================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
----------------------
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 333-7775
-------------------------------
PARAGON ACQUISITION COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3895049
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of corporation or organization)
277 Park Avenue 10017
------------------------------ -----
New York, NY (Zip Code)
(Address of principal executive offices)
(212) 350-5367
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(g) of the Act:
Name of Exchange on
Title of each class Which Registered
------------------- -------------------
Common Stock, par value $.01 per share None
Securities registered pursuant to Section 12(b) of the Act: None
----
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [x] No [ ]
The aggregate market value of Common stock held by non-affiliates of the
registrant as of December 31, 1998: Not Applicable
The number of shares of Common Stock of the registrant outstanding as of
December 31, 1998 was 3,414,191
DOCUMENTS INCORPORATED BY REFERENCE
None.
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<PAGE>
Paragon Acquisition Company, Inc.
---------------------------------
Part I
------
ITEM 1 - BUSINESS
GENERAL
Paragon Acquisition Company, Inc. ("Paragon") was formed on June 19,
1996 to serve as a vehicle to seek and effect a merger, exchange of capital
stock, asset acquisition or other business combination (a "Business
Combination") with an operating business (a "Target Business"). PAR Holding
Company, LLC ("PAR Holding") contributed $150,000 to Paragon 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
its Shares described below.
On March 6, 1997, The St. Lawrence Seaway Corporation purchased 514,191
Shares of Paragon for a price of $.01 per Share. 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 to purchase additional Shares to St. Lawrence
stockholders (the "Distribution").
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. In addition, because more
than eighteen months have expired since Paragon's Registration Statement on Form
S-1 was declared effective, it is possible that Rule 419 will prohibit the
distribution, or require an additional or new registration statement to be filed
and approved.
BUSINESS OBJECTIVE OF PARAGON
Paragon intends to utilize the net proceeds from the exercise of the
subscription rights, if any, and bank borrowings or a combination thereof, if
necessary, in effecting a Business Combination. Paragon
2
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will seek to acquire a Target Business primarily located in the United States
but its efforts will not be limited to a particular industry. In seeking a
Target Business, Paragon will consider, without limitation, businesses which (i)
offer or provide services or develop, manufacture or distribute goods in the
United States or abroad, including, without limitation, in the following areas:
health care and health products, educational services, environmental services,
consumer related products and services (including food service, amusement and/or
recreational services), personal care services, voice and data information
processing and transmission and related technology development, (ii) engage in
wholesale or retail distribution or, (iii) engage in the financial services or
similar industries.
To date, Paragon has reviewed a selection of potential target businesses
but has not had any substantive negotiations with representatives of any entity
regarding a Business Combination.
ITEM 2 - PROPERTIES
None.
ITEM 3 - LEGAL PROCEEDINGS
Paragon is not a party to, or the subject of, any legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
3
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Part II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
------------------
Not Applicable.
Dividends
---------
None.
Number of Stockholders
As of March 7, 1999, there were approximately 1,348 holders of record
of Paragon's Common Stock.
ITEM 6 - SELECTED FINANCIAL DATA
Not Applicable.
ITEM 7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 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 December 31, 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 December 31, 1998, Paragon had a net working capital shortfall of
$186,768 and an accumulated deficit, since inception of $207,297, which consists
primarily of general and administrative expenses of $196,242 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 $206,970 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, and a $10,000 loan in
September 1998.
4
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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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Annexed hereto starting on Page 12.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
5
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The officers and directors of Paragon, and further information
concerning them are as follows:
Name Age Position
---- --- --------
Mitchell A. Kuflik 36 President, Assistant Secretary, Director
Peter A. Hochfelder 37 Vice President, Treasurer, Director
Robert J. Sobel 35 Vice President, Director
Joseph F. Mazzella 46 Secretary, Director
Mitchell A. Kuflik has been President, Assistant Secretary and a
Director of Paragon since its inception. Mr. Kuflik has been Vice President and
Secretary of Brahman Securities, Inc., an institutional brokerage firm since
December, 1987; Vice President of Brahman Capital Corp., an investment banking
firm since 1990; and a general partner of Brahman Partners, a private limited
partnership, since 1991. All of such entities are located in New York. Mr.
