary 7,425 (90,000)
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 3,761,459 (183,380)
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage loans and notes payable (417,436) (455,668)
Payments on line of credit (68,466) (10,000)
Payment on related party note payable (415,000) --
Dividends/distributions paid, net (433,519) (89,824)
-------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,334,421) (555,492)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,117,371 (55,504)
Cash and cash equivalents
Beginning of period 2,892,724 153,901
-------------------------------------------------------------------------------------------------
End of period $ 4,010,095 $ 98,397
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - ORGANIZATION
Stonehaven Realty Trust ("Company") is a real estate investment trust ("REIT")
organized in the state of Maryland. The Company was formed on March 15, 1994 to
acquire, develop, own, and operate investment real estate. As of June 30, 2000,
the Company owned six commercial properties that contain a total of
approximately 326,000 commercial rentable square feet. The Company's interest in
the commercial properties is held through Wellington Properties Investments, LP
(the "Operating Partnership"), a Delaware limited partnership formed in 1998.
The Company is the sole general partner of, and as of June 30, 2000, owns an
approximately 92.0% interest in the Operating Partnership. On February 24, 2000,
the Company acquired RESoft, Inc. (formerly, Netlink International, Inc.)
("Resoft"), a privately held Minnesota corporation which is an Internet
consulting and web development company.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared by the Company without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the included disclosures are
adequate to make the information presented not misleading. In the opinion of the
Company, all adjustments (consisting solely of normal recurring items) necessary
for a fair statement of the financial position of the Company as of June 30,
2000, the results of its operations for the six month and three month periods
ended June 30, 2000 and 1999, and its cash flows for the six month periods ended
June 30, 2000 and 1999 have been included. The results of operations for such
interim periods are not necessarily indicative of the results for a full year.
For further information, refer to the Company's consolidated financial
statements and footnotes included in the Annual Report of Form 10-KSB for the
year ended December 31, 1999.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In order to conform with generally accepted accounting principles, management,
in preparation of the Company's financial statements, is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of June 30,
2000, and the reported amounts of revenues and expenses for the six months and
three months ended June 30, 2000 and 1999. Actual results could differ from
those estimates.
REVENUE RECOGNITION
Revenue generated from professional services and sales of hardware and software
is recognized as services and goods are provided. Services billed in advance are
recorded as deferred revenue and recognized when revenue is earned.
ACCOUNTS RECEIVABLE
Accounts receivable is reported net of allowance for doubtful accounts of
approximately $53,000 as of June 30, 2000.
GOODWILL
7
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Goodwill incurred in connection with the acquisition of Resoft is amortized on a
straight-line basis over an estimated useful life of three years.
SEGMENT REPORTING
Reportable segments are identified based upon management's approach for making
operating decisions and assessing performance of the Company.
NOTE 3 - ACQUISITION/DISPOSITION OF PROPERTIES AND CONSOLIDATED SUBSIDIARY
On February 29, 2000, the Company through the Operating Partnership, acquired
three commercial real estate properties leased for office purposes located in
suburban Minneapolis, Minnesota (the "Plymouth Properties"). The properties were
purchased from Plymouth Partners II, LLC of which a Trustee of the Company, is
the Chief Manager and co-owner. The purchase price of approximately $6,772,000,
was funded through the issuance of an aggregate of 181,629 limited partnership
units ("Units") in the Operating Partnership (valued at $4.375 per Unit, or an
aggregate value of approximately $795,000), the assumption of certain
third-party debt totaling approximately $4,472,000, secured by such properties,
and the balance paid in cash. The acquisition was accounted for using the
purchase method of accounting.
On February 24, 2000, the Company acquired Resoft. The acquisition was accounted
for using the purchase method of accounting and was accomplished by exchanging
914,286 of the Company's common shares for all of the issued and outstanding
stock of Resoft valued at $4.375 per share, or an aggregate of approximately
$4.0 million. Assets acquired of cash ($161,000), accounts receivable
($431,000), fixed assets and other ($149,000), net of liabilities assumed
($1,241,000), resulted in goodwill recorded at approximately $4,500,000.
On June 30, 2000, the Company transferred and sold to Wellington Management
Corporation ("WMC") the Company's 100% interest in Lake Pointe Apartment Homes,
Inc., a Wisconsin corporation and wholly-owned subsidiary of the Company ("Lake
Pointe") and 8.00% interest in Highlander Acquisition Company, LLC, a Wisconsin
limited liability company ("Highlander"). The interests were exchanged for
95,000 shares of the Company's Class B Junior Cumulative Convertible Preferred
Shares owned by WMC, including accrued distributions, and WMC assumed the
mortgage debt totaling approximately $2.7 million associated with Lake Pointe.
