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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended
September 30, 2000 Commission File No. 333-7775
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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 NOVEMBER 1, 2000)
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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>
<CAPTION>
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
----
<S> <C>
Balance Sheets- December 31, 1999 (audited) and September 30, 2000 3
Statements of Operations - Three and Nine Months ended September 30, 1999 and
September 30, 2000, and Period from June 19, 1996 (inception)
to September 30, 2000 4
Statement of Stockholders' Deficit - Period from
June 19, 1996 (inception) to September 30, 2000 5
Statements of Cash Flows - Nine months ended September 30, 1999 and September
30, 2000, and Period from June 19,
1996 (inception) to September 30, 2000 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>
2
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(a corporation in the development stage)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 September 30
1999 2000
---- ----
(unaudited)
<S> <C> <C>
Current Assets
Cash $ 90 $ 4,527
Prepayments 20,800 10,920
------ ------
Total Assets $20,890 $15,447
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accrued expenses $ 1,500 $ 1,500
Loan due to Stockholder PAR Holding Co., LLC,
plus accrued interest (Note 3) 308,208 360,054
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Total Current Liabilities 309,708 361,554
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Commitment (Note 4)
Stockholders' deficit (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 34,141 34,141
Additional paid-in capital 121,000 121,000
Deficit accumulated during the development
stage (443,959) (501,248)
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Total stockholders' deficit (288,818) (346,107)
--------- ---------
$ 20,890 $ 15,447
========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(a corporation in the development stage)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
June 19, 1996
Three Months ended Nine Months ended Three Months ended Nine Months ended (inception) to
September 30, 1999 September 30, 1999 September 30, 2000 September 30, 2000 September 30,2000
------------------ ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
General and administrative
expenses $20,716 $66,667 $9,072 $43,628 $326,737
Write-off of deferred - - 134,612
registration costs (Note 1) - -
Interest expense 4,124 11,002 4,797 13,661 39,899
----- ------ ----- ------ ------
Net loss for the period $24,840 $77,669 $13,869 $57,289 $501,248
====== ====== ====== ====== =======
Net loss per common share,
basic and diluted ($0.01) ($0.02) ($0.00) ($0.02)
======= ======= ======= =======
Weighted average common
shares outstanding, basic and
diluted 3,414,191 3,414,191 3,414,191 3,414,191
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PARAGON ACQUISITION COMPANY, INC.
(a corporation in the development stage)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period from January 1, 1999 to September 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Common Paid-In Development Stockholders'
Shares ------ Amount Capital Stage Deficit
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 3,414,191 $34,141 $121,000 $(207,297) $(52,156)
Net loss for the year ended
January 1, 1999 - - - ( 236,662) ( 236,662)
--------- --------- --------- ---------- ----------
Balance, December 31, 1999 3,414,191 34,141 121,000 (443,959) (288,818)
Net loss for the nine months ended
September 30, 2000 (unaudited) - - - (57,289) ( 57,289)
--------- --------- --------- ---------- ----------
Balance, September 30, 2000
(unaudited) 3,414,191 $34,141 $121,000 ($501,248) ($346,107)
========= ======= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
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, 1999 September 30, 2000 September 30, 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(77,669) $(57,289) $(501,248)
Adjustments to reconcile net loss to net
cash used in operating activities
Write-off of deferred registration costs - - 134,612
Changes in assets and liabilities:
(Increase) Decrease in prepayments (11,440) 9,880 (10,920)
Increase in accrued expenses and interest 10,702 13,661 41,399
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Net cash used in operating activities (78,407) (33,748) (336,157)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock 0 0 155,141
Loan from PAR Holding Co., LLC 75,000 38,185 320,155
Deferred registration costs 0 0 (134,612)
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Net cash provided by financing activities 75,000 38,185 340,684
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Net increase (decrease) in cash (3,407) 4,437 4,527
Cash, beginning of period 8,097 90 0
----- -- -
Cash, end of period $4,690 $4,527 $4,527
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
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<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, 1999 which are included in the Company's
annual report on Form 10-K.
GENERAL
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and has incurred a loss since its inception and there can be no assurance
that the planned acquisition activities of the Company (see Note 2) will be
successful in the near term. The Company has, however, other funding sources
available, principally lending commitments from related parties, sufficient to
sustain operations for at least the next twelve months.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109
("FAS 109"), "Accounting for Income Taxes." FAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. The Company has net operating
loss carry forwards of approximately $366,000 available to reduce future income
taxes. The tax benefit of these losses, approximately $146,000, has been offset
by a valuation allowance due to the uncertainty of its realization.
DEFERRED REGISTRATION COSTS
Through December 31, 1997, the Company had incurred deferred registration
costs of $134,612 relating to expenses incurred in connection with the Proposed
Distribution (See Note 2). No further registration costs were incurred during
the period ended September 30, 2000. Since the Registration Statement on Form
S-1 has expired and is no longer effective to permit distribution of the Shares
and Subscription Rights in connection with the Proposed Distribution (Note 2)
without an amendment or an additional or new Registration Statement being filed
and approved, the deferred registration costs of $134,612 were written off in
the Statement of Operations in the fourth quarter of 1999.
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<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.
