================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 2000 Commission File No. 333-7775 ------------------ ------------------------------ PARAGON ACQUISITION COMPANY, INC. --------------------------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 13-3895049 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 277 Park Avenue New York, NY 10017 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 350-5367 --------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS (OUTSTANDING AT NOVEMBER 1, 2000) ---------------------------- --------------------------------- Common Stock, $.01 par value 3,414,191 ================================================================================ PARAGON ACQUISITION COMPANY, INC. FORM 10-Q INDEX

~~December~~PART 31I. ~~June~~FINANCIAL 30INFORMATION ~~1999~~(UNAUDITED) ~~2000~~PAGE ---- Balance Sheets-~~---~~ ~~(unaudited)~~December ~~Current~~31, ~~Assets~~1999 ~~Cash~~(audited) $and 90September ~~$ 1~~30,~~419~~ ~~Prepayments~~2000 ~~20,800~~3 ~~15,600~~Statements ~~-------~~of Operations -~~------~~ ~~Total~~Three ~~Assets~~and ~~$20,890~~Nine ~~$17,019~~Months ~~=======~~ended ~~=======~~September ~~LIABILITIES~~30, ~~AND~~1999 ~~STOCKHOLDERS'~~and ~~DEFICIT~~September ~~Current~~30, ~~liabilities~~2000, ~~Accrued~~and ~~expenses~~Period $from ~~1,500~~June ~~$ 1~~19,~~500~~ ~~Loan~~1996 ~~due~~(inception) to ~~Stockholder~~September ~~PAR Holding Co.~~30, ~~LLC,~~2000 ~~plus~~4 ~~accrued~~Statement ~~interest~~of ~~(Note~~Stockholders' 3)Deficit ~~308,208 347,757~~ -~~-------~~ ~~--------~~Period ~~Total~~from ~~Current~~June ~~Liabilities 309~~19,~~708~~ ~~349,257~~1996 ~~-------- -------- Commitment~~ (~~Note 4~~inception) ~~Stockholders'~~to ~~deficit~~September ~~(Notes 2~~30, 2000 5 ~~and~~Statements ~~6):~~of ~~Preferred~~Cash ~~stock,~~Flows ~~$.01~~- ~~par~~Nine ~~value~~months ~~shares~~ended -September ~~authorized: 1~~30,~~000,000;~~ ~~None~~1999 ~~issued~~and ~~Common~~September ~~stock~~30, ~~$.01~~2000, ~~par~~and ~~value~~Period ~~shares~~from -June ~~authorized: 20~~19,~~000,000;~~ ~~outstanding~~1996 ~~3,414,191~~(inception) ~~and~~to ~~3,414,191~~September 3430,~~141~~ ~~34,141~~2000 ~~Additional~~6 ~~paid-in~~Notes ~~capital~~to ~~121,000~~Financial ~~121,000~~Statements ~~Deficit~~7-9 ~~accumulated~~Management's ~~during~~Discussion ~~the~~and ~~development~~Analysis ~~stage~~of ~~(443,959)~~Financial ~~(487,379)~~Condition ~~---------~~and ~~---------~~Results ~~Total~~of ~~stockholders'~~Operations ~~deficit~~10 ~~(288,818)~~PART ~~(332,238)~~II. ~~--------~~OTHER ~~---------~~INFORMATION $11 ~~20,890~~Signatures $12 ~~17,019~~Exhibit ~~=========~~(27) ~~=========~~13