Further in connection with the dispositions, the listing agreement between the
Company and WMC's affiliate, WMC Realty, Inc. ("WRI") was terminated and no
brokerage commission was paid to WRI.
Additionally, on June 30, 2000 in connection with the disposition of Lake Pointe
and Highlander, the Chairman of the Board of Trustees of the Company resigned
and a President of the Company entered into a Separation Agreement with the
Company. Pursuant to the Separation Agreement, on June 30, 2000, the President
also resigned as Secretary and Trustee of the Company and the Company paid him a
severance payment of $40,000.
The following pro forma condensed consolidated financial information presented
below is as if the acquisitions of the Plymouth Properties and Resoft and the
dispositions of Maple Grove, Lake Pointe and Highlander had occurred on January
1, 1999. The pro forma financial information is not necessarily indicative of
the results which actually would have occurred if the acquisitions or
disposition had been consummated on January 1, 1999, nor does the pro forma
information purport to represent the results of operations for future periods.
8
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
2000 1999
------------------ ------------------
<S> <C> <C>
Pro forma total revenues $ 4,359,271 $ 5,133,081
Pro forma loss available to Common Shareholders $ (1,928,009) $ (2,070,773)
Pro forma loss per Common Share
Basic and diluted $ (0.46) $ (0.91)
</TABLE>
NOTE 4 - MORTGAGE LOANS AND NOTES PAYABLE
In connection with the acquisition of the Plymouth Properties, the Company
assumed mortgage notes payable totaling $4,452,129 as of June 30, 2000. The
notes require aggregate monthly payments of $34,186 including interest at a
fixed rate of 7.625% per annum. The mortgage notes are due May 31, 2002 and are
collateralized by the Plymouth Properties and an assignment of rents.
In connection with the acquisition of Resoft, the Company assumed two notes
payable. The first is a line of credit which had no balance as of June 30, 2000.
The line of credit is guaranteed by the Company and provides for advances up to
an aggregate amount of the lesser of $450,000 or the borrowing base (a
percentage of eligible receivables as defined in the agreement). The second is a
note payable to the Chief Executive Officer of Resoft, who is also a President
of the Company. The note totaled $335,000 as of June 30, 2000 and is due on
January 2, 2001. The payment may be made in cash or Common Shares of the
Company, at the option of the Company.
NOTE 5 - EQUITY
On February 18, 2000, the Board of Trustees approved the conversion of 1,657,437
Units of the Operating Partnership into 1,468,484 Common Shares and further
approved the conversion of the 254,800 Class B Preferred Shares held by AREE
into 808,482 Common Shares.
In connection with the acquisition of Resoft, the Company issued 914,286 Common
Shares (valued at $4.375 per share or an aggregate of $4.0 million) and set
aside a pool of options as to 200,000 Common Shares for future award to
employees of Resoft.
On February 24, 2000, the Company issued to the Chief Executive Officer of
Resoft, who is also a President of the Company, options to purchase 1.0 million
Common Shares at a price of $5.375 per share. The options are exercisable as to
500,000 shares immediately, with options as to 62,500 shares exercisable
quarterly, commencing May 24, 2000. In addition, the Company issued to its Chief
Executive Officer options to purchase 666,667 Common Shares at a price of $6.375
per share. The options are exercisable as to 333,333 shares immediately, with
options as to 41,666.75 shares exercisable quarterly, commencing May 24, 2000.
On March 28, 2000, the Company acquired a proprietary database from a sales and
marketing company and issued to it 366,670 warrants to purchase the Company's
Common Shares. The warrants have an exercise price of $6.375 per share, are
immediately vested and expire at the earlier of July 1, 2005 or upon the
occurrence of certain corporate events, as defined in the warrant agreement. The
Company has the right, for a limited time period, to buy back a portion of the
shares upon exercise of the warrant at a purchase price of $6.375.
9
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On June 22, 2000, the Company acquired additional proprietary material from the
same sales and marketing company and issued to it an additional 700,000 warrants
to purchase the Company's Common Shares. One half of the warrants have an
exercise price of $6.375 per share and the remainder have an exercise price of
$9.375 per share. The warrants are immediately vested and expire at the earlier
of July 1, 2007 or upon the occurrence of certain corporate events, as defined
in the warrant agreement.
During the three months ended June 30, 2000, the Company issued to an individual
contractor, 42,857 Common Shares in exchange for consulting services provided in
connection with the acquisition by the Company of the Plymouth Properties. The
shares were valued at an aggregate price of $150,000 or $3.50 per share.
On July 1, 2000, the Board of Trustees of the Company authorized the Company to
repurchase, on a quarterly basis, up to 150,000 Common Shares of the Company in
open market transactions. To facilitate such repurchase program, no dividend was
declared on the Company's Common Shares. To date, no shares have been
repurchased.