2. ORGANIZATION AND BUSINESS OPERATIONS. The Company was incorporated in
Delaware on June 19, 1996 to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other business combination (the "Business
Combination") with an operating business (the "Target Business"). At September
30, 2000, the Company had not yet commenced any formal business operations and
all activity to date relates to the Company's formation and proposed fund
raising. The Company's fiscal year end is December 31.
The Company's ability to commence operations is contingent upon its ability
to identify a prospective Target Business and raise the capital it will require
through the issuance of equity securities, debt securities, bank borrowings or a
combination thereof. The Company intends to obtain adequate financial resources
through the registration of a distribution of shares of its Common Stock and
Subscription Rights to its shareholders (the "Distribution"). The Subscription
Rights will entitle the holder to purchase two (2) shares of Common Stock of the
Company for each Subscription Right held for a purchase price to be determined
by the Company's Board of Directors at the time a Business Combination is
identified, such price to be not more than $2.00 per Subscription Right.
Subscription Rights will not be exercisable until after a Post-Effective
Amendment to the Form S-1 Registration Statement to be filed by the Company with
the Securities and Exchange Commission describes a Business Combination,
establishes the Subscription Price and the number of Subscription Rights which
may be exercised in such Subscription Period and specifies the Subscription
Period established by the Company. The Shares to be distributed to the
shareholders, the Subscription Rights and any Shares issuable upon exercise of
Subscription Rights are being held in escrow and may not be sold or transferred
until the Company has consummated a Business Combination. After the Business
Combination is consummated, the Shares will be released from escrow.
Due to the terms of the Distribution, the Company has not established a
time period within which to exercise the Subscription Rights as such exercise is
dependent upon the identification of a Target Business. The Company anticipates
that, due to the time constraints imposed on the management of the Company, it
is not possible to predict the length of the identification process.
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<PAGE>
3. LOAN DUE TO PAR HOLDING CO., LLC. On June 4, 1997, PAR Holding Co., LLC,
a major stockholder, loaned the Company $60,000. Such loan is evidenced by a
Promissory Note dated June 4, 1997, in the principal amount of $60,000. During
November, 1997, March, 1998, May, 1998, September, 1998, May, 1999, March, 2000,
April, 2000, May, 2000, and September 2000, further loans for the sums of
$10,000, $26,970, $100,000, $10,000, $75,000, $5,685, $5,000, $20,000, and
$7,500 respectively, were received. The loans bear interest at the annual rate
of 5.5%, compounded monthly, and are payable on demand.
4. COMMITMENT. The Company presently occupies office space provided by a
stockholder. Such stockholder has agreed that, until the acquisition of a Target
Business by the Company, it will make such office space, as well as certain
office and secretarial service, available to the Company, as may be required by
the Company from time to time at no charge. The value ascribed to such
arrangements to date is not considered material.
5. PREFERRED STOCK. The Company is authorized to issue 1,000,000 shares of
preferred stock with such designations, voting and other rights and preferences
as may be determined from time to time by the Board of Directors.
6. COMMON STOCK. On June 25, 1996 the Company issued 2,900,000 shares of
Common Stock, par value $.01 per share, to PAR Holding Co., LLC for a
consideration of $150,000. On March 6, 1997 the Company issued a further 514,191
shares of Common Stock, par value $.01 per share, to St. Lawrence Seaway
Corporation for a total consideration of $5,141.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2000
RESULTS OF OPERATIONS
Paragon was incorporated on June 19, 1996 to serve as a vehicle to effect a
merger, exchange of capital stock, asset acquisition or other business
combination with an operating business. On March 21, 1997, the Registration
Statement on Form S-1 filed by Paragon with respect to the Distribution was
declared effective and Paragon became subject to the reporting requirements of
the Securities and Exchange Commission. At September 30, 2000, Paragon had not
yet commenced any formal business operations and all activities to date relate
only to Paragon's formation and on-going reporting obligations with the
Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, Paragon had a net working capital shortfall of $346,107
and an accumulated deficit, since inception, of $501,248 which consists
primarily of general and administrative expenses of $326,737 (including
professional fees incurred with respect to compliance with SEC reporting
requirements and premiums incurred on directors and officers insurance policies)
and $134,612 related to deferred registration costs incurred in earlier years
and expensed in the fourth quarter of 1999. To date, PAR Holding Co., LLC, a
principal Shareholder of Paragon has loaned Paragon a total of $320,155 to cover
its working capital shortfall, consisting of a $60,000 loan in June, 1997, a
$10,000 loan in November, 1997, a $26,970 loan in March, 1998, a $100,000 loan
in May, 1998, a $10,000 loan in September, 1998, a $75,000 loan in May, 1999, a
$5,685 loan in March, 2000, a $5,000 loan in April, 2000, a $20,000 loan in May,
2000, and a $7,500 loan in September, 2000. All such loans are evidenced by
promissory notes and loans bear interest at an annual rate of 5.5% compounded
monthly; interest and principal are payable on demand. PAR Holding Co., LLC has
committed to continue to fund Paragon's working capital shortfalls during its
pre-acquisition stage.
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<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
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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<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.
Registrant
PARAGON ACQUISITION COMPANY, INC.
Date: November 5, 2000
/s/ Mitchell A. Kuflik
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President
Date: November 5, 2000 /s/ Peter A. Hochfelder
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Vice President and Treasurer
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