`================================================================================

                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, 2000
                                       OR

 X  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                       (IRS Employer Identification
of corporation or organization)                              Number)

        277 Park Avenue                                           10017
----------------------------------------                        ----------
          New York, NY                                          (Zip Code)
(Address of principal executive offices)


                                  (212)350-5367
               ---------------------------------------------------
               (Registrant's telephone number including area code)

                                                         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 March 1, 2001: Not Applicable

The number of shares of Common Stock of the  registrant  outstanding as of March
1, 2001 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
transmission  and related  technology  development,  (ii) engage in wholesale or
retail  distribution  or,  (iii)  engage in the  financial  services  or similar
industries.

                                      -2-


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

Paragon has no business operations and therefore does not require,  own or lease
any physical properties.  PAR Holding makes a mailing address,  office space and
secretarial  support available to Paragon at no cost to Paragon.  (See Note 4 of
Notes to Financial Statements.)


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 15,  2001,  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, 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 December 31, 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.  General and administrative expenses in 2000
were $51,568, a decrease of $35,299 from $86,867 primarily due to lower premiums
on directors' and officers'  insurance  policies.  Interest in 2000 increased by
$3,425  from  $15,183 to $18,608  due to  $38,185 of  additional  loans from PAR
Holding during the year.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000,  Paragon had a net working  capital  shortfall of $358,994
and  an  accumulated  deficit,  since  inception  of  $514,135,  which  consists
primarily  of  general  and  administrative   expenses  of  $334,677  (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 Company, LLC, a principal Shareholder
has loaned Paragon a total of $320,155 to cover its working  capital  shortfall,
consisting of loans of $70,000, $136,970,  $75,000, and $38,185 during the years
ended December 31, 1997,  December 31, 1998,  December 31, 1999 and December 31,
2000,  respectively.  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  Company,  LLC has  committed  to
continue to fund Paragon's working capital shortfalls during its pre-acquisition
stage.

                                      -4-


ITEM 7A --QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


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           38         President, Assistant Secretary, Director


Peter A. Hochfelder          39         Vice President, Treasurer, Director


Robert J. Sobel              37         Vice President, Director


Joseph F. Mazzella           48         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 McClennen & 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 Chairman of the Board 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.
                                      -6-


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
15, 2001:

                                    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%
277 Park Avenue
New York, NY  10017

Peter A. Hochfelder(2)              2,900,000(3)                85%
277 Park Avenue
New York, NY  10017

Robert J. Sobel(2)                  2,900,000(3)                85%
277 Park Avenue
New York, NY  10017

St. Lawrence Seaway Corporation       514,191(4)                15%
320 N. Meridian Street, Suite 818
Indianapolis, IN  46204-1774

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) Share  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.
(4) Share  ownership by the St.  Lawrence  Seaway  Corporation  is indirect as a
    result of the Distribution  described in Item 1 above. St. Lawrence declared
    a dividend  distribution  of such  shares to its  shareholders  on March 19,
    1997. Because the Distribution was made under Rule 419 of the Securities Act
    of 1933,  such  shares  are being  held in escrow  for the  benefit  of such
    shareholders.  St. Lawrence disclaims all beneficial ownership of any Common
    Stock of Paragon.

                                      -7-


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  Seaway  Corporation for a purchase price of $5,141 in cash. In
June 1997, November 1997, March 1998, May 1998,  September 1998, May 1999, March
2000,  April 2000,  May 2000 and September  2000,  respectively  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,
$75,000, $5,685, $5,000, $20,000 and $7,500,  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.

The Company  presently  occupies  office space provided by PAR Holding  Company,
LLC,  one of its  stockholders.  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 for such office space and services provided to date is not material.



                                      -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, 2000.

(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*

99.1         Promissory Note*

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.


