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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------
FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended
March 31, 1998 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
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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 March 31, 1998
----- -----------------------------
Common Stock, $.01 par value 3,414,191
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PARAGON ACQUISITION COMPANY, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
- ------------------------------ ----
Balance Sheets- December 31, 1997 and March 31, 1998 ........................3
Statements of Operations - Quarters ended March 31, 1997
and March 31, 1998, and Period from June 19, 1996 (inception)
to March 31, 1998............................................................4
Statement of Stockholders' Equity - Period from
June 19, 1996 (inception) to March 31, 1998..................................5
Statements of Cash Flows - Quarters ended March 31,
1997 and March 31, 1998, and Period from June 19,
1996 (inception) to March 31, 1998...........................................6
Notes to Financial Statements..............................................7-9
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................10
PART II. OTHER INFORMATION.................................................11
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Signatures..................................................................12
Exhibit (27)................................................................13
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PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
December 31 March 31
1997 1998
----------- ---------
Unaudited
---------
<S> <C> <C>
Current Assets
Cash ...................................................................... $ 7,418 $ 10,598
Prepayments ............................................................... 26,000 6,500
-------- ---------
Total Current Assets ......................................................... 33,418 17,098
Deferred registration costs .................................................. 134,612 134,612
-------- ---------
$168,030 $ 151,710
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accrued expenses .......................................................... $ 21,250 $ 7,910
Loan due to Stockholder PAR Holding Co., LLC,
plus accrued interest (Note 3) ........................................ 71,895 100,164
-------- ---------
Total Current Liabilities .................................................... 93,145 108,074
-------- ---------
Commitment (Note 4)
Stockholders' equity (Notes 2, 5 and 6):
Preferred stock, $.01 par value shares - authorized 1,000,000;
none issued
Common stock, $.01 par value shares - authorized 20,000,000:
outstanding 3,414,191 and 3,414,191 ................................... 34,141 34,141
Additional paid-in capital ................................................ 121,000 121,000
Deficit accumulated during the development stage .......................... (80,256) (111,505)
-------- ---------
Total stockholders' equity ................................................ 74,885 43,636
-------- ---------
$168,030 $ 151,710
======== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Quarter Quarter June 19, 1996
ended ended (inception) to
March 31, 1997 March 31, 1998 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
General and administrative expenses ............... $ 1,927 $ 29,950 $108,311
Interest expense .................................. 0 1,299 3,194
---------- ---------- --------
Net loss for the period ........................... $ 1,927 $ 31,249 $111,505
========== ========== ========
Net loss per common share, basic and diluted ...... $ (0.00) $ (0.01)
---------- ----------
Weighted average common shares outstanding ........ 3,042,831 3,414,191
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JUNE 19, 1996 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------------ PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of founders' shares ............... 2,900,000 $29,000 $121,000 - $ 150,000
Net loss for the period June 19, 1996
(inception) to December 31, 1996 .......... - - - $ (7,560) (7,560)
--------- ------- ----------- --------- ---------
Balance December 31, 1996 .................. 2,900,000 $29,000 $121,000 $ (7,560) 142,440
Issuance of Shares to Investor ............. 514,191 $ 5,141 - - $ 5,141
Net loss for the year ended
December 31, 1997 .......................... - - - $ (72,696) ($ 72,696)
--------- ------- -------- --------- ---------
Balance December 31, 1997 .................. 3,414,191 $34,141 $121,000 $ (80,256) $ 74,885
Net Loss for the quarter
ended March 31, 1998 (unaudited) ........... - - - (31,249) (31,249)
--------- ------- -------- --------- ---------
Balance, March 31, 1998 (unaudited) ........ 3,414,191 $34,141 $121,000 $(111,505) $ 43,636
========= ======= ======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Quarter Quarter June 19, 1996
Ended Ended (inception) to
March 31, 1997 March 31, 1998 March 31, 1998
-------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $(1,927) $(31,249) $(111,505)
Adjustments to reconcile net loss to net cash
used in operating activities
(Increase) Decrease in prepayments .................... 0 19,500 (6,500)
Increase in accrued expenses and interest ............. 0 3,959 11,104
------- -------- ---------
Net Cash used in operating activities ...................... $(1,927) $ (7,790) $(106,901)
------- -------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock .................... $ 5,141 $ - $ 155,141
Loan from PAR Holding Co., LLC ........................ 0 26,970 96,970
Deferred registration costs ........................... 12,000) (16,000) (134,612)
------- -------- ---------
Net cash provided by (used in) financing activities ........ $(6,859) $ 10,970 $ 117,499
------- -------- ---------
Net increase (decrease) in cash ....................... (8,786) 3,180 10,598
Cash, beginning of period .................................. 78,767 7,418 0
------- -------- ---------
Cash, end of period ........................................ $69,981 $ 10,598 $ 10,598
======= ======== =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company incurred $5,000 during the quarter ended March 31, 1997, in
deferred registration costs (and related accrued expenses) which were non-cash
financing activities.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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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, 1997.
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 $112,000 available to reduce any future
income taxes. The tax benefit of these losses, approximately $45,000, has been
offset by a valuation allowance due to the uncertainty of its realization.
Deferred Registration Costs
As of March 31, 1998, the Company has incurred deferred registration costs
of $134,612 relating to expenses incurred in connection with the Proposed
Distribution (see Note 2). Upon consummation of this Proposed Distribution, the
deferred registration costs will be charged to equity. Should the Proposed
Distribution prove to be unsuccessful, these deferred costs, as well as
additional expenses to be incurred, will be charged to operations.
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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.
Comprehensive Income
Effective January 1, 1998, Paragon Acquisition Company, Inc. (the
"Company") adopted SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Adoption of the standard has had no effect on financial
statement disclosures.
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 March 31, 1998, 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
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established by the Company. The Shares to be distributed to the shareholders,
the Subscription Rights and any Shares issuable upon exercise of Subscription
Rights will be 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.
3. LOANS 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 a further $10,000 loan was received from PAR
Holding Co., LLC. and during March, 1998, a further $25,000 loan was received.
The loan bears interest at the annual rate of 5.5%, compounded monthly, and is
payable on demand. Subsequent to quarter end, on May 1, 1998, a further $100,000
was received from PAR Holding Co, LLC with similar terms.
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.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1998
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 March 31, 1997, 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 March 31, 1998, Paragon had a net working capital shortfall of approximately
$90,976. To date, PAR Holding Co., LLC, a principal Shareholder of Paragon, has
loaned Paragon a total of $205,000 to cover its working capital shortfall,
consisting of a $60,000 loan in June, 1997, a $10,000 loan in November, 1997, a
$35,000 loan in March, 1998, and a $100,000 loan in May, 1998. 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.
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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
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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.
PARAGON ACQUISITION COMPANY, INC.
Registrant
Date: 05/13/98 /s/ Mitchell A. Kuflik
-----------------------------------
Mitchell A. Kuflik
President
Date: 05/13/98 /s/ Peter A. Hochfelder
-----------------------------------
Peter A. Hochfelder,
Vice President and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,598
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,098
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 151,710
<CURRENT-LIABILITIES> 108,074
<BONDS> 0
0
0
<COMMON> 34,141
<OTHER-SE> 9,495
<TOTAL-LIABILITY-AND-EQUITY> 151,710
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 29,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,299
<INCOME-PRETAX> (31,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,249)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