Kuflik also serves as a director of Covenant Insurance Company, a privately-held
company in Cambridge, Massachusetts. Mr. Kuflik earned an A.B. in Economics from
Harvard University in 1984.
Peter A. Hochfelder has been a Vice President, Treasurer and Director
of Paragon since its inception. Mr. Hochfelder has been Vice President and
Treasurer of Brahman Securities, Inc., an institutional brokerage firm since
December, 1987; President of Brahman Capital Corp., an investment banking firm
since 1990; and a general partner of Brahman Partners, a private limited
partnership, since 1991. All of such entities are located in New York. Mr.
Hochfelder earned a B.S. degree in Economics from the University of Pennsylvania
in 1984.
Robert J. Sobel has been a Vice President and a Director of Paragon
since inception. Mr. Sobel has served as President of Brahman Securities, Inc.,
an institutional securities firm since 1987; Vice President of Brahman Capital
Corp., an investment banking firm since 1990; and a general partner of Brahman
Partners, a private investment partnership, since 1991. All of such entities are
located in New York. Mr. Sobel earned a bachelor's degree with a major in
International Relations and a concentration at the Wharton School of Business
from the University of Pennsylvania in 1985.
Joseph F. Mazzella has been Secretary and a Director of Paragon since
inception. Since 1985, Mr. Mazzella has been a partner at the law firm of Lane
Altman & Owens LLP in Boston, Massachusetts. Prior to joining Lane Altman &
Owens LLP in 1980, Mr. Mazzella was an attorney with the Securities and Exchange
Commission. Mr. Mazzella serves as a Director and Chairman of the
6
<PAGE>
Compensation Committee of Alliant Techsystems Inc., a NYSE listed company. He is
also a Director of Insurance Auto Auctions, Inc., a NASDAQ listed company. Mr.
Mazzella received a B.S. degree from the College of the City of New York in 1974
and received his law degree from Rutgers University School of Law in 1977.
ITEM 11 - EXECUTIVE COMPENSATION
Not Applicable.
No director or officer of Paragon has received any cash compensation
from Paragon since its inception for services rendered. Prior to the
consummation of a Business Combination, none of Paragon's officers or directors
will receive any compensation. None of Paragon's officers or directors will
receive any consulting or finder's fees in connection with introducing Paragon
to, or evaluating, a Target Business or consummating a Business Combination. A
law firm of which Joseph F. Mazzella, a director of Paragon, is a partner has
performed services in connection with the Distribution, and the on-going
reporting requirements of Paragon and may do so in connection with a Business
Combination. Paragon has no plan, agreement, or understanding, express or
implied, with any officer, director, or promoter, or their affiliates or
associates, regarding compensation or the issuance to such persons of any
authorized and unissued Share of Paragon, and Paragon is unaware of any
circumstance under which Shares would be issued to such persons. There is no
understanding between Paragon and any of its present stockholders regarding the
sale of a portion or all of the Shares currently held by them in connection with
any future participation by Paragon in a business. There are no other plans,
understandings, or arrangements whereby any of Paragon's officers, directors,
principal stockholders, or promoters, or any of their affiliates or associates,
would receive funds, stock or other assets in connection with Paragon's
participation in a business. No advances have been made or contemplated by
Paragon to any of its officers, directors, principal stockholders, or promoters,
or any of their affiliates or associates.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information obtained from the persons
named below, with respect to beneficial ownership of Shares by (i) each person
known by Paragon to be the owner of more than 5% of the outstanding shares, (ii)
each director and (iii) all executive officers and directors as a group, as of
March 21, 1999:
Amount and
Nature of
Beneficial Percentage of Outstanding
Name and Address Ownership Shares of Common Stock(1)
---------------- ---------- -------------------------
PAR Holding Company, LLC 2,900,000 85%
277 Park Avenue
New York, NY 10017
7
<PAGE>
Mitchell A. Kuflik(2) 2,900,000(3) 85%
Peter A. Hochfelder(2) 2,900,000(3) 85%
Robert J. Sobel(2) 2,900,000(3) 85%
All executive officers and
directors as a group 2,900,000 85%
(3 persons)
(1) Does not reflect the exercise of subscription rights since such rights are
not currently exercisable.