                                       -9-


SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                               PARAGON ACQUISITION COMPANY, INC.
                                               ---------------------------------

                                               Registrant


                                                 /S/ Mitchell A. Kuflik
                                               ---------------------------------
Date: March 15, 2001                           Mitchell A. Kuflik
                                               President



                                                 /S/ Peter A. Hochfelder
                                               ---------------------------------
Date: March 15, 2001                           Peter A. Hochfelder
                                               Vice President and Treasurer




                                      -10-


                 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
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, 2000 and 1999,
and the related  statements of operations,  stockholders'  equity  (deficit) and
cash flows for the years ended December 31, 2000,  1999 and 1998, and the period
from June 19, 1996 (inception) to December 31, 2000. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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.

As discussed in Note 3, the Company is  dependent  on a major  stockholder,  PAR
Holding  Company,  LLC,  for  financial  support  and to  continue  to fund  the
Company's working capital requirements.

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, 2000 and 1999,  and the results of its  operations  and its
cash flows for the years ended December 31, 2000,  1999 and 1998, and the period
from June 19,  1996  (inception)  to  December  31,  2000,  in  conformity  with
accounting principles generally accepted in the United States of America.



                                                              BDO SEIDMAN, LLP




New York, New York
February 16, 2001



                                      -11-


                        PARAGON ACQUISITION COMPANY, INC.
                    (a corporation in the development stage)

                                 BALANCE SHEETS



                                     ASSETS

                                                                                 December 31
                                                                          1999                2000
                                                                       ------------------------------

Current Assets
   Cash.......................................................         $      90             $  1,267
   Prepayments................................................            20,800                6,240
                                                                          ------              -------

Total Assets .................................................         $  20,890              $ 7,507
                                                                       =========              =======


                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
    Accrued expenses .........................................         $   1,500            $   1,500
    Loan due to Stockholder PAR Holding Company, LLC,
       plus accrued interest (Note 3).........................           308,208              365,001
                                                                         -------              -------
Total Current Liabilities  ...................................           309,708              366,501
                                                                         -------              -------
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 in 2000 and 1999...............            34,141               34,141
      Additional paid-in capital..............................           121,000              121,000
      Deficit accumulated during the development stage........          (443,959)            (514,135)
                                                                        ---------            ---------
      Total stockholders' deficit.............................          (288,818)            (358,994)
                                                                        ---------            ---------
                                                                        $ 20,890            $   7,507
                                                                        =========           ==========



                 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 December 31                       (inception) to
                                          1998                1999                 2000          Dec. 31, 2000
                                          ----                ----                 ----          -------------


General and administrative              $117,881             $86,867             $51,568           $334,677
expenses

Write-off of deferred
registration costs
 (Note 1)                                      0             134,612                   0            134,612


Interest expense -                         9,160              15,183              18,608             44,846
                                           -----              ------              ------             ------
related party (Note 3)

Net loss for the period                 $127,041            $236,662             $70,176           $514,135
                                        ========            ========             =======           ========

Net loss per common share, basic
and diluted
                                         ($0.04)             ($0.07)             ($0.02)
                                         =======             =======             =======

Weighted average common
shares outstanding                     3,414,191           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)


                                                                                           Deficit
                                                                                         Accumulated
                                                                       Additional        During the            Total
                                                Common                   Paid-In         Development       Stockholders'
                                         Shares        Amount            Capital            Stage         Equity(Deficit)
                                         ------        ------            -------            -----         --------------


Balance, January 1, 1998                 3,414,191      $  34,141      $ 121,000          ($80,256)          $ 74,885

Net loss for the year ended
December 31, 1998                               --             --             --          (127,041)          (127,041)
                                         ---------      ---------      ---------          ---------          ---------

Balance, December 31, 1998               3,414,191         34,141        121,000          (207,297)           (52,156)

Net loss for the year ended
December 31, 1999                               --             --             --         ( 236,662)          ( 236,662)
                                         ---------      ---------      ---------          ---------          ---------

Balance, December 31, 1999               3,414,191         34,141        121,000          (443,959)          (288,818)

Net loss for the year ended
December 31, 2000                               --             --             --          (70,176)            (70,176)
                                         ---------      ---------      ---------          ---------          ---------

Balance, December 31, 2000               3,414,191        $34,141       $121,000         ($514,135)          ($358,994)
                                         =========        =======       ========         ==========          ==========






