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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
September 30, 1999 Commission File No. 333-7775
- ------------------ -----------------------------
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 September 30, 1999
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Common Stock, $.01 par value 3,414,191
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<PAGE>
PARAGON ACQUISITION COMPANY, INC.
FORM 10-Q INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
----
Balance Sheets- December 31, 1998 and September 30, 1999 .....................................................3
Statements of Operations - Three and nine months ended September 30, 1998 and
1999 and Period from June 19, 1996
(inception) to September 30, 1999.............................................................................4
Statement of Stockholders' Equity (Deficit) - Period from
June 19, 1996 (inception) to September 30, 1999...............................................................5
Statements of Cash Flows - Nine months ended September 30, 1998 and 1999 and
Period from June 19, 1996
(inception) to September 30, 1999............................................................................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
Signatures...................................................................................................12
Exhibit (27).................................................................................................13
</TABLE>
Page 2
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PARAGON ACQUISITION COMPANY, INC.
(a corporation in the development stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31 September 30
1998 1999
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Unaudited
<S> <C> <C>
Current Assets
Cash......................................................... $ 8,907 $ 4,690
Prepayments.................................................. 24,960 36,400
------ ------
Total Current Assets ........................................... 33,057 41,090
Deferred registration costs..................................... 134,612 134,612
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$ 167,669 $ 175,702
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses.......................................... $1,800 $ 1,500
Loan due to Stockholder PAR Holding Co., LLC,
plus accrued interest (Note 3)........................... 218,025 304,027
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Total Current Liabilities...................................... 219,825 305,527
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Commitment (Note 4)
Stockholders" equity (Notes 2, 5 and 6):
Preferred stock, $.01 par value shares - authorized 1,000,000; -0- -0-
none issued
Common stock, $.01 par value shares - authorized 20,000,000: 34,141 34,141
outstanding 3,414,191 and 3,414,191
Additional paid-in capital................................ 121,000 121,000
Deficit accumulated during the development stage.......... (207,297) (284,966)
---------- ---------
Total stockholders' deficit............................... (52,156) (129,825)
-------- ---------
$ 167,669 $ 175,702
========= =========
</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 Nine Months Three Months Nine Months June 19, 1996
ended ended ended ended (inception) to
September 30, September 30, September 30, September 30, September 30,
1998 1998 1999 1999 1999
------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
General and administrative $ 38,275 $101,937 $ 20,716 $ 66,667 $ 262,909
expenses
Interest expense 2,784 6,376 4,124 11,002 22,057
----- ----- ----- ------ ------
Net loss for the period $ 41,059 $108,313 $ 24,840 $ 77,669 $ 284,966
Net loss per common share, basic
and diluted
($0.01) ($0.03) ($0.01) ($0.02)
Weighted average common shares
outstanding 3,414,191 3,414,191 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 (DEFICIT)
Period from June 19, 1996 (inception) to September 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Common Stock Paid-in Development Stockholders'
Shares Amount Capital Stage Equity(Deficit)
------ ------ ---------- ------------ ---------------
<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 year ended
December 31, 1998................ - - - (127,041) (127,041)
--------- -------- -------- --------- ---------
Balance, December 31, 1998....... 3,414,191 $34,141 $121,000 $(207,297) $(52,156)
Net loss for the nine-months ended
September 30, 1999 (unaudited)... - - - (77,669) (77,669)
--------- -------- -------- ---------- ----------
Balance, September 30, 1999
(unaudited)...................... 3,414,191 $34,141 $121,000 $(284,966) $(129,825)
========= ======= ======== ========== ==========
</TABLE>
See accompanying notes to Financial Statements.
Page 5
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(a corporation in the development stage)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Nine Months Nine Months June 19, 1996
Ended Ended (inception to
September 30, 1998 September 30, 1999 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss....................... $(108,313) $(77,669) $(284,966)
Adjustments to reconcile net loss to
net cash used in operating activities
(Increase) in prepayments...... (17,680) (11,440) (36,400)
Increase (decrease) in accrued
expenses and interest........ (13,074) (10,702) 23,557
-------- -------- ------
Net Cash uses in operating activities $(139,067) $(78,407) $(297,809)
---------- --------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock $ 0 $ 0 $155,141
Loan from PAR Holding Co., LLC 136,970 75,000 281,970
Deferred registration costs.... 0 0 (134,612)
--------------- ------------- ---------
Net cash provided by financing activities $ 136,970 $ 75,000 $302,499
------------ ------------- --------
Net increase in cash........... (2,097) (3,407) 4,690
Cash, beginning of period........... 7,418 8,097 0
----- ----- -----------
Cash, end of period................ $ 5,321 $ 4,690 $ 4,690
========== ============ ============
</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.