(2) Each of the individuals listed has an address in care of Paragon.
(3) Ownership by Messrs. Kuflik, Hochfelder and Sobel is indirect as a result of
their membership interest in PAR Holding Messrs. Kuflik, Hochfelder and Sobel
disclaim individual beneficial ownership of any Common Stock of Paragon.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, Paragon issued 2,900,000 shares of its Common Stock, $.01
par value, to PAR Holding for a purchase price of $150,000, consisting of
$75,000 in cash and a Promissory Note for $75,000 originally due on July 31,
1996. Such Promissory Note was subsequently modified to provide for payment on
demand of Paragon, in whole or in part, in amounts to pay expenses associated
with the Distribution. The Promissory Note was paid in full on December 27,
1996. In March, 1997, Paragon issued 514,191 Shares of its Common Stock, $.01
par value, to St. Lawrence for a purchase price of $5,141 in cash. In June,
1997, November, 1997, March, 1998, May, 1998 and September, 1998, Paragon issued
promissory notes to PAR Holding in exchange for loans for working capital
purposes in the amounts of $60,000, $10,000, $26,970, $100,000 and $10,000
respectively. All such promissory notes bear interest at an annual rate of 5.5%
compounded monthly; interest and principal are payable on demand. PAR Holding
has committed to continue to fund Paragon's working capital shortfalls during
its pre-acquisition stage.
8
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Financial Statements: Page No.
Report of Independent Certified Public Accountants 11
Balance Sheets 12
Statements of Operations 13
Statement of Stockholders' Equity (deficit) 14
Statements of Cash Flows 15
Notes to Financial Statements 16
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1998.
(c) Exhibits
3.1(i) Certificate of Incorporation of the Company*
3.1(i)(a) Certificate of Amendment of Certificate of Incorporation*
3.2 By-Laws of the Company (includes description of Common Stock)*
4.1 Form of Common Stock Certificate (included in Exhibit 3.2)*
4.2 Form of Subscription Form*
10.1 Form of Escrow Agreement*
10.2 Form of Subscription Agency Agreement*
10.3 Form of Blue Sky Lock-Up Letter to St. Lawrence Stockholders*
10.4 Form of Blue Sky Lock-Up Escrow Agreement*
27. Financial Data Schedule (filed herewith)
99.1 Promissory Note*
9
<PAGE>
99.1(i) Amendment to Promissory Note*
99.2 Subscription Agreement*
99.2(i) Amendment to Subscription Agreement*
- --------------
*Incorporated by reference to exhibits included in Paragon's Registration
Statement on Form S-1, File No. 333-7775.
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: 3/22/99 /s/ Mitchell A. Kuflik
-----------------------------------
Mitchell A. Kuflik
President
Date: 3/22/99 /s/ Peter A. Hochfelder
-----------------------------------
Peter A. Hochfelder,
Vice President and Treasurer
10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Paragon Acquisition Company, Inc.