During the six months ended June 30, 2000, 100,616 Class A Preferred Shares
were converted into 346,923 Common Shares.
NOTE 6 - DISTRIBUTIONS
On March 29, 2000, the Board of Trustees declared a dividend of $0.475 per share
with respect to the Class A Preferred Shares and the Class B Preferred Shares.
The dividend with respect to the Class A Preferred Shares and Class B Preferred
Shares was paid on May 5, 2000 and June 30, 2000, respectively to shareholders
of record on April 21, 2000. For the six months ended June 30, 2000, no
dividends had been declared on the Common Shares.
On March 16, 1999, the Board of Trustees declared a split of 4.75 Common Shares
for each 3.00 Common Shares effective on March 24, 1999 to shareholders of
record as of March 22, 1999 ("Stock Split"). The Operating Partnership
simultaneously declared a split of 4.75 Units for each 3.00 Units effective on
March 24, 1999 to unitholders of record as of March 22, 1999. All amounts herein
have been adjusted to give effect to the Stock Split.
NOTE 7 - LOSS PER SHARE
The Company has adopted the Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("EPS") for all periods presented herein. Net loss per
weighted average Common Share outstanding - basic and net loss per weighted
average Common Share outstanding - diluted is computed based on the weighted
average number of Common Shares outstanding for the period. The weighted average
number of Common Shares outstanding as of June 30, 2000 and June 30, 1999 were
3,923,205 and 1,350,730, respectively. Common share equivalents include
outstanding convertible preferred shares, warrants and stock options, and are
not included in net loss per weighted average Common Share outstanding - diluted
as they would be anti-dilutive.
10
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
For the six months ended June 30,
------------------------------------------------------
2000 1999
(as restated)
----------------------------------------------------
<S> <C> <C>
NUMERATOR
Loss from operations $ (1,458,767) $ (1,123,541)
Extraordinary loss -- (377,647)
Cumulative effect of change in accounting principle -- (35,565)
-------------------------------------------------------------------------------------------------------------------
Net loss (1,458,767) (1,536,753)
Preferred Share Dividends (328,495) --
-------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders $ (1,787,262) $ (1,536,753)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
DENOMINATOR
Weighted average Common Shares Outstanding at June 30, 2000
and 1999, respectively: Basic and Diluted 3,923,205 1,350,730
BASIC AND DILUTED EPS
Net loss available to Common Shareholders from operations
$ (0.46) $ (0.83)
Extraordinary loss -- (0.28)
Cumulative effect of change in accounting principle -- (0.03)
-------------------------------------------------------------------------------------------------------------------
Net loss available to Common Shareholders $ (0.46) $ (1.14)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
MANAGEMENT FEES
On June 30, 2000, the Company terminated its property management relationship
with WMC Realty, Inc. ("WRI"), a wholly-owned subsidiary of WMC, an affiliate of
the Company.
The Company maintains a property management agreement with Hoyt Properties Inc.
("Hoyt"), an entity controlled by a Trustee of the Company to serve as Property
Manager of the commercial properties owned by the Company. In connection with
the agreement, Hoyt manages the day-to-day operations of properties owned by the
Company and receives a management fee for this service.
Management fees for the period January 1, 2000 through June 30, 2000 totaled
$114,864 to Hoyt and $13,709 to WRI. Management fees for the period January 1,
1999 through June 30, 1999 totaled $95,112 to Hoyt and $74,903 to WRI.
RENTAL INCOME
During the six months ended June 30, 2000 and June 30, 1999, the Company
recognized revenue of $21,096 and $20,764, respectively, on office space leased
to Hoyt.
INSURANCE
From time to time, the Company has purchased insurance through another affiliate
of WMC, Wellington Insurance Services, Inc., which received a commission of
those sales equal to 15% of scheduled premiums. These commissions totaled $5,000
and $5,000 for the six months ended June 30, 2000 and 1999, respectively.
