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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended
June 30, 1998 Commission File No. 333-7775
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PARAGON ACQUISITION COMPANY, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3895049
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
277 PARK AVENUE, NEW YORK, NY 10017
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(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
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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 JUNE 30, 1998
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Common Stock, $.01 par value 3,414,191
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<PAGE>
PARAGON ACQUISITION COMPANY, INC.
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FORM 10-Q INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
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<S> <C>
Balance Sheets- December 31, 1997 and June 30, 1998 ..........................................................3
Statements of Operations - Three and six months ended June 30, 1997 and 1998,
and Period from June 19, 1996
(inception) to June 30, 1998 .................................................................................4
Statement of Stockholders' Equity - Period from
June 19, 1996 (inception) to June 30, 1998....................................................................5
Statements of Cash Flows - Six months ended June 30, 1997 and 1998, and Period
from June 19,
1996 (inception) to June 30, 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
</TABLE>
Page 2
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PARAGON ACQUISITION COMPANY, INC.
(a corporation in the development stage)
BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1998
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UNAUDITED
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Current Assets
<S> <C> <C>
Cash...................................................... $ 7,418 $ 15,086
Prepayments............................................... 26,000 62,400
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Total Current Assets ........................................ 33,418 77,486
Deferred registration costs.................................. 134,612 134,612
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$ 168,030 $ 212,098
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
Accrued expenses......................................... $ 21,250 $ 2,010
Loan due to Stockholder PAR Holding Co., LLC,
plus accrued interest (Note 3)........................ 71,895 202,457
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Total Current Liabilities.................................... 93,145 204,467
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Commitment (Note 4)
Stockholders' equity (Notes 2, 5 and 6):
Preferred stock, $.01 par value shares - authorized 1,000,000;
none issued
Common stock, $.01 par value shares - authorized 20,000,000:
outstanding 3,414,191 and 3,414,191.................... 34,141 34,141
Additional paid-in capital................................ 121,000 121,000
Deficit accumulated during the development stage.......... (80,256) (147,510)
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Total stockholders' equity................................ 74,885 7,631
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$ 168,030 $ 212,098
========= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS JUNE 19, 1996
ENDED ENDED ENDED ENDED (INCEPTION) TO
JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1998 JUNE 30, 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
General and administrative
expenses $ 15,630 $ 17,557 $ 33,712 $ 63,662 $ 142,023
Interest expense 0 0 2,293 3,592 5,487
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Net loss for the period $ 15,630 $ 17,557 $ 36,005 $ 67,254 $ 147,510
========== =========== ========= ========== ==========
Net loss per common share,
basic and diluted ($0.00) ($0.01) ($0.01) ($0.02)
---------- ----------- --------- ----------
Weighted average
common shares outstanding 3,042,831 3,229,537 3,414,191 3,414,191
========== =========== ========= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JUNE 19, 1996 (INCEPTION) TO JUNE 30, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
COMMON STOCK 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 six months
ended June 30, 1998 (unaudited).......... -- -- -- (67,254) ( 67,254)
--------- ------- -------- --------- ---------
Balance, June 30, 1998 (unaudited)....... 3,414,191 $34,141 $121,000 ($147,510) $ 7,631
========= ======= ======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5
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PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS SIX MONTHS JUNE 19, 1996
ENDED ENDED (INCEPTION) TO
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1998
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<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (17,557) $ (67,254) $(147,510)
---------- --------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities
(Increase) Decrease in prepayments........... (65,000) (36,400) (62,400)
Increase (decrease)in accrued expenses and
interest..................................... 2,630 (15,648) 7,497
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Net cash used in operating activities............. (79,927) (119,302) (202,413)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock .......... $ 5,141 $ -- $ 155,141
Loan from PAR Holding Co., LLC............... 60,000 126,970 196,970
Deferred registration costs ................. (48,551) -- (134,612)
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Net cash provided by financing activities......... $ 16,590 $ 126,970 $ 217,499
Net increase (decrease) in cash.............. (63,337) 7,668 15,086
Cash, beginning of period......................... 78,767 7,418 0
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Cash, end of period............................... $ 15,430 $ 15,086 $ 15,086
========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 6
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
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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
Paragon Acquisition Company, Inc. (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 $148,000 available to reduce any future
income taxes. The tax benefit of these losses, approximately $59,000, has been
offset by a valuation allowance due to the uncertainty of its realization.
DEFERRED REGISTRATION COSTS
As of June 30, 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 loss per share amounts for all periods have been
presented to conform to the Statement 128 requirements.
COMPREHENSIVE INCOME
Effective January 1, 1998, 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 June 30,
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 established by the Company. The Shares to be distributed to the
shareholders, the Subscription Rights and any Shares issuable upon exercise of
Page 8
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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, March 1998 and May 1998, further loans of $10,000, $26,970 and
$100,000, 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.
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.
Page 9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1998
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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 June 30, 1998, 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 June 30, 1998, Paragon had a working capital shortfall of $126,981 and an
accumulated deficit, since inception of $147,510, which consisted primarily of
general and administrative expenses of $142,023 including professional fees
incurred with respect to compliance with SEC reporting requirements and premiums
incurred on directors and officers insurance policies. To date, PAR Holding Co.,
LLC, a principal Shareholder of Paragon, has loaned Paragon a total of $196,970
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, 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.
Page 10
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PARAGON ACQUISITION COMPANY, INC.
PART II. OTHER INFORMATION
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ITEM 1.
Legal Proceeding - Not Applicable
----------------
ITEM 2.
Changes in Securities - Not Applicable
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ITEM 3.
Defaults upon Senior Securities - Not Applicable
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ITEM 4.
Submission of Matters to a Vote of Security Holders - Not Applicable
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ITEM 5.
Other Information - Not Applicable
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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.
Page 11
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SIGNATURE
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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: 08/03/98 /S/ Mitchell A. Kuflik
---------------------------------
Mitchell A. Kuflik
President
Date: 08/03/98
/S/ Peter A. Hochfelder
---------------------------------
Peter A. Hochfelder
Vice President and Treasurer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 15,086
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,486
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 212,098
<CURRENT-LIABILITIES> 204,467
<BONDS> 0
0
0
<COMMON> 34,141
<OTHER-SE> (26,510)
<TOTAL-LIABILITY-AND-EQUITY> 212,098
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 63,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,592
<INCOME-PRETAX> (67,254)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,254)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
