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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    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 0-25074
 PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
  Maryland
    
    39-6594066(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 1240 Huron Road
Cleveland, Ohio 44115
 (216) 430-2700
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 þ o




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FORM 10-Q
INDEX
 PART I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheet  June 30, 2008 (unaudited) and December 31, 2007
    
    Page - 2 -Consolidated Statements of Operations  Six months ended
June 30, 2008 and June 30, 2007 (unaudited)
    
    Page - 3 -Consolidated Statements of Operations  Three months ended
June 30, 2008 and June 30, 2007 (unaudited)
    
    Page - 4 -Consolidated Statements of Cash Flows  Six months ended
June 30, 2008 and June 30, 2007 (unaudited)
    
    Page - 5 -Notes to Consolidated Financial Statements (unaudited)
    
    Page - 6 -Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    Page - 12 -Item 4T. Controls and Procedures
    
    Page - 17 -Part II. Other InformationItem 1. Legal Proceedings
    
    Page - 17 -Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page - 17 -Item 3. Defaults upon Senior Securities
    
    Page - 17 -Item 4. Submission of Matters to a Vote of Security Holders
    
    Page - 17 -Item 5. Other Information
    
    Page - 17 -Item 6. Exhibits
    
    Page - 17 -Signatures
    
    Page - 18 -EX - 31.1  Section 302 Certification of Chief Executive Officer
EX - 31.2  Section 302 Certification of Chief Financial Officer
EX - 32.1  CEO/CFO Certification Under 906 of Sarbanes-Oxley ActEX-31.1EX-31.2EX-32.1


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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Balance Sheet

June 30, 2008 and December 31, 2007
 June 30,2008
    
    December 31,(unaudited)
    
    2007AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,370
    
    
    $
    5,370Accumulated depreciation
    
    
    (3,720
    )
    
    
    (3,183
    )Net investments in equipment
    
    
    1,650
    
    
    
    2,187Cash
    
    
    266,869
    
    
    
    421,196Marketable securities
    
    
    114,471
    
    
    
    Accounts receivable
    
    
    
    
    
    
    551Other assets
    
    
    6,099
    
    
    
    13,080Total Assets
    
    $
    389,089
    
    
    $
    437,014Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    
    12,355
    
    
    
    14,025Total liabilities
    
    
    12,355
    
    
    
    14,025Commitments and ContingenciesShareholders equity:Preferred A Shares  $0.01 par value,
10,000,000 authorized: 277,455 and
277,955 Class A cumulative convertible
shares issued and outstanding at June 30,
2008 and December 31, 2007, respectively,
$10.00 per share liquidation preference
    
    
    2,775
    
    
    
    2,780Preferred C Shares  $0.01 par value,
300,000 authorized: 244,444 Class C
cumulative convertible shares issued and
outstanding, $10.00 per share liquidation
preference
    
    
    2,444
    
    
    
    2,444Common Shares  $0.01 par value,
100,000,000 authorized: 442,342 and
442,320 shares issued and outstanding at
June 30, 2008 and December 31, 2007,
respectively
    
    
    4,424
    
    
    
    4,424Additional paid-in capital
    
    
    30,560,460
    
    
    
    30,568,490Accumulated deficit
    
    
    (26,906,433
    )
    
    
    (26,744,762
    )Accumulated other comprehensive income,
net unrealized loss on marketable
securities
    
    
    (9,611
    )
    
    
    Treasury stock, at cost, 38,130 shares
    
    
    (800,735
    )
    
    
    (800,735
    )Unearned compensation and trustees fees
    
    
    (2,476,590
    )
    
    
    (2,609,652
    )Total shareholders equity
    
    
    376,734
    
    
    
    422,989Total Liabilities and Shareholders Equity
    
    $
    389,089
    
    
    $
    437,014
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Statements of Operations

(unaudited)
 For the six months ended June 30,2008
    
    2007RevenuesInterest/dividend income
    
    $
    5,081
    
    
    $
    4,579Other income
    
    
    100
    
    
    
    Total revenues
    
    
    5,181
    
    
    
    4,579ExpensesDepreciation
    
    
    537
    
    
    
    537General and administrative
    
    
    168,163
    
    
    
    206,895Total expenses
    
    
    168,700
    
    
    
    207,432Loss from operations
    
    
    (163,519
    )
    
    $
    (202,853
    )Gain on sale of marketable securities
    
    
    1,848
    
    
    
    Net loss attributable to Common Shareholders
    
    $
    (161,671
    )
    
    $
    (202,853
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.37
    )
    
    $
    (0.46
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,340
    
    
    
    442,565Comprehensive loss:Net loss
    
    $
    (161,671
    )
    
    $
    (202,853
    )Other comprehensive loss:Unrealized loss on marketable securities
    
    
    (9,611
    )
    
    
    Comprehensive loss
    
    $
    (171,282
    )
    
    $
    (202,853
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Statements of Operations
(unaudited)
 For the three months ended June 30,2008
    
    2007RevenuesInterest/dividend income
    
    $
    2,695
    
    
    $
    2,707Other income
    
    
    
    
    
    
    Total revenues
    
    
    2,695
    
    
    
    2,707ExpensesDepreciation
    
    
    269
    
    
    
    269General and administrative
    
    
    72,809
    
    
    
    85,441Total expenses
    
    
    73,078
    
    
    
    85,710Loss from operations
    
    
    (70,383
    )
    
    
    (83,003
    )Gain on sale of marketable securities
    
    
    1,848
    
    
    
    Net loss attributable to Common Shareholders
    
    $
    (68,535
    )
    
    $
    (83,003
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.15
    )
    
    $
    (0.19
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,342
    
    
    