2 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) BALANCE SHEETS ASSETS

~~Period~~December ~~from~~31 ~~Three~~September ~~Months~~30 ~~Three~~1999 ~~Months~~2000 ~~June~~---- ~~19,~~---- ~~1996 ended Six Months ended ended Six Months ended~~ (~~inception~~unaudited) toCurrent ~~June~~Assets ~~30,~~Cash ~~1999~~$ ~~June~~90 ~~30,~~$ ~~1999 June 30~~4,527 ~~2000~~Prepayments ~~June 30~~20,800 ~~2000 June 30~~10,920 ~~2000~~ ------~~-------~~ ------~~-------~~ ~~-------------~~Total ~~-------------~~Assets ~~-------------~~$20,890 ~~General~~$15,447 ~~and~~====== ~~administrative~~====== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accrued expenses $~~20,389~~ ~~$45~~1,~~951~~500 $~~12,360~~ ~~$34~~1,~~556~~500 ~~$317,665~~Loan ~~Write-off~~due ofto ~~deferred~~Stockholder ~~134,612~~PAR ~~registration~~Holding ~~costs~~Co., ~~(Note~~LLC, 1)plus -accrued -interest ~~Interest~~(Note ~~expense~~ 3~~,703~~) 6308,~~878~~208 4360,~~624~~054 ~~8,864 35,102~~ ----- --~~---~~ ------- Total Current Liabilities 309,708 361,554 ------- ------- ~~Net~~Commitment ~~loss~~(Note ~~for~~4) ~~the~~Stockholders' ~~period~~deficit ~~$24,092~~(Notes ~~$52~~2,~~829~~ ~~$16,984~~5 ~~$43,420~~and ~~$487,379~~6): ~~======~~Preferred ~~======~~stock, ~~======~~$.01 ~~======~~par ~~=======~~value ~~Net~~shares ~~loss~~- ~~per~~authorized: ~~common share~~1,000,000; ~~basic~~None ~~and~~issued ~~diluted~~-- ~~($0.01)~~-- ~~($0.02)~~Common ~~($0.00)~~stock, ($0.01) ~~=======~~par ~~=======~~value ~~=======~~shares ~~=======~~- ~~Weighted~~authorized: ~~average~~20,000,000; ~~common~~outstanding ~~shares~~3,414,191 ~~outstanding~~34,141 ~~basic~~34,141 ~~and~~Additional ~~diluted~~paid-in 3capital 121,~~414~~000 121,~~191~~000 3Deficit accumulated during the development stage (443,~~414~~959) (501,~~191~~248) 3--------- --------- Total stockholders' deficit (288,~~414~~818) (346,~~191~~107) 3--------- --------- $ 20,~~414~~890 $ 15,~~191~~447 ========= =~~========~~ ========= ==~~=======~~

See accompanying notes to financial statements. 3 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) STATEMENTS OF OPERATIONS (unaudited)

~~Deficit~~Period ~~Accumulated~~from ~~Additional~~June ~~During~~19, ~~the~~1996 ~~Total~~Three ~~Common~~Months ~~Paid-In~~ended ~~Development~~Nine ~~Stockholders'~~Months ~~Shares~~ended ~~Amount~~Three ~~Capital~~Months ~~Stage~~ended ~~Equity~~Nine Months ended (~~Deficit~~inception) to September 30, 1999 September 30, 1999 September 30, 2000 September 30, 2000 September 30,2000 ------- ------ ----- -- ----- ----------- ---- ~~Balance, January 1, 1998 3,414,191 $34,141 $121,000 ($80,256) $74,885 Net loss for the year ended December 31, 1998~~ - - - ~~(127,041) (127,041)~~ ----------- ------- -------- --- ------ ----------- ~~Balance,~~General ~~December~~and ~~31,~~administrative ~~1998~~expenses 3$20,~~414,191~~716 34$66,~~141~~667 ~~121~~$9,~~000~~072 ~~(207~~$43,~~297)~~628 ~~(52~~$326,~~156)~~737 ~~Net~~Write-off ~~loss~~of ~~for~~deferred ~~the~~- ~~year~~- ~~ended~~134,612 ~~December~~registration ~~31,~~costs ~~1999~~(Note -1) - - (Interest ~~236~~expense 4,~~662)~~124 (11,002 ~~236~~4,~~662)~~797 13,661 39,899 -----~~----~~ ------ ------- ------~~----~~ ------~~----~~ ~~Balance,~~Net ~~December~~loss ~~31,~~for ~~1999~~the 3period $24,~~414,191~~840 34$77,~~141~~669 ~~121~~$13,~~000~~869 ~~(443~~$57,~~959)~~289 ~~(288~~$501,~~818)~~248 ~~Net~~====== ~~loss~~====== ~~for~~====== ~~the~~====== ~~six~~======= ~~months~~Net ~~ended~~loss ~~June~~per 30common share, ~~2000~~basic ~~(unaudited)~~and -diluted ~~- -~~ ($0.01) ~~43,420~~($0.02) ($0.00) ~~43,420~~($0.02) ~~---------~~======= ~~------~~======= ~~-------~~======= ~~----------~~======= ~~----------~~Weighted ~~Balance,~~average ~~June~~common 30shares outstanding, ~~2000~~basic ~~(unaudited)~~and diluted 3,414,191 ~~$34~~3,~~141 $121~~414,~~000~~191 ~~($487~~3,~~379)~~414,191 ~~($332~~3,~~238)~~414,191 ========== ======= ==~~======~~ ========== ==========

See accompanying notes to financial statements. 4 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) STATEMENT OF STOCKHOLDERS' DEFICIT Period from January 1, 1999 to September 30, 2000