11
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9 - SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended June 30,
2000 1999
(as restated)
----------------------------------------------------
<S> <C> <C>
Interest paid $ 938,368 $ 1,313,547
-------------------------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing
activities:
The following assets and liabilities were assumed in
connection with the acquisition of Resoft:
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 received from acquisition of consolidated
subsidiary $ 160,759 $ --
-------------------------------------------------------------------------------------------------------------------
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 (3,254) (93,380)
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 $ (1,359,246) $ (93,380)
-------------------------------------------------------------------------------------------------------------------
The following assets and liabilities were disposed of in
connection with the dispositions of Lake Pointe and
Highlander:
Disposition of real estate $ 3,304,358 $ --
Disposition of investment in unconsolidated subsidiary 95,756 --
Restricted cash 110,566 --
Deferred costs 90,942 --
Mortgage note payable (2,699,460) --
Accrued liabilities 15,000 --
Security deposits (43,914) --
Dividends paid (45,000) --
Preferred shares (950) --
Additional paid in capital (760,646) --
-------------------------------------------------------------------------------------------------------------------
Dispositions of real estate properties $ 66,652 $ --
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Dividends/distributions payable $ 709,139 $ 871,100
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10 - INFORMATION BY BUSINESS SEGMENT
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information". This
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Management views the operations of its real estate
properties and the operations of Resoft as two segments.
<TABLE>
<CAPTION>
REAL ESTATE
PROPERTIES RESOFT TOTAL
---------- ------ -----
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
Revenues $ 2,822,580 $ 1,040,966 $ 3,863,546
Operating expenses 1,096,085 705,293 1,801,378
----------- ----------- -----------
Income from operations $ 1,726,495 $ 335,673 $ 2,062,168
=========== =========== ===========
Segment assets at June 30, 2000 $42,524,174 $ 4,900,078 $47,424,252
=========== =========== ===========
SIX MONTHS ENDED JUNE 30, 1999
Revenues $ 3,444,889 $ -- $ 3,444,889
Operating expenses 1,588,716 -- 1,588,716
----------- ----------- -----------
Income from operations $ 1,856,173 $ -- $ 1,856,173
=========== =========== ===========
Segment assets at June 30, 1999 $51,015,637 $ -- $51,015,637
=========== =========== ===========
</TABLE>
13
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table reconciles income from operations for reportable segments to
loss from operations as reported in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
------------ -----------
<S> <C> <C>
Income from operations for reportable
segments $ 2,062,168 $ 1,856,173
Add:
Equity in income of unconsolidated
entities 2,912 4,033
Minority interests 225,487 2,907,866
Less:
General and administrative (1,335,136) (385,862)
Interest (939,296) (1,295,213)
Product development (293,600) --
Termination of advisory agreement -- (950,000)
Nonrecurring expenses (236,165) (2,613,383)
Amortization of deferred financing
costs and goodwill (519,186) (57,832)
Depreciation (425,951) (589,323)
----------- -----------
Loss from operations $(1,458,767) $(1,123,541)
=========== ===========
</TABLE>
14
<PAGE>
STONEHAVEN REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 - RESTATEMENT OF STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1999
The statement of operations for the six months ended June 30, 1999 has been
restated as follows:
<TABLE>
<CAPTION>
For the six months ended June 30, 1999
--------------------------------------
As reported Adjustments Restated
----------- ----------- --------
<S> <C> <C> <C>
Total revenues $ 3,444,889 $ -- $ 3,444,889
=========== ============ ===========
Equity in income of unconsolidated
subsidiary -- 4,033(a) 4,033
Loss allocated to minority interest 2,664,093 243,773(b) 2,907,866
----------- -------------- -----------
Loss before extraordinary loss and
cumulative effect of change in
accounting principle (1,406,913) 283,372 (1,123,541)
Extraordinary loss -- (377,647)(c) (377,647)
Cumulative effect of change in
accounting principle -- (35,565)(d) (35,565)
----------- -------------- -----------
Net loss available to Common
Shareholders $(1,406,913) $(129,840) $(1,536,753)
=========== ============== ===========
Net loss available to Common
Shareholders before extraordinary
loss and cumulative effect of
change in accounting principle per
Common Share:
Basic and Diluted $ (1.04) $ (0.83)
============ ===========
Net loss available to Common
Shareholders per Common Share:
Basic and Diluted $ (1.04) $ (1.14)
============ ===========
</TABLE>
-------------------
(a) Reflects the effect of equity in income related to the Company's 8%
interest in Highlander.
(b) Reflects the loss allocated to minority interest as a result of the
adjustments.
