-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ffqseo/nEgjJeDvs6rlFsiLM4vwUjItpMvU25ARdV+8fBSbyriz4kem6cYXiIfAx SSk378kksyxfowYZZav2Og== 0001058217-00-000146.txt : 20000327 0001058217-00-000146.hdr.sgml : 20000327 ACCESSION NUMBER: 0001058217-00-000146 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARAGON ACQUISITION CO INC CENTRAL INDEX KEY: 0001017484 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-07775 FILM NUMBER: 578296 BUSINESS ADDRESS: STREET 1: 277 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2129411400 MAIL ADDRESS: STREET 1: 277 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10172 10-K 1 FORM 10-K ================================================================================ 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, 1999 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 of corporation or organization) Identification Number) 277 Park Avenue New York, NY 10017 ----------------- ------- (Address of principal executive offices) (Zip Code) (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, 1999: Not Applicable The number of shares of Common Stock of the registrant outstanding as of December 31, 1999 was 3,414,191 DOCUMENTS INCORPORATED BY REFERENCE None. ================================================================================ 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. 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. 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 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 2 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 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 1, 2000, 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, 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 December 31, 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 December 31, 1999, Paragon had a net working capital shortfall of $288,818 and an accumulated deficit, since inception of $443,959, which consists primarily of general and administrative expenses of $283,109 (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 1999. 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, previously reported that it conducted an extensive test in a Year 2000 environment in October, 1998, and 4 confirmed that it was Year 2000 compliant; that is had been examined by the New York State Banking Department and had been found to have made satisfactory progress on its Year 2000 plan; and that it had also made the appropriate filing with the SEC in accordance with Rule 17Ad-18. The Company has experienced no Year 2000 problems since January, 2000 with Continental or any of its other service providers. 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 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 37 President, Assistant Secretary, Director Peter A. Hochfelder 38 Vice President, Treasurer, Director Robert J. Sobel 36 Vice President, Director Joseph F. Mazzella 47 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 was Secretary and a Director of Paragon from inception through February 29, 2000, at which time he resigned such positions. Since 1985, Mr. Mazzella has been a partner at the law firms of Nutter McClennan & Fish, LLP and 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 Compensation Committee of Alliant Techsystems Inc., a NYSE listed company. He is also a Director of Insurance Auto Auctions, Inc., a NASDAQ listed company and Data Transmission Networks, Inc., also 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. 6 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 former director of Paragon, was a partner performed services in connection with the Distribution, and the on-going reporting requirements of Paragon, 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 1, 2000: 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 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. 7 (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, September, 1998, and May 1999, 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, $10,000, and $75,000 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 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, 1999. (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* 99.1(i) Amendment to Promissory Note* 99.2 Subscription Agreement* 99.2(i) Amendment to Subscription Agreement* - -------------- 9 *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: 3/24/00 /s/ Mitchell A. Kuflik --------------------------------- Mitchell A. Kuflik President Date: 3/24/00 /s/ Peter A. Hochfelder --------------------------------- Peter A. Hochfelder, Vice President and Treasurer 10 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, 1999 and 1998, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 1999, 1998 and 1997, and the period from June 19, 1996 (inception) to December 31, 1999. 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, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999, 1998 and 1997, and the period from June 19, 1996 (inception) to December 31, 1999, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP New York, New York February 18, 2000 11 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) BALANCE SHEETS ASSETS ------
