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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 September 30, 2007
 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  September 30, 2007 (unaudited).
    
    Page - 2 -Consolidated Statements of Operations  Nine months ended
September 30, 2007 and September 30, 2006 (unaudited).
    
    Page - 3 -Consolidated Statements of Operations  Three months ended
September 30, 2007 and September 30, 2006 (unaudited).
    
    Page - 4 -Consolidated Statements of Cash Flows Nine months ended
September 30, 2007 and September 30, 2006 (unaudited).
    
    Page - 5 -Notes to Consolidated Financial Statements (unaudited).
    
    Page - 6 -Item 2. Managements Discussion and Analysis or Plan of Operation
    
    Page - 12 -Item 3. Controls and Procedures
    
    Page - 18 -Part II. Other InformationItem 1. Legal Proceedings
    
    Page - 18 -Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page - 18 -Item 3. Defaults upon Senior Securities
    
    Page - 18 -Item 4. Submission of Matters to a Vote of Security Holders
    
    Page - 18 -Item 5. Other Information
    
    Page - 18 -Item 6. Exhibits
    
    Page - 18 -Signatures
    
    Page - 19 -EX-31.1EX-31.2EX-32.1
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Balance Sheet
September 30, 2007
(unaudited)
 AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,370Accumulated depreciation
    
    
    (2,915
    )Net investments in equipment
    
    
    2,455Cash
    
    
    343,081Other assets, net
    
    
    3,428Total Assets
    
    $
    348,964Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    $
    16,039Total liabilities
    
    
    16,039Commitments and ContingenciesShareholders equity:Preferred A 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
    
    
    2,780Preferred 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
    
    
    2,444Common Shares  $0.01 par value,
    
    
    4,426100,000,000 authorized; 442,565 shares
issued and outstandingAdditional paid-in capital
    
    
    30,572,461Accumulated deficit
    
    
    (26,672,267
    )Treasury stock, at cost, 38,130 shares
    
    
    (800,735
    )Unearned compensation and trustees fees
    
    
    (2,676,184
    )Subscriptions receivable Preferred C Shares
    
    
    (100,000
    )Total shareholders equity
    
    
    332,925Total Liabilities and Shareholders Equity
    
    $
    348,964
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 For the nine months ended September 30,2007
    
    
    2006RevenuesInterest
    
    $
    7,787
    
    
    $
    4,149Total revenues
    
    
    7,787
    
    
    
    4,149ExpensesDepreciation
    
    
    806
    
    
    
    806General and administrative
    
    
    297,478
    
    
    
    345,264Total expenses
    
    
    298,284
    
    
    
    346,070Loss from operations
    
    
    (290,497
    )
    
    
    (341,921
    )Gain on sale of marketable securities
    
    
    
    
    
    
    777Loss from continuing operations
    
    
    (290,497
    )
    
    
    (341,144
    )Discontinued operations:Income from discontinued operations of
residential properties
before allocation to
minority interest
    
    
    
    
    
    
    12,448Income allocated to minority interest
    
    
    
    
    
    
    (12,324
    )Net loss attributable to Common Shareholders
    
    
    (290,497
    )
    
    
    (341,020
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.66
    )
    
    $
    (0.77
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,565
    
    
    
    442,560Comprehensive loss:Net loss
    
    $
    (290,497
    )
    
    $
    (341,020
    )Other comprehensive loss:Unrealized gain on marketable securities
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (290,497
    )
    
    $
    (341,020
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 For the three months ended September 30,2007
    
    
    2006RevenuesInterest
    
    $
    3,208
    
    
    $
    1,046Total revenues
    
    
    3,208
    
    
    
    1,046ExpensesDepreciation
    
    
    269
    
    
    
    269General and administrative
    
    
    90,583
    
    
    
    84,135Total expenses
    
    
    90,852
    
    
    
    84,404Loss from operations
    
    
    (87,644
    )
    
    
    (83,358
    )Gain on sale of marketable securities
    
    
    
    
    
    
    Net loss attributable to Common Shareholders
    
    
    (87,644
    )
    
    
    (83,358
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.20
    )
    
    $
    (0.19
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    442,565
    
    
    
    442,555Comprehensive loss:Net loss
    
    $
    (87,644
    )
    
