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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-QSB
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 Commission File Number:
 0-25074
 PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
  Maryland
    
    39-6594066(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification Number)1240 Huron Road, Cleveland, OH
    
    44115(Address of principal executive offices)
    
    (Zip code)
  
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PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST AND SUBSIDIARIES
FORM 10-QSB
INDEX
 PART I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheet  June 30, 2006 (unaudited)
    
    Page - 2 -Consolidated Statements of Operations  Six months ended
June 30, 2006 and June 30, 2005 (unaudited)
    
    Page - 3 -Consolidated Statements of Operations  Three months ended
June 30, 2006 and June 30, 2005 (unaudited)
    
    Page - 4 -Consolidated Statements of Cash Flows  Six months ended
June 30, 2006 and June 30, 2005 (unaudited)
    
    Page - 5 -Notes to Consolidated Financial Statements (unaudited)
    
    Page - 6 -Item 2. Managements Discussion and Analysis or
Plan of Operation
    
    Page - 14 -Item 3. Controls and Procedures
    
    Page - 21 -Part II. Other InformationItem 1. Legal Proceedings
    
    Page - 21 -Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page - 21 -Item 3. Defaults upon Senior Securities
    
    Page - 21 -Item 4. Submission of Matters to a Vote of Security Holders
    
    Page - 21 -Item 5. Other Information
    
    Page - 21 -Item 6. Exhibits
    
    Page - 21 -Signatures
    
    Page - 22 -EX-31.1EX-31.2EX-32.1
  
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 Consolidated Balance Sheet
 June 30, 2006
 (unaudited)
 AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,370Accumulated depreciation and amortization
    
    
    (1,572
    )Net investments in equipment
    
    
    3,798Cash and cash equivalents
    
    
    163,375Other assets, net
    
    
    22,859Total Assets
    
    $
    190,032Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    $
    91,786Total liabilities
    
    
    91,786Commitments and ContingenciesShareholders equity:Preferred
Shares  $0.01 par value,
10,000,000 authorized: 277,955 Class A
cumulative convertible shares issued and
outstanding, $10.00 per share liquidation
preference
    
    
    2,780Common Shares  $0.01 par value,
100,000,000 authorized; 442,565 shares
issued and outstanding
    
    
    4,426Additional paid-in capital
    
    
    29,542,065Accumulated deficit
    
    
    (26,192,950
    )Treasury stock, at cost, 38,130 shares
    
    
    (800,735
    )Unearned compensation and trustees fees
    
    
    (2,457,340
    )Total shareholders equity
    
    
    98,246Total Liabilities and Shareholders Equity
    
    $
    190,032
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 Consolidated Statements of Operations
 (unaudited)
 For the six months ended June 30,2006
    
    
    2005RevenuesInterest and other
    
    $
    3,103
    
    
    $
    11,440Total revenues
    
    
    3,103
    
    
    
    11,440ExpensesDepreciation and amortization
    
    
    537
    
    
    
    383General and administrative
    
    
    261,129
    
    
    
    697,495Total expenses
    
    
    261,666
    
    
    
    697,878Loss from operations
    
    
    (258,563
    )
    
    
    (686,438
    )Gain on sale of marketable securities
    
    
    777
    
    
    
    Loss from continuing operations
    
    
    (257,786
    )
    
    
    (686,438
    )Discontinued operations:Income from discontinued operations of
residential properties before
allocation to
minority interest
    
    
    12,448
    
    
    
    15,415Income allocated to minority interest
    
    
    (12,324
    )
    
    
    (15,387
    )Net loss attributable to Common Shareholders
    
    
    (257,662
    )
    
    
    (686,410
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.58
    )
    
    $
    (1.53
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,558
    
    
    
    448,744Comprehensive loss:Net loss
    
    $
    (257,662
    )
    
    $
    (686,410
    )Other comprehensive loss:Unrealized gain (loss) on marketable securities
    
    
    
    
    