~~Period~~Deficit ~~from~~Accumulated ~~Six~~Additional ~~Months~~During ~~Six~~the ~~Months~~Total ~~June~~Common ~~19,~~Paid-In ~~1996~~Development ~~Ended~~Stockholders' ~~Ended~~Shares ~~(inception)~~------ toAmount ~~June~~Capital ~~30,~~Stage ~~1999~~Deficit ~~June 30, 2000 June 30, 2000~~ ------ ------ -- -------- ----------- ------------- ~~Cash~~Balance, ~~flows~~January ~~from~~1, ~~operating~~1999 ~~activities~~3,414,191 ~~Net~~$34,141 ~~loss~~ $~~(52~~121,~~829)~~000 $(43207,~~420~~297) $(~~487~~52,~~379~~156) ~~Adjustments~~Net ~~to reconcile net~~ loss tofor ~~net~~the ~~cash~~year ~~used~~ended inJanuary ~~operating~~1, ~~activities~~1999 ~~Write~~-~~off~~ ~~of deferred registration costs~~ - - ~~134,612 Changes in assets and liabilities:~~ (~~Increase)~~ ~~Decrease in prepayments 27~~236,~~040~~662) ~~5,200~~ (15 236,~~600~~662) ~~Increase in accrued expenses and interest 6,578 8,864 36,602~~ --------- --------- --------- ~~Net cash used in operating activities (73,291) (29,356) (331,765)~~ -------- --~~------~~ ---------- ~~Cash~~Balance, ~~flows~~December ~~from~~31, ~~financing~~1999 ~~activities:~~3,414,191 ~~Proceeds~~34,141 ~~from~~121,000 ~~sale~~(443,959) ~~of common stock 0 0 155~~(288,~~141~~818) ~~Loan~~Net ~~from~~loss ~~PAR~~for ~~Holding~~the ~~Co.,~~nine ~~LLC~~months ~~75,000~~ended September 30,~~685~~ ~~312,655~~2000 ~~Deferred~~(unaudited) ~~registration~~- ~~costs~~- 0- 0(57,289) (~~134~~ 57,~~612~~289) ------ --- --- ------ --- ~~Net cash provided by financing activities 75,000 30,685 333,184~~ ------ ---------- ---------- ~~Net~~Balance, ~~increase~~September ~~(decrease)~~30, in2000 ~~cash~~ (~~1,709~~unaudited) (13,~~329) 1~~414,~~419~~191 ~~Cash~~$34,141 ~~beginning of period 8,097 90 0 ----- ------ ----- Cash, end of period~~ $9121,~~806~~000 ($1501,~~419~~248) ($1346,~~419~~107) ========= ======= ======== ========== ==========

See accompanying notes to financial statements. 5 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) STATEMENTS OF CASH FLOWS (unaudited)

