================================================================================

                                  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.

================================================================================

<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

<PAGE>



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

<PAGE>




                                     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

<PAGE>



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