    $
    (83,358
    )Other comprehensive loss:Unrealized gain on marketable securities
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (87,644
    )
    
    $
    (83,358
    )
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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 For the nine months ended September 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (290,497
    )
    
    $
    (341,020
    )Adjustments to reconcile net loss to net cash used in
continuing operations:Compensation costs and trustees fees incurred
through the issuance of shares
    
    
    187,825
    
    
    
    8,983Compensation costs, trustees fees and legal costs
incurred through the issuance of options
    
    
    31,500
    
    
    
    53,082Depreciation
    
    
    806
    
    
    
    806Income from discontinued operations, net of
allocation to minority interest
    
    
    
    
    
    
    (124
    )Gain on sale of marketable securities
    
    
    
    
    
    
    (777
    )Net change in assets and liabilities:Other assets, net
    
    
    12,419
    
    
    
    113,313Accounts payable and accrued expenses
    
    
    (11,678
    )
    
    
    (75,162
    )Net cash used in continuing operations
    
    
    (69,625
    )
    
    
    (240,899
    )Cash flows from investing activities:Cash proceeds from sale of marketable securities
    
    
    
    
    
    
    1,953Net cash from investing activities
    
    
    
    
    
    
    1,953Cash flows from financing activities:Cash proceeds from issuance of Preferred C shares
    
    
    200,000
    
    
    
    125,000Net cash from financing activities
    
    
    200,000
    
    
    
    125,000Net increase (decrease) in cash
    
    
    130,375
    
    
    
    (113,946
    )CashBeginning of period
    
    
    212,706
    
    
    
    340,024End of period
    
    $
    343,081
    
    
    $
    226,078
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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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Fair Value of Financial Instruments
  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
 Share-Based Payment
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Accounting for Stock Issued to Employees
 Income Taxes
    Note 4  Marketable Securities
   Note 5  Equity
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Note 6  Loss Per Share
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For the nine months ended September 30,2007
    
    
    2006NumeratorLoss from continuing operations
    
    $
    (290,497
    )
    
    $
    (341,144
    )Discontinued operations:Income from discontinued operations of
residential properties before allocation to
minority interest
    
    
    
    
    
    
    12,448Income allocated to minority interest
    
    
    
    
    
    
    (12,324
    )Net loss attributable to Common Shareholders
    
    $
    (290,497
    )
    
    $
    (341,020
    )DenominatorWeighted average Common Shares outstanding at September 30,
2007 and September 30, 2006,
respectively: Basic and Diluted
    
    
    442,565
    
    
    
    442,560Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.66
    )
    
    $
    (0.77
    )Net loss attributable to Common Shareholders: Basic and Diluted
    
    $
    (0.66
    )
    
    $
    (0.77
    )
 Note 7  Commitments and Contingencies
 Liquidity
 .
   Legal Proceedings
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Note 8  Discontinued Operations
  
 For the nine monthsended September 30, 2006Revenues
    
    $
    163,926Operating expenses
    
    
    (88,288
    )Depreciation and amortization
    
    
    (23,476
    )Interest expense
    
    
    (39,714
    )Income from discontinued operations
    
    $
    12,448
 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 nine month period ended September 30, 2007 compared to the nine month
period ended September 30, 2006.
    
    Explanation of changes in the results of operations in the Consolidated Statements of
Operations for the three month period ended September 30, 2007 compared to the three month
period ended September 30, 2006.
    
    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 nine month period ended September 30, 2007,
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 Nine Month Periods Ended September 30, 2007 and 2006
  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 September 30, 2007 and 2006
 Revenues from Operations
  Expenses from Operations
   Loss from operations
  Net loss attributable to Common Shareholders
  Critical Accounting Policies and Estimates
  Valuation Allowance of Deferred Tax Asset
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Liquidity and Capital Resources
  Cash Flows
   Future Obligations
  Long Term Liquidity and Operating Strategies
  Current Tax Status
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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
 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: November 12, 2007
    
    
    
    James C. MastandreaChief Executive OfficerParagon real estate equity and investment trustBy:
    
    /s/ John J. DeeDate: November 12, 2007
    
    
    
    John J. DeeChief Financial Officer
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