New York, NY
We have audited the accompanying balance sheets of Paragon Acquisition
Company, Inc. (a corporation in the development stage) as of December 31, 1998
and 1997, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 1998 and 1997, the
period from June 19, 1996 (inception) to December 31, 1996 and the period from
June 19, 1996 (inception) to December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Paragon Acquisition
Company, Inc. at December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years ended December 31, 1998 and 1997, for the
period from June 19, 1996 (inception) to December 31, 1996 and the period from
June 19, 1996 (inception) to December 31, 1998, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
March 5, 1999
11
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31
1997 1998
----- ----
<S> <C> <C>
Current Assets
Cash......................................................... $ 7,418 8,097
Prepayments................................................... 26,000 24,960
------ ------
Total Current Assets ............................................ 33,418 33,057
Deferred registration costs................................. 134,612 134,612
----------- -------
$ 168,030 167,669
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accrued expenses......................................... $ 21,250 1,800
Loan due to Stockholder PAR Holding Co., LLC,
plus accrued interest (Note 3)....................... 71,895 218,025
------ -------
Total Current Liabilities........................................ 93,145 219,825
------ -------
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) (207,297)
-------- --------
Total stockholders' equity (deficit)....................... 74,885 (52,156)
------ --------
168,030 167,669
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
June 19, 1996 June 19, 1996
(inception) to Year ended Year ended (inception) to
December 31, 1996 December 31, 1997 December 31, 1998 December 31, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
General and administrative
expenses $ 7,560 $70,801 $117,881 $196,242
Interest expense 0 1,895 9,160 11,055
---------- ----- ------------ ------
Net loss for the period $ 7,560 $72,696 $127,041 $207,297
------- ======== ======== ========
Net loss per common share,
basic and diluted ($ 0.00) ($ 0.02) ($ 0.04)
-------- ------- -------
Weighted average
common shares outstanding 2,900,000 3,324,031 3,414,191
--------- ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1998
<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)
========= ======= ======== ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
June 19, 1996 June 19, 1996
(inception) to Year Ended Year Ended (inception) to
Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(7,560) $(72,696) $(127,041) $(207,297)
Adjustments to reconcile net loss to net cash
used in operating activities
Increase (Decrease) in prepayments........... 0 (26,000) 1,040 (24,960)
Increase in accrued expenses and interest.... 0 7,145 5,710 12,855
------- ---------- ---------- ------------
Net Cash used in operating activities............. $(7,560) $ (91,551) $(120,291) $(219,402)
-------- ---------- ---------- ------------
Cash flows from financing activities:
Proceeds from sale of common stock ........ $150,000 $ 5,141 - $ 155,141
Loan from PAR Holding Co., LLC............... 0 70,000 136,970 206,970
Deferred registration costs ................. (63,673) (54,939) (16,000) (134,612)
---------- ---------- ---------- ---------
Net cash provided by financing activities..... $ 86,327 $ 20,202 $ 120,970 $227,499
------- ---------- ---------- --------
Net increase (decrease) in cash.......... 78,967 (71,349) $ 679 8,097
------- ---------- ---------- ----------
Cash, beginning of period..................... 0 78,767 7,418 0
------- ---------- ---------- ----------
Cash, end of period........................... $ 78,767 $ 7,418 $ 8,097 $ 8,097
========== ============ ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company incurred $17,000 and $16,000 during the period ended December
31, 1996, and the year ended December 31, 1997, respectively, in deferred
registration costs (and related accrued expenses) which were non-cash financing
activities.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
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 $207,000 available to reduce any future
income taxes. The tax benefit of these losses, approximately $83,000 has been
offset by a valuation allowance due to the uncertainty of its realization.
DEFERRED REGISTRATION COSTS
As of December 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.
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.
16
<PAGE>
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, 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. Paragon Acquisition Company, Inc.
(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 December 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 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.
17
<PAGE>
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. 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 and September, 1998 further loans for the
sums of $10,000, $26,970, $100,000 and $10,000, 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.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit (27)
Paragon Acquisition Company, Inc.
Financial Data Schedule
For The Year Ended December 31, 1998
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,097
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,057
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 167,669
<CURRENT-LIABILITIES> 219,825
<BONDS> 0
0
0
<COMMON> 34,141
<OTHER-SE> (86,297)
<TOTAL-LIABILITY-AND-EQUITY> 167,669
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 117,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,160
<INCOME-PRETAX> (127,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,041)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