(c) Reflects extraordinary loss as a result of unamortized deferred
financing fees associated with the expiration of the Company's
non-revolving line of credit facility
(d) Reflects the write-off of the unamortized balance of organizational
costs on the Company's balance sheet.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements appearing elsewhere herein. This Form 10-QSB contains forward-looking
statements for purposes of the Securities Act of 1933 and the Securities
Exchange Act of 1934 and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, there can
be no assurance that these expectations will be realized. Factors that could
cause actual results to differ materially from current expectations include, but
are not limited to, changes in general economic conditions, changes in interest
rates, legislative and regulatory changes, changes in monetary and fiscal
policies of the U.S. government, including policies of the U.S. Treasury and the
Federal Reserve Board, changes in local real estate conditions (including rental
rates and competing properties), changes in industries in which the Company's
principal tenants compete, the failure to timely lease unoccupied space, the
failure to timely re-lease occupied spaced upon expiration of leases, the
inability to generate sufficient revenues to meet debt service payments and
operating expenses, the unavailability of equity and debt financing,
unanticipated costs associated with the Company's acquisitions, potential
liability under environmental or other laws and regulations, the failure of the
Company to manage its growth effectively and the other risks identified in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
OVERVIEW
Stonehaven Realty Trust is a real estate and technology company separated into
two operating divisions: RESoft, Inc., which provides technology real estate
solutions, and Stonehaven Realty which provides traditional real estate
solutions. RESoft, Inc. launched three real estate technology products during
the second quarter of 2000 to address the needs of real estate owners. In
addition, the Company has executed a strategic partnership with a sales and
marketing company to facilitate the national expansion of its technology
solutions. Stonehaven Realty owns commercial real estate located in Minnesota.
The Company has engaged the services of a real estate broker to explore
valuation and capital appreciation opportunities, which may include a sale of
some or all of the Company's real estate assets or a refinance of the existing
mortgages.
Stonehaven Realty Trust is a real estate investment trust ("REIT"), which as
of June 30, 2000, owned a portfolio of six commercial properties containing
an aggregate of approximately 326,000 square feet. The Company's interest in
the commercial properties is held through Wellington Properties Investments,
LP (the "Operating Partnership"). The Company is the sole general partner of
the Operating Partnership and, as of June 30, 2000, the Company held a 92.0%
interest in the Operating Partnership.
ACQUISITION/DISPOSITION OF PROPERTIES AND CONSOLIDATED SUBSIDIARY
On February 24, 2000, the Company acquired RESoft, Inc. (formerly, Netlink
International, Inc.) ("Resoft"), a privately held Minnesota corporation which is
an Internet consulting and web development company. The acquisition was
accounted for using the purchase method of accounting and was accomplished by
exchanging 914,286 of the Company's common shares for all of the issued and
outstanding stock of Resoft valued at $4.375 per share, or an aggregate of
approximately $4.0 million.
On February 29, 2000, the Company through the Operating Partnership, acquired
three commercial real estate properties leased for office purposes located in
suburban Minneapolis, Minnesota (the "Plymouth Properties"). The properties were
purchased from a related party for an aggregate price of approximately
$6,772,000. The purchase price was funded through the issuance of an aggregate
of 181,629 limited partnership units ("Units") in the Operating Partnership
(valued at $4.375 per Unit, or an aggregate value of approximately $795,000),
the assumption of certain third-party debt totaling approximately $4,472,000,
secured by such properties, and the balance paid in cash. The acquisition was
accounted for using the purchase method of accounting.
On June 30, 2000, the Company transferred and sold to Wellington Management
Corporation ("WMC") the Company's 100% interest in Lake Pointe Apartment Homes,
Inc., a Wisconsin corporation and wholly-owned subsidiary of the Company ("Lake
Pointe") and 8.00% interest in Highlander Acquisition Company, LLC, a Wisconsin
limited liability company ("Highlander"). The
16
<PAGE>
interests were exchanged for 95,000 shares of the Company's Class B Junior
Cumulative Convertible Preferred Shares owned by WMC and, WMC assumed the
mortgage debt totaling approximately $2.7 million associated with Lake Pointe.
In connection with the dispositions, a) the listing agreement between the
Company and WMC's affiliate, WMC Realty, Inc. ("WRI") was terminated and no
brokerage commission was paid to WRI; (b) the Chairman of the Board of Trustees
of the Company resigned effective June 30, 2000; and (c) a President of the
Company entered into a Separation Agreement with the Company effective June 30,
2000.
TAX STATUS OF THE COMPANY
The Company has historically operated as a REIT and maintained its qualification
as a REIT under Sections 856 through 860 of the Internal Revenue Code (the
"Code"). As a REIT, the Company generally will not be subject to federal income
tax. To qualify as a REIT under the Code for a taxable year, the Company must
meet certain requirements relating to its assets, income, stock ownership and
distributions to shareholders.
For the quarter ended June 30, 2000, the Company continues to qualify for REIT
status. However, because of the Company's acquisition of Resoft and Resoft's
operations, no assurance can be given that the Company will continue to qualify
or remain qualified as a REIT as of December 31, 2000. In addition, due to
current economic and market conditions in the real estate sector and other
opportunities in related markets, such as Resoft, there is no assurance that the
Company will continue to be organized and operated in such a manner to qualify
as a REIT.