    
    (13,245
    )Comprehensive loss
    
    $
    (257,662
    )
    
    $
    (699,655
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 Consolidated Statements of Operations
 (unaudited)
 For the three months ended June 30,2006
    
    2005RevenuesInterest and other
    
    $
    1,330
    
    
    $
    5,482Total revenues
    
    
    1,330
    
    
    
    5,482ExpensesDepreciation and amortization
    
    
    268
    
    
    
    268General and administrative
    
    
    95,438
    
    
    
    238,819Total expenses
    
    
    95,706
    
    
    
    239,087Loss from operations
    
    
    (94,376
    )
    
    
    (233,605
    )Gain on sale of marketable securities
    
    
    777
    
    
    
    Loss from continuing operations
    
    
    (93,599
    )
    
    
    (233,605
    )Discontinued operations:Income from discontinued operations of
residential properties before
allocation to
minority interest
    
    
    
    
    
    
    8,242Income allocated to minority interest
    
    
    
    
    
    
    (8,216
    )Net loss attributable to Common Shareholders
    
    
    (93,599
    )
    
    
    (233,579
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.21
    )
    
    $
    (0.52
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,560
    
    
    
    451,999Comprehensive loss:Net loss
    
    $
    (93,599
    )
    
    $
    (233,579
    )Other comprehensive loss:Unrealized gain (loss) on marketable securities
    
    
    
    
    
    
    (9,114
    )Comprehensive loss
    
    $
    (93,599
    )
    
    $
    (242,693
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
 
 Consolidated Statements of Cash Flows
 (unaudited)
 For the six months ended June 30,2006
    
    2005Cash flows from operating activities:Net loss
    
    $
    (257,662
    )
    
    $
    (686,410
    )Adjustments to reconcile net loss to net cash used
in continuing operations:Compensation costs and trustees fees incurred
through the issuance of shares
    
    
    8,668
    
    
    
    51,960Compensation costs, trustees fees and legal costs
incurred through the issuance of options
    
    
    37,332
    
    
    
    Rent expense incurred through the issuance of
restricted shares
    
    
    
    
    
    
    51,500Depreciation and amortization
    
    
    537
    
    
    
    383Income from discontinued operations, net of
allocation to minority interest
    
    
    (124
    )
    
    
    (28
    )Gain on sale of marketable securities
    
    
    (777
    )
    
    
    Net change in assets and liabilities:Other assets, net
    
    
    101,445
    
    
    
    17,018Accounts payable and accrued expenses
    
    
    (68,021
    )
    
    
    (131,333
    )Net cash used in continuing operations
    
    
    (178,602
    )
    
    
    (696,910
    )Cash flows from investing activities:Cash proceeds from sale of marketable securities
    
    
    1,953
    
    
    
    Purchase of equipment
    
    
    
    
    
    
    (3,070
    )Net cash from (used in) investing activities
    
    
    1,953
    
    
    
    (3,070
    )Cash flows from financing activities:Net cash
used in financing activities
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (176,649
    )
    
    
    (699,980
    )Cash and cash equivalentsBeginning of period
    
    
    340,024
    
    
    
    1,629,350End of period
    
    $
    163,375
    
    
    $
    929,370Supplemental information to Consolidated Statements of Cash FlowsInterest paid
    
    $
    
    
    
    $
    
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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
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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
  Other Assets
  Revenue Recognition
  Stock Based Compensation
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Dividend yield
    
    0.0%Expected volatility
    
    168.9  175.5%Risk free interest rate
    
    3.40  4.05%Expected lives
    
    5  10 years
  For the six month period endedJune 30, 2005Net loss attributable to Common Shareholders
    
    $
    (686,410
    )Add: Stock-based employee compensation expense
included in reported net loss, net of
related tax effects
    
    
    51,958Deduct: Total stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects
    
    
    (77,876
    )Pro forma net loss attributable to Common
Shareholders
    
    $
    (712,328
    )Net loss attributable to Common Shareholders per
Common Share:Basic and
Diluted  as reported
    
