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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 March 31, 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, Suite 301, 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  March 31, 2006 (unaudited)
    
    Page - 2 -Consolidated Statements of Operations  Three months ended
March 31, 2006 and March 31, 2005 (unaudited)
    
    Page - 3 -Consolidated Statements of Cash Flows  Three months ended
March 31, 2006 and March 31, 2005 (unaudited)
    
    Page - 4 -Notes to Consolidated Financial Statements (unaudited)
    
    Page - 5 -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 - 19 -Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page - 19 -Item 3. Defaults upon Senior Securities
    
    Page - 19 -Item 4. Submission of Matters to a Vote of Security Holders
    
    Page - 19 -Item 5. Other Information
    
    Page - 19 -Item 6. Exhibits
    
    Page - 19 -Signatures
    
    Page - 20 -EX - 31.1 Section 302 Certification of Chief Executive OfficerEX - 31.2 Section 302 Certification of Chief Financial OfficerEX - 32.1 CEO/CFO Under 906 of Sarbanes-Oxley Act
 - 1 -




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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Balance Sheet
March 31, 2006
(unaudited)
 AssetsInvestments in equipment:Furniture, fixtures and equipment
    
    $
    5,3705,370Accumulated depreciation and amortization
    
    
    (1,304
    )Net investments in equipment
    
    
    4,066Cash and cash equivalents
    
    
    180,319Marketable securities
    
    
    1,931Other assets, net
    
    
    82,210Total Assets
    
    $
    268,526Liabilities and Shareholders EquityLiabilities:Accounts payable and accrued expenses
    
    $
    86,145Total liabilities
    
    
    86,145Commitments and ContingenciesShareholders equity:Preferred Shares  $0.01 par value, 10,000,000
authorized: 278,155 Class A cumulative convertible
shares issued and outstanding, $10.00 per share
liquidation preference
    
    
    2,782Common Shares  $0.01 par value, 100,000,000
authorized; 33,191,649 shares issued and outstanding
    
    
    331,916Additional paid-in capital
    
    
    29,218,552Accumulated other comprehensive income, net
unrealized gain on marketable securities
    
    
    755Accumulated deficit
    
    
    (26,099,351
    )Treasury stock, at cost, 2,859,765 shares
    
    
    (800,735
    )Unearned compensation and trustees fees
    
    
    (2,471,538
    )Total shareholders equity
    
    
    182,381Total Liabilities and Shareholders Equity
    
    $
    268,526
  - 2 -




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Paragon Real Estate Equity and Investment Trust and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 For the three months ended March 31,2006
    
    2005RevenuesInterest and other
    
    $
    1,773
    
    
    $
    5,958Total revenues
    
    
    1,773
    
    
    
    5,958ExpensesDepreciation and amortization
    
    
    269
    
    
    
    115General and administrative
    
    
    165,691
    
    
    
    458,676Total expenses
    
    
    165,960
    
    
    
    458,791Loss from continuing operations
    
    
    (164,187
    )
    
    
    (452,833
    )Discontinued operations:Income from discontinued operations of
residential properties before allocation to
minority interest
    
    
    12,448
    
    
    
    7,173Income allocated to minority interest
    
    
    (12,324
    )
    
    
    (7,171
    )Net loss attributable to Common Shareholders
    
    
    (164,063
    )
    
    
    (452,831
    )Net loss attributable to Common Shareholders per
Common Share: Basic and Diluted
    
    $
    (0.00
    )
    
    $
    (0.01
    )Weighted average number of Common Shares
outstanding: Basic and Diluted
    
    
    33,191,649
    
    
    
    33,315,615Comprehensive loss:Net loss
    
    $
    (164,063
    )
    
    $
    (452,831
    )Other comprehensive loss:Unrealized gain (loss) on marketable securities
    
    
    6
    
    
    
    (4,131
    )Comprehensive loss
    
    $
    (164,057
    )
    
    $
    (456,962
    )
  - 3 -




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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 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (164,063
    )
    
    $
    (452,831
    )Adjustments to reconcile net loss to net cash used in
continuing operations:Compensation costs and trustees fees incurred
through the issuance of shares
    
    
    16,531
    
    
    
    22,188Compensation costs, trustees fees and legal costs
incurred through the issuance of options
    
    
    19,250
    
    
    
    Rent expense incurred through the issuance of
restricted shares
    
    
    
    
    
    
    51,500Depreciation and amortization
    
    
    269
    
    
    
    115Income from discontinued operations, net of
allocation to minority interest
    
    
    (124
    )
    
    
    (2
    )Net change in assets and liabilities:Other assets, net
    
    
    42,094
    
    
    
    (3,851
    )Accounts payable and accrued expenses
    
    
    (73,662
    )
    
