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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 March 31, 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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  þ o




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FORM 10-Q
INDEX
 PART I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheet  March 31, 2008 (unaudited) and December 31, 2007
    
    Page -2-Consolidated Statements of Operations  Three months ended
March 31, 2008 and March 31, 2007 (unaudited)
    
    Page -3-Consolidated Statements of Cash Flows Three months ended
March 31, 2008 and March 31, 2007 (unaudited)
    
    Page -4-Notes to Consolidated Financial Statements (unaudited)
    
    Page -5-Item 2. Managements Discussion and Analysis or
Plan of Operation
    
    Page -11-Item 4. Controls and Procedures
    
    Page -15-Part II. Other InformationItem 1. Legal Proceedings
    
    Page -15-Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page -15-Item 3. Defaults upon Senior Securities
    
    Page -15-Item 4. Submission of Matters to a Vote of Security Holders
    
    Page -15-Item 5. Other Information
    
    Page -15-Item 6. Exhibits
    
    Page -15-Signatures
    
    Page -16-EX  31.1 Section 302 Certification of Chief Executive OfficerEX  31.2 Section 302 Certification of Chief Financial OfficerEX  32.1 CEO/CFO Certification Under 906 of Sarbanes-Oxley ActEX-31.1EX-31.2EX-32.1
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Consolidated Balance Sheet
March 31, 2008 and December 31, 2007
 March 31,2008
    
    December 31,(unaudited)
    
    2007AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,370
    
    
    $
    5,370Accumulated depreciation
    
    
    (3,452
    )
    
    
    (3,183
    )Net investments in equipment
    
    
    1,918
    
    
    
    2,187Cash
    
    
    295,911
    
    
    
    421,196Marketable securities
    
    
    120,553
    
    
    
    Accounts receivable
    
    
    526
    
    
    
    551Other assets
    
    
    9,589
    
    
    
    13,080Total Assets
    
    $
    428,497
    
    
    $
    437,014Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    
    36,142
    
    
    
    14,025Total liabilities
    
    
    36,142
    
    
    
    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 March
31, 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
March 31, 2008 and December 31, 2007,
respectively
    
    
    4,424
    
    
    
    4,424Additional paid-in capital
    
    
    30,564,478
    
    
    
    30,568,490Accumulated deficit
    
    
    (26,837,899
    )
    
    
    (26,744,762
    )Accumulated other comprehensive income,
net unrealized loss on marketable
securities
    
    
    (11
    )
    
    
    Treasury stock, at cost, 38,130 shares
    
    
    (800,735
    )
    
    
    (800,735
    )Unearned compensation and trustees fees
    
    
    (2,543,121
    )
    
    
    (2,609,652
    )Total shareholders equity
    
    
    392,355
    
    
    
    422,989Total Liabilities and Shareholders Equity
    
    $
    428,497
    
    
    $
    437,014
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 Consolidated Statements of Operations
(unaudited)
 For the three months ended March 31,2008
    
    2007RevenuesInterest/dividend income
    
    $
    2,386
    
    
    $
    1,872Other income
    
    
    100
    
    
    
    Total revenues
    
    
    2,486
    
    
    
    1,872ExpensesDepreciation
    
    
    269
    
    
    
    269General and administrative
    
    
    95,353
    
    
    
    121,453Total expenses
    
    
    95,622
    
    
    
    121,722Net loss attributable to Common Shareholders
    
    $
    (93,136
    )
    
    $
    (119,850
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.21
    )
    
    $
    (0.27
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,332
    
    
    
    442,565Comprehensive loss:Net loss
    
    $
    (93,136
    )
    
    $
    (119,850
    )Other comprehensive loss:Unrealized loss on marketable securities
    
    
    (11
    )
    
    
    Comprehensive loss
    
    $
    (93,147
    )
    
    $
    (119,850
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 Consolidated Statements of Cash Flows
(unaudited)
 For the three months ended March 31,2008
    
    2007Cash flows from operating activities:Net loss
    
    $
    (93,136
    )
    
    $
    (119,850
    )Adjustments to reconcile net loss to net cash used in
continuing operations:Compensation costs and trustees fees incurred
through the issuance of shares
    
    
    62,513
    
    
    
    62,605Compensation costs, trustees fees and legal costs
incurred through the issuance of options
    
    
    
    
    
    
    10,500Depreciation
    
    
    269
    
    
    
    269Net change in assets and liabilities:Accounts receivable and Other assets
    
    
    3,516
    
    
    
    4,045Accounts payable and accrued expenses
    
    
    22,117
    
    
    
    19,767Net cash used in continuing operations
    
    
    (4,721
    )
    
    
    (22,664
    )Cash flows from investing activities:Cash used for purchase of marketable securities
    
    
    (120,564
    )
    
    
    Net cash used in investing activities
    
    
    (120,564
    )
    
    
    Cash flows from financing activities:Cash proceeds from issuance of Preferred C shares
    
    
    
    
    
    
    125,000Net cash from financing activities
    
    
    
    
    
    
    125,000Net increase (decrease) in cash
    
    
    (125,285
    )
    
    
    102,336CashBeginning of period
    
    
    421,196
    
    
    
    212,706End of period
    
    $
    295,911
    
    
    $
    315,042
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 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
  -8-




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For the three months ended March 31,2008
    
    
    2007NumeratorNet loss attributable to Common Shareholders
    
    $
    (93,136
    )
    
    $
    (119,850
    )DenominatorWeighted average Common Shares outstanding
at March 31, 2008 and March 31, 2007,
respectively: Basic and Diluted
    
    
    442,332
    
    
    
    442,565Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.21
    )
    
    $
    (0.27
    )Net loss attributable to Common
Shareholders:Basic and Diluted
    
    $
    (0.21
    )
    
    $
    (0.27
    )
 Note 7  Commitments and Contingencies
 Liquidity
 .
   Legal Proceedings
  Note 8  Fair Value Measurements
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Carrying AmountIn Consolidated
    
    
    
    
    
    Fair Value Measurement UsingBalance Sheet
    
    Fair ValueMarch 31, 2008
    
    March 31, 2008
    
    Level 1
    
    Level 2
    
    Level 3Marketable Securities
    
    $
    120,553
    
    
    $
    120,553
    
    
    $
    120,553
    
    
    $
    
    
    
    $
    
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 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 three month period ended March 31, 2008 compared to the three month
period ended March 31, 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 three month period ended March 31, 2008,
and how we intend to generate cash for long-term capital needs.
    
    Our current income tax status.
  Results of Operations
 Comparison of the Three Month Periods Ended March 31, 2008 and 2007
 Revenues from Operations
  Expenses from Operations
   Net loss attributable to Common Shareholders
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Critical Accounting Policies and Estimates
  Investments in Shares of Publicly Traded REITs
  Valuation Allowance of Deferred Tax Asset
  Liquidity and Capital Resources
  Cash Flows
  -13-




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Future Obligations
  Long Term Liquidity and Operating Strategies
  Current Tax Status
   Interest Rates and Inflation
   Off-Balance Sheet Arrangements
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ITEM 4. 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: May 12, 2008
    
    James C. MastandreaChief Executive OfficerParagon real estate equity and investment trustBy:
    /s/ John J. DeeDate: May 12, 2008
    
    John J. DeeChief Financial Officer -16-