    442,565Comprehensive loss:Net loss
    
    $
    (68,535
    )
    
    $
    (83,003
    )Other comprehensive loss:Unrealized loss on marketable securities
    
    
    (9,600
    )
    
    
    Comprehensive loss
    
    $
    (78,135
    )
    
    $
    (83,003
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Statements of Cash Flows

(unaudited)
 For the six months ended June 30,2008
    
    2007Cash flows from operating activities:Net loss
    
    $
    (161,671
    )
    
    $
    (202,853
    )Adjustments to reconcile net loss to net cash
used in continuing operations:Compensation costs and trustees fees incurred
through the issuance of shares
    
    
    125,027
    
    
    
    125,245Compensation costs, trustees fees and legal
costs incurred through the issuance
of options
    
    
    
    
    
    
    21,000Depreciation
    
    
    537
    
    
    
    537Net change in assets and liabilities:Accounts receivable and Other assets
    
    
    7,532
    
    
    
    8,211Accounts payable and accrued expenses
    
    
    (1,670
    )
    
    
    (15,616
    )Net cash used in continuing operations
    
    
    (30,245
    )
    
    
    (63,476
    )Cash flows from investing activities:Cash used for purchase of marketable securities
    
    
    (124,082
    )
    
    
    Net cash used in investing activities
    
    
    (124,082
    )
    
    
    Cash flows from financing activities:Cash proceeds from issuance of Preferred C shares
    
    
    
    
    
    
    200,000Net cash from financing activities
    
    
    
    
    
    
    200,000Net increase (decrease) in cash
    
    
    (154,327
    )
    
    
    136,524CashBeginning of period
    
    
    421,196
    
    
    
    212,706End of period
    
    $
    266,869
    
    
    $
    349,230
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Notes to Consolidated Financial Statements
(unaudited)
 Note 1  Organization
 
 Note 2  Basis of Presentation
 Consolidated Financial Statement Presentation
   Going Concern
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Note 3  Summary of Significant Accounting Policies
 Use of Estimates in the Preparation of Financial Statements
  Investments in Equipment
   YearsFurniture, fixtures and equipment
    
    
    3-7
 Cash
  Marketable Securities
  Accounts Receivable
  Other Assets
  Revenue Recognition
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Stock Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
 Income Taxes
    Note 4  Marketable Securities
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Note 5  Equity
        Note 6  Loss Per Share
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For the six months ended June 30,2008
    
    
    2007NumeratorNet loss attributable to Common Shareholders
    
    $
    (161,671
    )
    
    $
    (202,853
    )DenominatorWeighted average Common Shares outstanding
at June 30, 2008 and June 30, 2007,
respectively: Basic and Diluted
    
    
    442,340
    
    
    
    442,565Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.37
    )
    
    $
    (0.46
    )Net loss attributable to Common
Shareholders: Basic and Diluted
    
    $
    (0.37
    )
    
    $
    (0.46
    )
 Note 7  Commitments and Contingencies
 Liquidity
 .
   Legal Proceedings
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Note 8  Fair Value Measurements
 Fair
Value Measurements The Fair Value Option for Financial Assets and Financial
Liabilities  Including an amendment of FASB Statement No. 115
    Carrying Amountin ConsolidatedBalance Sheet
    
    Fair Value
    
    Fair Value Measurement UsingJune 30, 2008
    
    June 30, 2008
    
    Level 1
    
    Level 2
    
    Level 3Marketable Securities
    
    $
    114,471
    
    
    $
    114,471
    
    
    $
    114,471
    
    
    $
    
    
    
    $
    
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
 Overview
    Brief History
  Forward-Looking Information
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
    
    Explanation of changes in the results of operations in the Consolidated Statements of
Operations for the six month period ended June 30, 2008 compared to the six month period
ended June 30, 2007.
    
    Explanation of changes in the results of operations in the Consolidated Statements of
Operations for the three month period ended June 30, 2008 compared to the three month
period ended June 30, 2007.
    
    Our critical accounting policies and estimates that require our subjective judgment and
are important to the presentation of our financial condition and results of operations.
    
    Our primary sources and uses of cash for the six month period ended June 30, 2008, and
how we intend to generate cash for long-term capital needs.
    
    Our current income tax status.
  Results of Operations
 Comparison of the Six Month Periods Ended June 30, 2008 and 2007
 Revenues from Operations
  Expenses from Operations
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Loss from Operations
  Net Loss Attributable to Common Shareholders
  Comparison of the Three Month Periods Ended June 30, 2008 and 2007
 Revenues from Operations
  Expenses from Operations
   Loss from Operations
  Net Loss Attributable to Common Shareholders
  Critical Accounting Policies and Estimates
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Investments in Shares of Publicly Traded REITs
  Valuation Allowance of Deferred Tax Asset
  Liquidity and Capital Resources
  Cash Flows
   Future Obligations
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Long Term Liquidity and Operating Strategies
  Current Tax Status
   Interest Rates and Inflation
  
 Off-Balance Sheet Arrangements
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ITEM 4T. CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibits
 ExhibitNumber
    
    Exhibit Description31.1
    
    Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002
 Chief Executive Officer31.2
    
    Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002
 Chief Financial Officer32.1
    
    CEO/CFO Certification under Section 906 of Sarbanes-Oxley Act of 2002.
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SIGNATURES
  Paragon real estate equity and investment trustBy:
    /s/ James C. MastandreaDate: August 11, 2008
    
    James C. MastandreaChief Executive OfficerParagon real estate equity and investment trustBy:
    /s/ John J. DeeDate: August 11, 2008
    
    John J. DeeChief Financial Officer - 18 -