If the Company fails to qualify as a REIT for any taxable year, the Company will
be subject to federal income tax on all of its taxable income at regular
corporate rates, and will not receive a deduction for dividends paid to its
shareholders. Additionally, any distributions to shareholders generally will
still be taxable to the shareholders as ordinary income to the extent of current
and accumulated earnings and profits. Thus, the Company's income would be
subject to double taxation -- at the corporate level and the shareholder level
to the extent such income is distributed to shareholders.
Failure to qualify for even one taxable year could result in the Company
incurring indebtedness or liquidating investments should the Company not have
sufficient funds to pay the resulting federal income tax liabilities, and the
Company would also be disqualified from taxation as a REIT for the next four
taxable years. As a result, the funds available for distribution to the
Company's shareholders would be reduced for each of the years involved. In
addition, dividend payments subject to the Code would no longer be required.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTH PERIOD ENDED JUNE 30, 2000 AND 1999: Rental revenue
decreased by approximately $940,000 or 35.2% for the six month period ended June
30, 2000 compared to the six month period ended June 30, 1999. The decreased
revenue was primarily a result of the Company's disposition of Maple Grove
Apartments on November 16, 1999, offset, in part, by the acquisition of the
Plymouth Properties on February 29, 2000. Tenant recoveries increased
approximately $160,000 or 21.5% for the six month period ended June 30, 2000
compared to the six month period ended June 30, 2000. The increased revenue was
primarily a result of the Company's acquisition of the Plymouth Properties.
Professional services and sales of hardware and software of approximately
$1,037,000 for the six month period ended June 30, 2000 is the result of the
Company's February 24, 2000 acquisition of Resoft. Interest and other income
increased by $161,000 during these same periods primarily due to interest earned
on invested funds as a result of the Company's public offering consummated on
October 28, 1999.
Total expenses decreased from approximately $7,480,000 for the six month period
ended June 30, 1999 to $5,550,000 for the six month period ended June 30, 2000,
a net decrease of $1,930,000 of
17
<PAGE>
which approximately $3,563,000 of the change represented non-recurring charges
incurred during 1999 related to the abandonment of certain potential
acquisitions and the partial termination of the incentive advisory agreement
between WMC and the Company. Increased costs of approximately $705,000 and
294,000, related to costs of professional services and sales of hardware and
software and product development costs, respectively, were a result of the
acquisition of Resoft. Decreased property operating and maintenance, advertising
and promotion and property taxes and insurance of $451,000, decreased management
fees of $41,000, and decreased interest expense of $356,000 were primarily a
result of the disposition of the Maple Grove Apartments on November 16, 1999,
offset, in part, by the acquisition of the Plymouth Properties on February 29,
2000. Increased general and administrative expenses of $948,000, were primarily
a result of additional general and administrative costs associated with Resoft.
Nonrecurring charges incurred during 2000 primarily related to costs associated
with abandoned projects and the severance package associated with the
disposition of Lake Pointe on June 30, 2000.
Depreciation and amortization increased from approximately $646,000 for the six
month period ended June 30, 1999 to approximately $945,000 for the comparable
period in 2000, an increase of 46.4%, primarily as a result of the Company's
amortization of goodwill aggregating $4,499,000 in connection with the
acquisition of Resoft over a three year period coupled with additional
depreciation of the recently acquired Plymouth Properties offset, in part, by
reduced depreciation as a result of the disposition of the Maple Grove
Apartments.
Interest expense decreased from approximately $1,295,000 for the six month
period ended June 30, 1999 to approximately $939,000 for the comparable period
in 2000, a decrease of 27.5%, primarily as a result of the Company's payoff of
the mortgage loan associated with the Maple Grove Apartments, offset, in part,
by the Company's assumption of mortgage loans associated with the Plymouth
Properties.
The equity in income of unconsolidated subsidiary of approximately $2,912 for
the six month period ended June 30, 2000 as compared to $4,033 for the six month
period ended June 30, 1999 is the result of the Company's 8.00% interest in
Highlander.
On March 29, 2000, the Board of Trustees declared a dividend of $0.475 per share
aggregating $328,000 with respect to the Class A Preferred Shares.
As a result of the above factors, loss from operations before equity in income
of unconsolidated subsidiary and loss allocated to minority interests decreased
from approximately ($4,035,000) for the six month period ended June 30, 1999 to
a loss of approximately ($1,687,000) for the six month period ended June 30,
2000 and net loss available to Common Shareholders increased from approximately
($1,537,000) for the six month period ended June 30, 1999 to ($1,787,000) for
the six month period ended June 30, 2000.