December 31 1998 1999 ---- ---- Current Assets Cash........................................................$ 8,097 $ 90 Prepayments................................................. 24,960 20,800 ------ ------ Total Current Assets .......................................... 33,057 20,890 Deferred registration costs.................................... 134,612 -0- ------- ------- $167,669 $ 20,890 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- Current liabilities Accrued expenses........................................... $1,800 $1,500 Loan due to Stockholder PAR Holding Co., LLC, plus accrued interest (Note 3).......................... 218,025 308,208 ------- ------- Total Current Liabilities...................................... 219,825 309,708 ------- ------- 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 and 3,414,191................... 34,141 34,141 Additional paid-in capital............................... 121,000 121,000 Deficit accumulated during the development stage.........(207,297) (443,959) --------- --------- Total stockholders' deficit.............................. (52,156) (288,818) -------- --------- 167,669 20,890
See accompanying notes to Financial Statements. 12 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) STATEMENTS OF OPERATIONS
Period from June 19, 1996 Year ended Year ended Year Ended (inception) to December 31, 1997 December 31, 1998 December 31, 1999 December 31, 1999 ----------------- ----------------- ----------------- ----------------- General and administrative expenses $70,801 $117,881 $86,867 $283,109 write-off of deferred registration costs -- -- $134,612 $134,612 Interest expense 1,895 9,160 15,183 26,238 ----- ----- ------ ------ Net loss for the period $72,696 $127,041 $236,662 $443,959 ======= ======== ======== ======== Net loss per common share, basic and diluted ($0.02) ($0.04) ($0.07) Weighted average common shares outstanding 3,324,031 3,414,191 3,414,191 ========= ========= =========
See accompanying notes to Financial Statements. 13 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) Three Years Ended December 31, 1999
Deficit Accumulated Additional During the Total Common Paid-In Development Stockholders' Shares ------ Amount Capital Stage Equity(Deficit) ------ ------ ------- ----- --------------- Balance, January 1, 1997......... 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....... 3,414,919 $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 year ended December 31, 1999................ - - - (236,662) (236,662) ---------- ---------- ---------- ---------- ---------- Balance, December 31, 1999....... 3,414,191 $34,141 $121,000 $(443,959) $(288,818) ========== ========== ========== ========== ==========
See accompanying notes to Financial Statements. 14 PARAGON ACQUISITION COMPANY, INC. (a corporation in the development stage) STATEMENTS OF CASH FLOWS
Period from June 19, 1996 Year ended Year ended Year Ended (inception) to Dec 31, 1997 Dec 31, 1998 Dec 31, 1999 Dec 31, 1999 ------------ ------------ ------------ ------------ Cash flows from operating activities Net loss................................ $(72,696) $(127,041) (236,662) (443,959) Adjustments to reconcile net loss to net cash used in operating activities....... write-off of deferred registration costs change in assets and liabilities............... -- -- $134,612 $134,612 (Increase) Decrease in prepayments...... (26,000) 1,040 4,160 (20,800) Increase in accrued expenses and interest 7,145 5,710 14,883 27,738 ----- ----- ------ ------ Net cash used in operating activities..... $(91,551) $(120,291) (83,007) (302,409) ========= ========== ======== ========= Cash flows from financing activities: Proceeds from sale of common stock...... $ 5,141 - - 155,141 Loan from PAR Holding Co., LLC.......... 70,000 136,970 75,000 281,970 Deferred registration costs............. (54,939) (16,000) - (134,612) -------- -------- -------- --------- Net cash provided by financing activities. $ 20,202 $ 120,970 75,000 302,499 -------- ---------- ------ ------- Net increase (decrease) in cash......... (71,349) $ 679 (8,007) $ 90 Cash, beginning of period................. 78,767 7,418 8,097 0 ------ ----- ----- ---- Cash, end of period....................... $ 7,418 $ 8,097 $ 90 $ 90 ======= ======= ==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The Company incurred $16,000 during the year ended December 31, 1997 in deferred registration costs (and related accrued expenses) which were non-cash financing activities. See accompanying notes to Financial Statements. 15 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 $309,000 available to reduce any future income taxes. The tax benefit of these losses, approximately $124,000 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 two years ended December 31, 1999. 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 for the year ended December 31, 1999. 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. 16 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, 1999, 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. 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, 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. PAR Holding has committed to continue to fund Paragon's working capital shortfalls during its pre-acquisition stage. 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. 17 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 Paragon Acquisition Company, Inc. Financial Data Schedule For The Year Ended December 31, 1999 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 DEC-31-1999 90 0 0 0 0 20,890 0 0 20,890 309,708 0 34,141 0 0 (322,959) 20,890 0 0 0 86,867 0 0 15,183 (236,662) 0 0 0 0 0 (236,662) (.07) (.07)
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