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, 1998.
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
(AFAS 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 $285,000 available to reduce any future
income taxes. The tax benefit of these losses, approximately $114,000, has been
offset by a valuation allowance due to the uncertainty of its realization.
DEFERRED REGISTRATION COSTS
As of September 30, 1999, 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.
Page 7
<PAGE>
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 June 30,
1999, the Company had not yet commenced any formal business operations and all
activity to date relates to the Company's formation, search for a Target
Business and proposed fund raising. The Company's fiscal year end is December
31.
PAR Holding Company, LLC ("PAR Holding") contributed $150,000 to Paragon
initially in exchange for 2,900,000 shares of Common Stock (the "Shares"). Such
funds were used for the costs of the organization of Paragon and the
registration of the distribution of Shares and Subscription Rights described
below.
On March 6, 1997, The St. Lawrence Seaway Corporation purchased 514,191
Shares of Paragon for a price of $.01 per share. Such shares had attached
subscription rights entitling 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. On March 21, 1997, the Securities and Exchange Commission declared
effective the Registration Statement on Form S-1 filed by Paragon, registering
the distribution of the 514,191 Shares and Subscription Rights (the
"Distribution").
Page 8
<PAGE>
Because Paragon does not yet have a specific operating business, the
Distribution of Shares was conducted in accordance with Rule 419 promulgated
under the Securities Act of 1933, as amended. As a result, the Shares and any
Shares issuable upon exercise of subscription rights, are being held in escrow
and are non-transferable until after the completion of a business combination.
The subscription rights are also being held in escrow and are non-transferable
by their terms. The subscription rights will not become exercisable until a
Target Business is identified and a proposed business combination fully
disclosed in a post-effective amendment to Paragon's Registration Statement. The
net proceeds from the exercise of subscription rights will remain in an escrow
account subject to release upon consummation of a Business Combination.
There is no current public trading market for Paragon's shares and none is
expected to develop, if at all, until after the consummation of a Business
Combination and the release of shares from escrow. Because more than eighteen
months have expired since Paragon's Registration Statement on Form S-1 was
declared effective, the Company believes that the Registration Statement has
expired and is no longer effective to permit distribution of the Shares and
Subscription Rights or sale of the shares covered by the Subscription Rights
without an amendment or an additional or new registration statement being filed
and approved.
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 and May, 1999 further
loans for the sums of $10,000, $26,970, $100,000, $10,000 and $75,000,
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 SEPTEMBER 30, 1999
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, 1999, 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, 1999, Paragon had a net working capital shortfall of $264,437
and an accumulated deficit, since inception of $284,966 which consists primarily
of general and administrative expenses of $262,909 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 $281,970
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, a
$100,000 loan in May, 1998, a $10,000 loan in September, 1998, and a $75,000
loan in May, 1999.
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.
YEAR 2000
Paragon has not commenced formal business operations and thus has no computer
systems which could be affected by the Year 2000 problem. Paragon's transfer
agent, Continental Stock Transfer and Trust Company, has reported that it
conducted an extensive test in a Year 2000 environment in October, 1998, and
confirmed that it is Year 2000 compliant; that is has been examined by the New
York State Banking Department and been found to have made satisfactory progress
on its Year 2000 plan; and that it has also made the appropriate filing with the
SEC in accordance with Rule 17Ad-18.
Page 10
<PAGE>
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
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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
<PAGE>
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
/s/ Mitchell A. Kuflik
Date: 11/12/99 ---------------------------------
President
/s/Peter A. Hochfelder
Date: 11/ 12 /99 ---------------------------------
Vice President and Treasurer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit (27)
Paragon Acquisition Company, Inc.
Financial Data Schedule
For The Nine Months Ended September 30, 1999
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,690
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,090
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 175,702
<CURRENT-LIABILITIES> 305,527
<BONDS> 0
0
0
<COMMON> 34,141
<OTHER-SE> (163,966)
<TOTAL-LIABILITY-AND-EQUITY> 175,702
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 66,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,002
<INCOME-PRETAX> (77,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,669)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