    
    (24,826
    )Net cash (used in) from continuing operations
    
    
    (159,705
    )
    
    
    (407,707
    )Cash flows from investing activities:Net cash used in investing activities
    
    
    
    
    
    
    Cash flows from financing activities:Net cash used in financing activities
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (159,705
    )
    
    
    (407,707
    )Cash and cash equivalentsBeginning of period
    
    
    340,024
    
    
    
    1,629,350End of period
    
    $
    180,319
    
    
    $
    1,221,643Supplemental
information to Consolidated Statements of Cash FlowsInterest paid
    
    $
    
    
    
    $
    
  - 4 -




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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
    - 5 -




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Going Concern
    Note 3  Summary of Significant Accounting Policies
 Use of Estimates in the Preparation of Financial Statements
  - 6 -




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Investments in Real Estate
   YearsBuilding and improvements
    
    
    40Furniture, fixtures and equipment
    
    
    3-7
  Cash and cash equivalents
  Other Assets
  Revenue Recognition
  Stock Based Compensation
   - 7 -




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Dividend yield
    

    0.0%Expected volatility
    
    168.9  176.5%Risk free interest rate
    

    3.40  4.05%Expected lives
    
    5 - 10 years
  For the three month period endedMarch 31, 2005Net loss attributable to Common Shareholders
    
    $
    (445,831
    )Add: Stock-based employee compensation expense
included in reported net loss, net
of related tax effects
    
    
    22,188Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects
    
    
    (34,563
    )Pro forma net loss attributable to Common
Shareholders
    
    $
    (458,206
    )Net loss attributable to Common Shareholders
per Common Share:Basic and Diluted  as reported
    
    $
    (0.01
    )Basic and Diluted  pro forma
    
    $
    (0.01
    )
 Income Taxes
  - 8 -




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Fair Value of Financial Instruments
  Segment Disclosure
  Note 4  Marketable Securities
    Note 5  Equity
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Note 6  Loss Per Share
  For the three months ended March 31,2006
    
    2005NumeratorNet loss from continuing operations
    
    $
    (164,187
    )
    
    $
    (452,833
    )Discontinued operations:Income from discontinued operations of
residential properties before allocation to
minority interest
    
    
    12,448
    
    
    
    7,173Income allocated to minority interest
    
    
    (12,324
    )
    
    
    (7,171
    )Net loss attributable to Common Shareholders
    
    $
    (164,063
    )
    
    $
    (452,831
    )DenominatorWeighted average Common Shares outstanding
at March 31, 2006 and March 31, 2005,
respectively: Basic and Diluted
    
    
    33,191,649
    
    
    
    33,315,615Basic and Diluted EPSNet loss from continuing operations
    
    $
    (0.00
    )
    
    $
    (0.01
    )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
    
    $
    (0.00
    )
    
    $
    (0.01
    )
 Note 7  Commitments and Contingencies
 Liquidity
   - 10 -




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Legal Proceedings
  Note 8  Discontinued Operations
   - 11 -




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For the three months ended March 31,2006
    
    2005Revenues
    
    $
    163,926
    
    
    $
    155,438Operating expenses
    
    
    (88,288
    )
    
    
    (85,652
    )Depreciation and amortization
    
    
    (23,476
    )
    
    
    (22,127
    )Interest expense
    
    
    (39,714
    )
    
    
    (40,486
    )Income from discontinued operations
    
    $
    12,448
    
    
    $
    7,173
 Note 9  Related Party Transactions
 Richton Trail Acquisition and Management Fees
   ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Overview
   - 12 -




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Brief History
  - 13 -




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Forward-Looking Information
  
    
    Explanation of changes in the results of operations in the Consolidated Statements of
Operations for the three month period ended March 31, 2006 compared to the three month
period ended March 31, 2005.
    
    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, 2006,
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, 2006 and 2005
  Revenues from Operations
  - 14 -




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Expenses from Operations
  Loss from continuing operations
  Discontinued operations
    Net loss attributable to Common Shareholders
  Critical Accounting Policies and Estimates
  - 15 -




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Impairment of Long-Lived Assets
  Real Estate Investments
  Valuation Allowance of Deferred Tax Asset
  Liquidity and Capital Resources
  Cash Flows
   - 16 -




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Future Obligations
   Long Term Liquidity and Operating Strategies
  Current Tax Status
   Interest Rates and Inflation
   - 17 -




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Off-Balance Sheet Arrangements
  ITEM 3. CONTROLS AND PROCEDURES
   - 18 -




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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
 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 11, 2006
    
    James C. MastandreaChief Executive OfficerParagon real estate equity and investment trustBy:
    /s/ John J. DeeDate: May 11, 2006
    
    John J. DeeChief Financial Officer - 20 -