                 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 December 31                  (inception) to
                                                          1998              1999             2000         Dec. 31, 2000
                                                          ----              ----             ----         -------------

Cash flows from operating activities
  Net loss                                              ($127,041)       ($236,662)        ($70,176)        ($514,135)
  Adjustments to reconcile net loss to net
  cash used in operating activities
Write-off of deferred registration costs                       --          134,612               --           134,612
Changes in assets and liabilities:
(Increase) Decrease in prepayments                          1,040            4,160           14,560           (6,240)
  Increase in accrued expenses and interest                 5,710           14,883           18,608            46,346
                                                            -----           ------           ------            ------
Net cash used in operating activities                    (120,291)         (83,007)         (37,008)         (339,417)
                                                         ---------         --------         --------         ---------

Cash flows from financing activities:
  Proceeds from sale of common stock                           --               --               --           155,141
  Loan from PAR Holding Company, LLC                      136,970           75,000           38,185           320,155
  Deferred registration costs                             (16,000)              --               --          (134,612)
                                                         --------        ---------        ---------         ---------


Net cash provided by financing activities                 120,970           75,000           38,185           340,684
                                                          -------           ------           ------           -------

  Net increase (decrease) in cash                             679          (8,007)            1,177             1,267

Cash, beginning of period                                   7,418            8,097               90                --
                                                         --------           ------         --------          --------

Cash, end of period                                      $  8,097           $   90         $  1,267          $  1,267
                                                         ========           ======         ========          ========



                 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  $380,000  available to reduce any future
income taxes. The tax benefit of these losses,  approximately  $152,000 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), and no further  registration costs have been incurred
since that date. 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 quarter and 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

Basic loss per share  includes  no dilution  and is  computed  by dividing  loss
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted loss per share reflects, in periods in which
they have a dilutive effect,  the effect of common shares issuable upon exercise
of stock options and warrants. The Company has no such dilutive securities.

                                      -16-


         DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998,  the  Financial  Accounting  Standards  Board  issues SFAS No. 133
"Accounting for Derivative  Instruments and Hedging  Activities," which requires
entities to recognize all derivative  financial  instruments as either assets or
liabilities  in the balance sheet and measure these  instruments  at fair value.
SFAS No. 133, as amended by SFAS Nos. 137 and 138, is  effective  for all fiscal
years  beginning  after June 15, 2000. The Company does not presently enter into
any transactions  involving derivative financial  instruments and,  accordingly,
does not anticipate  that the new standard will have any effect on its financial
statements.


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, 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  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 COMPANY, LLC.

On June 4, 1997,  PAR  Holding  Company,  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 and during the years
ended December 31, 1998,  December 31, 1999 and December 31, 2000, further loans
with  similar  terms for the sums of $10,000,  $136,970,  $75,000  and  $38,185,
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.

                                      -17-


4.       COMMITMENT.

The Company  presently  occupies  office space provided by PAR Holding  Company,
LLC,  one of its  stockholders.  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 for such office space and services provided to date is not 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 Company, 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.


7.   QUARTERLY INFORMATION (UNAUDITED).

The  following  presents  net  loss and net loss per  common  share  (basic  and
diluted) on a quarterly basis:


    QUARTERS ENDED:          MARCH 31, 2000          JUNE 30, 2000        SEPTEMBER 30, 2000      DECEMBER 31, 2000

Net Loss                           $26,436                $16,984                   $13,869                $12,887
Net Loss per
  Common Share                        0.01                    .00                       .00                    .00




    QUARTERS ENDED:          MARCH 31, 1999          JUNE 30, 1999        SEPTEMBER 30, 1999      DECEMBER 31, 1999

Net Loss                           $28,737                $24,092                   $24,840               $158,993
Net Loss per
  Common Share                        0.01                   0.01                      0.01                   0.05


The net loss for the quarter  ended  December 31, 1999 includes the write-off of
deferred  registration costs which totaled $134,612 (see Note 1). The sum of the
quarterly net loss per common share does not equal the annual net loss per share
due to effects of rounding.


                                      -18-`