COMPARISON OF THE THREE MONTH PERIOD ENDED JUNE 30, 2000 AND 1999: Rental
revenue decreased by approximately $401,000 or 29.9% for the three month period
ended June 30, 2000 compared to the three month period ended June 30, 1999. The
decreased revenue was primarily a result of the Company's disposition of Maple
Grove Apartments on November 16, 1999, offset, in part, by the acquisition of
the Plymouth Properties on February 29, 2000. Tenant recoveries increased
approximately $103,000 or 24.8% for the three month period ended June 30, 2000
compared to the three month period ended June 30, 2000. The increased revenue
was primarily a result of the Company's acquisition of the Plymouth Properties.
Professional services and sales of hardware and software of approximately
$576,000 for the three month period ended June 30, 2000 is the result of the
Company's February 24, 2000 acquisition of Resoft. Interest and other income
increased by $69,000 during these same periods primarily due to interest earned
on invested funds.
Total expenses decreased from approximately $5,547,000 for the three month
period ended June 30, 1999 to $3,508,000 for the three month period ended June
30, 2000, a net decrease of $2,039,000 of
18
<PAGE>
which approximately $3,563,000 of the change represented non-recurring charges
incurred during 1999 related to the abandonment of certain potential
acquisitions and the partial termination of the incentive advisory agreement
between WMC and the Company. Increased costs of approximately $391,000 and
$196,000, related to sales of hardware, software and professional services and
product development costs, respectively, were a result of the acquisition of
Resoft. Decreased property operating and maintenance, advertising and promotion
and property taxes and insurance of $197,000, decreased management fees of
$17,000, and decreased interest expense of $140,000 were primarily a result of
the disposition of the Maple Grove Apartments on November 16, 1999, offset, in
part, by the acquisition of the Plymouth Properties on February 29, 2000.
Increased general and administrative expenses of $769,000, were primarily a
result of additional general and administrative costs associated with Resoft.
Nonrecurring charges incurred during 2000 primarily related to costs associated
with abandoned projects and the severance package associated with the
disposition of Lake Pointe on June 30, 2000.
Depreciation and amortization increased from approximately $324,000 for the
three month period ended June 30, 1999 to approximately $611,000 for the
comparable period in 2000, an increase of 88.7%, primarily as a result of the
Company's amortization of goodwill aggregating $4,499,000 in connection with the
acquisition of Resoft over a three year period coupled with additional
depreciation of the recently acquired Plymouth Properties offset, in part, by
reduced depreciation as a result of the disposition of the Maple Grove
Apartments.
Interest expense decreased from approximately $650,000 for the three month
period ended June 30, 1999 to approximately $510,000 for the comparable period
in 2000, a decrease of 21.5%, primarily as a result of the Company's payoff of
the mortgage loan associated with the Maple Grove Apartments, offset, in part,
by the Company's assumption of mortgage loans associated with the Plymouth
Properties.
The equity in income of unconsolidated subsidiary of approximately $1,056 for
the three month period ended June 30, 2000 as compared to $3,118 for the three
month period ended June 30, 1999 is the result of the Company's 8.00% interest
in Highlander.
As a result of the above factors, loss from operations before equity in income
of unconsolidated subsidiary and loss allocated to minority interests decreased
from approximately ($3,775,000) for the three month period ended June 30, 1999
to a loss of approximately ($1,388,000) for the three month period ended June
30, 2000 and net loss available to Common Shareholders decreased from
approximately ($1,435,000) for the three month period ended June 30, 1999 to
($1,322,000) for the three month period ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
SHORT TERM AND LONG TERM LIQUIDITY
Cash provided by operations, borrowings from affiliates and lending institutions
and equity issuances have generally provided the primary sources of liquidity to
the Company. Historically, the Company has used these sources to fund operating
expenses, satisfy its debt service obligations and fund distributions to
shareholders.
On March 29, 2000 the Board of Trustees declared a dividend of $0.475 per share
with respect to the Class A Preferred Shares and the Class B Preferred Shares.
The dividend with respect to the Class A Preferred Shares and Class B Preferred
Shares was paid on May 5, 2000 and June 30, 2000, respectively, to shareholders
of record on April 21, 2000. For the six months ended June 30, 2000, no
dividends had been declared on the Common Shares.
On July 1, 2000, the Company determined that it was in the Company's and its
shareholders' best interests to suspend quarterly dividends to either expand
operations or repurchase its Common Shares
19
<PAGE>
pursuant to an authorized stock repurchase program. The Board of Trustees of the
Company authorized the Company to repurchase, on a quarterly basis, up to
150,000 Common Shares of the Company in open market transactions.
The Company has no other contractual obligations for property acquisition or
material capital costs, other than tenant improvements in the ordinary course of
business. The Company expects to meet its long-term capital needs through a
combination of cash from operations, net cash proceeds from sales, additional
borrowings and additional equity issuances of Common or Preferred Shares.