    $
    (1.59
    )Basic and
Diluted  pro forma
    
    $
    (1.59
    )
 Income Taxes
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Segment Disclosure
  Note 4
 Marketable Securities
   Note 5
 Equity
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Note 6
 Loss Per Share
   For the six months ended June 30,2006
    
    
    2005NumeratorLoss from continuing operations
    
    $
    (257,786
    )
    
    $
    (686,438
    )Discontinued operations:Income from discontinued operations of
residential properties before allocation to
minority interest
    
    
    12,448
    
    
    
    15,415Income allocated to minority interest
    
    
    (12,324
    )
    
    
    (15,387
    )Net loss attributable to Common Shareholders
    
    $
    (257,662
    )
    
    $
    (686,410
    )DenominatorWeighted average Common Shares outstanding
at June 30, 2006 and June 30, 2005,
respectively: Basic and Diluted
    
    
    442,558
    
    
    
    448,744Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.58
    )
    
    $
    (1.53
    )Discontinued operations:Income from discontinued operations of
residential properties before allocation
to minority interest
    
    
    0.00
    
    
    
    0.00Income allocated to minority interest
    
    
    0.00
    
    
    
    0.00Net loss attributable to Common
Shareholders:Basic and Diluted
    
    $
    (0.58
    )
    
    $
    (1.53
    )
 Note 7
 Commitments and Contingencies
 Liquidity
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Legal Proceedings
  Note 8
 Discontinued Operations
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For the six months ended June 30,2006
    
    
    2005Revenues
    
    $
    163,926
    
    
    $
    309,749Operating expenses
    
    
    (88,288
    )
    
    
    (168,759
    )Depreciation and amortization
    
    
    (23,476
    )
    
    
    (44,350
    )Interest expense
    
    
    (39,714
    )
    
    
    (81,225
    )Income from discontinued operations
    
    $
    12,448
    
    
    $
    15,415
 For the three months ended June 30,2006
    
    
    2005Revenues
    
    $
    
    
    
    $
    154,311Operating expenses
    
    
    
    
    
    
    (83,107
    )Depreciation and amortization
    
    
    
    
    
    
    (22,223
    )Interest expense
    
    
    
    
    
    
    (40,739
    )Income from discontinued operations
    
    $
    
    
    
    $
    8,242
 Note 9
 Related Party Transactions
 Richton Trail Disposition and Previous Acquisition and Management Fees
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Overview
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Brief History
  Forward-Looking Information
  
    
    Explanation of changes in the results of operations in the Consolidated Statements of
Operations for the six month period ended June 30, 2006 compared to the six month period
ended June 30, 2005.
    
    Explanation of changes in the results of operations in the Consolidated Statements of
Operations for the three month period ended June 30, 2006 compared to the three month
period ended June 30, 2005.
    
    Our critical accounting policies and estimates that require our subjective judgement 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, 2006, and
how we intend to generate cash for long-term capital needs.
    
    Our current income tax status.
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Results of Operations
 Comparison of the Six Month Periods Ended June 30, 2006 and 2005
  Revenues from Operations
  Expenses from Operations
  Loss from continuing operations
  Discontinued operations
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Net loss attributable to Common Shareholders
  Comparison of the Three Month Periods Ended June 30, 2006 and 2005
  Revenues from Operations
  Expenses from Operations
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Loss from continuing operations
  Discontinued operations
    Net loss attributable to Common Shareholders
  Critical Accounting Policies and Estimates
  Impairment of Long-Lived Assets
  Real Estate Investments
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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 3. 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
 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 trustBy:
    
    /s/ James C. MastandreaDate: August 10, 2006
    
    
    
    James C. MastandreaChief Executive OfficerParagon real estate equity and investment trustBy:
    
    /s/ John J. DeeDate: August 10, 2006
    
    
    
    John J. DeeChief Financial Officer
 - 22 -