See accompanying notes to financial statements. 6 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. BASIS OF PRESENTATION The accompanying financial statements are unaudited; however, in the opinion of management, all adjustments necessary for a fair statement of financial position and results for the stated periods have been included. These adjustments are of a normal recurring nature. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and notes thereto as of and for the period ended December 31, 1999 which are included in the Company's annual report on Form 10-K. GENERAL The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is in the development stage and has incurred a loss since its inception and there can be no assurance that the planned acquisition activities of the Company (see Note 2) will be successful in the near term. The Company has, however, other funding sources available, principally lending commitments from related parties, sufficient to sustain operations for at least the next twelve months. INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The Company has net operating loss carry forwards of approximately $366,000 available to reduce future income taxes. The tax benefit of these losses, approximately $146,000, has been offset by a valuation allowance due to the uncertainty of its realization. DEFERRED REGISTRATION COSTS Through December 31, 1997, the Company had incurred deferred registration costs of $134,612 relating to expenses incurred in connection with the Proposed Distribution (See Note 2). No further registration costs were incurred during the period ended September 30, 2000. Since the Registration Statement on Form S-1 has expired and is no longer effective to permit distribution of the Shares and Subscription Rights in connection with the Proposed Distribution (Note 2) without an amendment or an additional or new Registration Statement being filed and approved, the deferred registration costs of $134,612 were written off in the Statement of Operations in the fourth quarter of 1999. 7 USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NET LOSS PER COMMON SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share." Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented to conform to the Statement 128 requirements. 2. ORGANIZATION AND BUSINESS OPERATIONS. The Company was incorporated in Delaware on June 19, 1996 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other business combination (the "Business Combination") with an operating business (the "Target Business"). At September 30, 2000, the Company had not yet commenced any formal business operations and all activity to date relates to the Company's formation and proposed fund raising. The Company's fiscal year end is December 31. The Company's ability to commence operations is contingent upon its ability to identify a prospective Target Business and raise the capital it will require through the issuance of equity securities, debt securities, bank borrowings or a combination thereof. The Company intends to obtain adequate financial resources through the registration of a distribution of shares of its Common Stock and Subscription Rights to its shareholders (the "Distribution"). The Subscription Rights will entitle the holder to purchase two (2) shares of Common Stock of the Company for each Subscription Right held for a purchase price to be determined by the Company's Board of Directors at the time a Business Combination is identified, such price to be not more than $2.00 per Subscription Right. Subscription Rights will not be exercisable until after a Post-Effective Amendment to the Form S-1 Registration Statement to be filed by the Company with the Securities and Exchange Commission describes a Business Combination, establishes the Subscription Price and the number of Subscription Rights which may be exercised in such Subscription Period and specifies the Subscription Period established by the Company. The Shares to be distributed to the shareholders, the Subscription Rights and any Shares issuable upon exercise of Subscription Rights are being held in escrow and may not be sold or transferred until the Company has consummated a Business Combination. After the Business Combination is consummated, the Shares will be released from escrow. Due to the terms of the Distribution, the Company has not established a time period within which to exercise the Subscription Rights as such exercise is dependent upon the identification of a Target Business. The Company anticipates that, due to the time constraints imposed on the management of the Company, it is not possible to predict the length of the identification process. 8 3. LOAN DUE TO PAR HOLDING CO., LLC. On June 4, 1997, PAR Holding Co., LLC, a major stockholder, loaned the Company $60,000. Such loan is evidenced by a Promissory Note dated June 4, 1997, in the principal amount of $60,000. During November, 1997, March, 1998, May, 1998, September, 1998, May, 1999, March, 2000, April, 2000, May, 2000, and September 2000, further loans for the sums of $10,000, $26,970, $100,000, $10,000, $75,000, $5,685, $5,000, $20,000, and $7,500 respectively, were received. The loans bear interest at the annual rate of 5.5%, compounded monthly, and are payable on demand. 4. COMMITMENT. The Company presently occupies office space provided by a stockholder. Such stockholder has agreed that, until the acquisition of a Target Business by the Company, it will make such office space, as well as certain office and secretarial service, available to the Company, as may be required by the Company from time to time at no charge. The value ascribed to such arrangements to date is not considered material. 5. PREFERRED STOCK. The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. 6. COMMON STOCK. On June 25, 1996 the Company issued 2,900,000 shares of Common Stock, par value $.01 per share, to PAR Holding Co., LLC for a consideration of $150,000. On March 6, 1997 the Company issued a further 514,191 shares of Common Stock, par value $.01 per share, to St. Lawrence Seaway Corporation for a total consideration of $5,141. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2000 RESULTS OF OPERATIONS Paragon was incorporated on June 19, 1996 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other business combination with an operating business. On March 21, 1997, the Registration Statement on Form S-1 filed by Paragon with respect to the Distribution was declared effective and Paragon became subject to the reporting requirements of the Securities and Exchange Commission. At September 30, 2000, Paragon had not yet commenced any formal business operations and all activities to date relate only to Paragon's formation and on-going reporting obligations with the Securities and Exchange Commission. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, Paragon had a net working capital shortfall of $346,107 and an accumulated deficit, since inception, of $501,248 which consists primarily of general and administrative expenses of $326,737 (including professional fees incurred with respect to compliance with SEC reporting requirements and premiums incurred on directors and officers insurance policies) and $134,612 related to deferred registration costs incurred in earlier years and expensed in the fourth quarter of 1999. To date, PAR Holding Co., LLC, a principal Shareholder of Paragon has loaned Paragon a total of $320,155 to cover its working capital shortfall, consisting of a $60,000 loan in June, 1997, a $10,000 loan in November, 1997, a $26,970 loan in March, 1998, a $100,000 loan in May, 1998, a $10,000 loan in September, 1998, a $75,000 loan in May, 1999, a $5,685 loan in March, 2000, a $5,000 loan in April, 2000, a $20,000 loan in May, 2000, and a $7,500 loan in September, 2000. All such loans are evidenced by promissory notes and loans bear interest at an annual rate of 5.5% compounded monthly; interest and principal are payable on demand. PAR Holding Co., LLC has committed to continue to fund Paragon's working capital shortfalls during its pre-acquisition stage. 10 PARAGON ACQUISITION COMPANY, INC. PART II. OTHER INFORMATION Item 1. Legal Proceeding - Not Applicable Item 2. Changes in Securities - Not Applicable Item 3. Defaults upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on form 8-K - Item 6(a) Exhibits - (27) Financial Data Schedule Item 6(b) Reports on Form 8-K - No reports on Form 8-K were required to be filed for the quarter for which this report is filed 11 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant PARAGON ACQUISITION COMPANY, INC. Date: November 5, 2000 /s/ Mitchell A. Kuflik --------------------------------- President Date: November 5, 2000 /s/ Peter A. Hochfelder --------------------------------- Vice President and Treasurer 12

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