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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, 2009
 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
(State or other jurisdiction of 
incorporation or organization)
    
    39-6594066
(IRS Employer
Identification No.)
 1240 Huron Road
Cleveland, Ohio 44115
 (216) 430-2700
  þ o
 o 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  March 31, 2009 (unaudited) and December 31, 2008
    
    Page - 3 -Consolidated Statements of Operations  Three months ended
March 31, 2009 and March 31, 2008 (unaudited)
    
    Page - 4 -Consolidated Statements of Cash Flows  Three months ended
March 31, 2009 and March 31, 2008 (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 - 16 -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-31.1EX-31.2EX-32.1
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Balance Sheets
 March 31, 2009 and December 31, 2008
 March 31,
    
    December 31,2009
    
    2008(unaudited)AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,370
    
    
    $
    5,370Accumulated depreciation
    
    
    (4,526
    )
    
    
    (4,257
    )Net investments in equipment
    
    
    844
    
    
    
    1,113Cash
    
    
    165,490
    
    
    
    182,373Marketable securities
    
    
    89,957
    
    
    
    111,191Other assets
    
    
    6,876
    
    
    
    9,343Total Assets
    
    $
    263,167
    
    
    $
    304,020Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    
    19,169
    
    
    
    6,959Total liabilities
    
    
    19,169
    
    
    
    6,959Commitments and ContingenciesShareholders equity:Preferred A Shares  $0.01 par value,
10,000,000 authorized: 276,255 Class A
cumulative convertible shares issued and
outstanding at March 31, 2009 and December
31, 2008, $10.00 per share liquidation
preference
    
    
    2,763
    
    
    
    2,763Preferred 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: 442,398 shares
issued and outstanding at March 31, 2009
and December 31, 2008
    
    
    4,424
    
    
    
    4,424Additional paid-in capital
    
    
    28,146,417
    
    
    
    28,146,404Accumulated deficit
    
    
    (27,056,070
    )
    
    
    (27,021,670
    )Accumulated other comprehensive loss, net
unrealized loss on marketable securities
    
    
    (55,245
    )
    
    
    (36,569
    )Treasury stock, at cost, 38,130 shares
    
    
    (800,735
    )
    
    
    (800,735
    )Total shareholders equity
    
    
    243,998
    
    
    
    297,061Total Liabilities and Shareholders Equity
    
    $
    263,167
    
    
    $
    304,020
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Paragon Real Estate Equity and Investment Trust and Subsidiary
 
 Consolidated Statements of Operations
 (unaudited)
 For the three months ended March 31,2009
    
    2008RevenuesInterest/dividend income
    
    $
    2,461
    
    
    $
    2,386Other income
    
    
    
    
    
    
    100Total revenues
    
    
    2,461
    
    
    
    2,486ExpensesDepreciation and amortization
    
    
    269
    
    
    
    269General and administrative
    
    
    31,885
    
    
    
    95,353Total expenses
    
    
    32,154
    
    
    
    95,622Loss from operations
    
    
    (29,693
    )
    
    
    (93,136
    )Loss on sale of marketable securities
    
    
    (4,706
    )
    
    
    Net loss attributable to Common Shareholders
    
    
    (34,399
    )
    
    
    (93,136
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (.08
    )
    
    $
    (.21
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,398
    
    
    
    442,332Comprehensive loss:Net loss
    
    $
    (34,399
    )
    
    $
    (93,136
    )Other comprehensive loss:Unrealized loss on marketable securities
    
    
    (18,676
    )
    
    
    (11
    )Comprehensive loss
    
    $
    (53,075
    )
    
    $
    (93,147
    )
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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 31,2009
    
    2008Cash flows from operating activities:Net loss
    
    $
    (34,399
    )
    
    $
    (93,136
    )Adjustments to reconcile net loss to net cash used in
continuing operations:Compensation costs paid through amortization of
restricted common shares
    
    
    13
    
    
    
    13Compensation costs and trustee fees incurred through
the issuance of shares
    
    
    
    
    
    
    62,500Depreciation and amortization
    
    
    269
    
    
    
    269Loss on sale of marketable securities
    
    
    4,706
    
    
    
    Net change in assets and liabilities:Other assets
    
    
    2,466
    
    
    
    3,516Accounts payable and accrued expenses
    
    
    12,210
    
    
    
    22,117Net cash used in continuing operations
    
    
    (14,735
    )
    
    
    (4,721
    )Cash flows from investing activities:Cash used for the purchase of marketable securities
    
    
    (64,572
    )
    
    
    (120,564
    )Proceeds from the sale of marketable securities
    
    
    62,424
    
    
    
    Net cash used for investing activities
    
    
    (2,148
    )
    
    
    (120,564
    )Cash flows from financing activities:Net cash from financing activities
    
    
    
    
    
    
    Net decrease in cash
    
    
    (16,883
    )
    
    
    (125,285
    )CashBeginning of period
    
    
    182,373
    
    
    
    421,196End of period
    
    $
    165,490
    
    
    $
    295,911
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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
  - 7 -




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Stock Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
 Income Taxes
    Note 4  Marketable Securities
    Note 5  Equity
  - 8 -




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Note 6  Loss Per Share
 Earnings Per Share
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For the three months ended March 31,2009
    
    
    2008NumeratorNet loss attributable to Common Shareholders
    
    $
    (34,399
    )
    
    $
    (93,136
    )DenominatorWeighted average Common Shares outstanding
at March 31, 2009 and March 31, 2008,
respectively: Basic and Diluted
    
    
    442,398
    
    
    
    442,332Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.08
    )
    
    $
    (0.21
    )Net loss attributable to Common Shareholders:Basic and Diluted
    
    $
    (0.08
    )
    
    $
    (0.21
    )
 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 UsingMarch 31, 2009
    
    March 31, 2009
    
    Level 1
    
    Level 2
    
    Level 3Marketable Securities
    
    $
    89,957
    
    
    $
    89,957
    
    
    $
    89,957
    
    
    $
    
    
    
    $
    
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
 Overview
    Brief History
  Forward-Looking Information
  - 12 -




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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, 2009 compared to the three month
period ended March 31, 2008.
    
    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, 2009,
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, 2009 and 2008
 Revenues from Operations
 
  Expenses from Operations
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Loss from Operations
  Loss on Sale of Marketable Securities
  Net Loss Attributable to Common Shareholders
  Critical Accounting Policies and Estimates
  Investments in Shares of Publicly Traded Companies
  Valuation Allowance of Deferred Tax Asset
  Liquidity and Capital Resources
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Cash Flows
   Future Obligations
  Long Term Liquidity and Operating Strategies
  Current Tax Status
   - 15 -




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Interest Rates and Inflation
  
 Off-Balance Sheet Arrangements
  
 ITEM 4T. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibits
 Exhibit Number
    
    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 trustDate: May 15, 2009
    By:
    /s/ James C. MastandreaJames C. MastandreaChief Executive Officer
(Principal executive officer)Paragon real estate equity and investment trustDate: May 15, 2009
    By:
    /s/ John J. DeeJohn J. DeeChief Financial Officer
(Principal financial and
accounting officer) - 18 -