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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, 2011
 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 001-15409
 PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
  Maryland
(State or other jurisdiction of 
incorporation or organization)
    
    39-6594066
(IRS Employer
Identification No.)
 PO Box 631209
Houston, Texas 77263
 (440) 283-6319
  þ o
  o 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 Sheets  March 31, 2011 (unaudited) and
December 31, 2010
    
    Page - 3 -Consolidated Statements of Operations  Three months ended
March 31, 2011 (unaudited) and March 31, 2010 (unaudited)
    
    Page - 4 -Consolidated Statements of Cash Flows  Three months ended
March 31, 2011 (unaudited) and March 31, 2010 (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 - 11 -Item 4. Controls and Procedures
    
    Page - 14 -Part II. Other InformationItem 1. Legal Proceedings
    
    Page - 16 -Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page - 16 -Item 3. Defaults upon Senior Securities
    
    Page - 16 -Item 5. Other Information
    
    Page - 16 -Item 6. Exhibits
    
    Page - 16 -Signatures
    
    Page - 17 -EX-31.1EX-31.2EX-32.1
 
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Balance Sheets  March 31, 2011 and December 31, 2010
 March 31,2011
    
    
    December 31,(unaudited)
    
    
    2010AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,370
    
    
    $
    5,370Accumulated depreciation
    
    
    (5,370
    )
    
    
    (5,370
    )Net investments in equipment
    
    
    
    
    
    
    Cash
    
    
    22,725
    
    
    
    31,717Marketable securities
    
    
    237,127
    
    
    
    225,682Other assets
    
    
    6,777
    
    
    
    8,644Total Assets
    
    $
    266,629
    
    
    $
    266,043Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    $
    12,325
    
    
    $
    500Total liabilities
    
    
    12,325
    
    
    
    500Commitments and ContingenciesShareholders equity:Preferred A Shares  $0.01 par value,
10,000,000 authorized: 258,236 Class A
cumulative convertible shares issued and
outstanding, $10.00 per share liquidation
preference
    
    
    2,583
    
    
    
    2,583Preferred 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: 443,226 shares
issued and outstanding.
    
    
    4,432
    
    
    
    4,432Additional paid-in capital
    
    
    28,146,590
    
    
    
    28,146,590Accumulated deficit
    
    
    (27,131,989
    )
    
    
    (27,114,887
    )Accumulated other comprehensive income, net
unrealized gain on marketable securities
    
    
    30,979
    
    
    
    25,116Treasury stock, at cost, 38,130 shares
    
    
    (800,735
    )
    
    
    (800,735
    )Total shareholders equity
    
    
    254,304
    
    
    
    265,543Total Liabilities and Shareholders Equity
    
    $
    266,629
    
    
    $
    266,043
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Statements of Operations  (unaudited)
 For the three months ended March 31,2011
    
    
    2010RevenuesInterest/dividend income
    
    $
    2,050
    
    
    $
    1,466Total revenues
    
    
    2,050
    
    
    
    1,466ExpensesDepreciation
    
    
    
    
    
    
    154General and administrative
    
    
    23,036
    
    
    
    22,378Total expenses
    
    
    23,036
    
    
    
    22,532Loss from operations
    
    
    (20,986
    )
    
    
    (21,066
    )Gain on sale of marketable securities
    
    
    3,884
    
    
    
    Net loss attributable to Common Shareholders
    
    
    (17,102
    )
    
    
    (21,066
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (.04
    )
    
    $
    (.05
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    443,226
    
    
    
    443,226Comprehensive loss:Net loss
    
    $
    (17,102
    )
    
    $
    (21,066
    )Other comprehensive income:Unrealized gain on marketable securities, net
    
    
    5,862
    
    
    
    16,140Comprehensive loss
    
    $
    (11,240
    )
    
    $
    (4,926
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Statements of Cash Flows  (unaudited)
 For the three months ended March 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (17,102
    )
    
    $
    (21,066
    )Adjustments to reconcile net loss to net cash used in
continuing operations:Depreciation
    
    
    
    
    
    
    154Gain on sale of marketable securities
    
    
    (3,884
    )
    
    
    Net change in assets and liabilities:Other assets
    
    
    1,868
    
    
    
    2,823Accounts payable and accrued expenses
    
    
    11,825
    
    
    
    (50
    )Net cash used in operations
    
    
    (7,293
    )
    
    
    (18,139
    )Cash flows from investing activities:Cash used for the purchase of marketable securities
    
    
    (94,364
    )
    
    
    (1,758
    )Proceeds from the sale of marketable securities
    
    
    92,665
    
    
    
    Net cash used for investing activities
    
    
    (1,699
    )
    
    
    (1,758
    )Net decrease in cash
    
    
    (8,992
    )
    
    
    (19,897
    )CashBeginning of period
    
    
    31,717
    
    
    
    94,198End of period
    
    $
    22,725
    
    
    $
    74,301
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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
   Cash
  Marketable Securities
  Other Assets
  Revenue Recognition
  Stock Based Compensation
 Compensation  Stock Compensation
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Income Taxes
    Note 4  Marketable Securities
    Note 5  Equity
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Note 6  Loss Per Share
  For the three months ended March 31,2011
    
    
    2010NumeratorNet loss attributable to Common Shareholders
    
    $
    (17,102
    )
    
    $
    (21,066
    )DenominatorWeighted average Common Shares outstanding
at March 31, 2011 and
March 31, 2010:Basic and Diluted
    
    
    443,226
    
    
    
    443,226Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.04
    )
    
    $
    (0.05
    )Net loss attributable to Common
Shareholders:Basic and Diluted
    
    $
    (0.04
    )
    
    $
    (0.05
    )
 Note 7  Commitments and Contingencies
 Liquidity
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Legal Proceedings
  Note 8  Fair Value Measurements
 Fair Value Measurements and
Disclosures, Financial Instruments
    Carrying Amountin ConsolidatedBalance Sheet
    
    
    Fair Value
    
    
    Fair Value Measurement UsingMarch 31, 2011
    
    
    March 31, 2011
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Marketable Securities
    
    $
    237,127
    
    
    $
    237,127
    
    
    $
    237,127
    
    
    $
    
    
    
    $
    
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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 three month period ended March 31, 2011 compared to the three month
period ended March 31, 2010.
    
    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, 2011,
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, 2011 and 2010
 Revenues from Operations
  Expenses from Operations
  Loss from Operations
  Gain/Loss on Sale of Marketable Securities
  Net Loss Attributable to Common Shareholders
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Critical Accounting Policies and Estimates
  Investments in Shares of Publicly Traded Companies
  Valuation Allowance of Deferred Tax Asset
  Liquidity and Capital Resources
  Cash Flows
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Future Obligations
  Long Term Liquidity and Operating Strategies
  Current Tax Status
   Interest Rates and Inflation
   Off-Balance Sheet Arrangements
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
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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 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, 2011
    
    James C. MastandreaChief Executive Officer
(Principal executive officer)Paragon real estate equity and investment trustBy:
    /s/ John J. DeeDate: May 12, 2011
    
    John J. DeeChief Financial Officer
(Principal financial and accounting officer) - 17 -