CASH FLOWS
During the six month period ended June 30, 2000, the Company generated (i)
approximately $5,188,000 from the redemption of marketable securities; (ii)
approximately $161,000 from net cash proceeds in connection with the acquisition
of Netlink; (iii) approximately $67,000 from net cash proceeds in connection
with the disposition of Lake Pointe and Highlander; and (iv) approximately
$7,000 from distributions from investment in unconsolidated subsidiary. These
cash flows were used primarily for (i) acquisition of and additions to real
estate of approximately $1,359,000; (ii) acquisition of furniture, fixtures and
equipment of approximately $302,000; (iii) payment of cash dividends, net of the
Company's dividend reinvestment plan of approximately $434,000; (iv) repayments
of debt obligations aggregating approximately $901,000; and (v) cash used in
operating activities of approximately $1,310,000. As a result, the Company's
cash balances increased by approximately $1,117,000 from approximately
$2,893,000 at December 31, 1999 to $4,010,000 at June 30, 2000.
YEAR 2000 COMPLIANCE
The Year 2000 problem resulted from the use of a two digit year date instead of
a four digit date in the programs that operate computers (information technology
or "IT" systems) and other devices (i.e. "non-IT" systems such as elevators,
utility monitoring systems and time clocks that use computer chips). Systems
with a Year 2000 problem had programs that were written to assume that the first
two digits for any date used in the program would always be "19". Unless
corrected, this assumption could have resulted in problems when the century date
occurred. On that date, these computer programs could have misinterpreted the
date January 1, 2000 as January 1, 1900. This could have caused systems to
incorrectly process critical financial and operational information, generate
erroneous information or fail altogether. The Year 2000 issue was expected to
affect almost all companies and organizations.
As of the date of this filing, the Company's IT systems and non-IT systems have
not encountered any significant Year 2000 operating problems. In addition, there
were no significant third-party Year 2000 operating problems that had any impact
on the Company's operations. Therefore, the Company does not expect to incur any
significant additional costs relating to the Year 2000 issue.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
a. None
b. None
c. Recent sales of unregistered securities
1) Sales for consideration other than cash pursuant to Section
4(2) of the Securities Act, as amended:
During the three months ended June 30, 2000, the Company
issued to an individual contractor, 42,857 Common Shares in
exchange for consulting services provided in connection with
the acquisition by the Company of the Plymouth Properties. The
shares were valued at an aggregate price of $150,000 or $3.50
per share.
2) Issuance of options and warrants or conversions:
During the six months ended June 30, 2000, 100,616 Class A
Preferred Shares were converted into 346,923 Common Shares of
the Company.
During the six months ended June 30, 2000, the Company issued
to its Chief Executive Officer and to the Chief Executive
Officer of Resoft, options to purchase 666,667 and 1,000,000
Common Shares of the Company, respectively, at exercise prices
of $6.375 and $5.375, respectively.
During the six months ended June 30, 2000, the Company issued
to one corporate entity, warrants to purchase in the aggregate
1,066,670 Common Shares of the Company at exercise prices
ranging between $6.375 and $9.375, in exchange for the Company
acquiring proprietary material.
d. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
2.2 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, AnnWessels, Art Carruth, Patricia Hewitt,Thomas Walker and
Sherry Ajax*
2.3 Contribution Agreement between Wellington Partners, L.P., Wellington
Properties Trust and Plymouth Partners II, LLC and other LP Unit
Recipients dated as of February 29, 2000*
10.1 Agreement of Limited Partnership of Wellington Properties Investments,
L.P. and Wellington Management Corporation dated as of August 31,
1998**
10.2 Warrant to Purchase Shares of Stock dated March 28, 2000 between the
Company and Venture One Real Estate LLC+
10.3 Call Agreement dated March 28, 2000 between the Company and Venture One
Real Estate LLC+
10.4 Warrant to Purchase Shares of Stock dated June 22, 2000 between the
Company and Venture One Real Estate LLC+
27.1 Financial Data Schedule+
99.1 Text of Press Release dated July 3, 2000+
</TABLE>
* Incorporated by reference from the Company's Form 8-K filed with the SEC on
March 17, 2000.
**Incorporated by reference as Schedule C to the Company's Schedule 14A filed
November 6, 1998.
+ Filed herewith
REPORTS ON FORM 8-K
During the three months ended June 30, 2000 and through August 14, 2000, the
Company filed the following Current Reports on Form 8-K:
Item 2 and 5 in connection with the disposition of Lake Pointe and Highlander
filed on July 14, 2000.
22
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Stonehaven Realty Trust
By: \s\ Duane H. Lund
--------------------------
Duane H. Lund
Chief Executive Officer
Date: August 14, 2000
23
