UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                 FORM 10-K/A-#2



[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004

                                       OR
 [  ]  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 000-27437



                          PARAGON FINANCIAL CORPORATION
                          -----------------------------
             (Exact name of registrant as specified in its charter)




                         Delaware                              94-3227733
                         --------                              ----------
               (State or other jurisdiction                  (I.R.S. Employer
                of incorporation)                            Identification No.)

               2207 Sawgrass Village Drive                         32082
               ---------------------------                         -----
                  Ponte Vedra Beach, FL                           (Zip Code)
         (Address of principal executive offices)

       Registrant's telephone number, including area code: (904) 285-0000

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.0001 par value



<PAGE>




Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements  for the past 90 days.  Yes |X| No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|

The  aggregate  market  value of  common  stock  held by  non-affiliates  of the
Registrant on June 30, 2004 was approximately  $1,490,850 based upon the closing
sales price for our common  stock on such date of $0.05 per share as reported on
such  date  by the  Nasdaq  Over-The-Counter  Bulletin  Board.  In  making  this
calculation,  the  Registrant  has  assumed,  without  admitting  for any  other
purpose,  that all  executive  officers  and  directors  of the  Registrant  are
affiliates.

As of March 23,  2005,  the  Registrant  had  85,860,249  shares of common stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      PART III  incorporates  information  by  reference  from the  Registrant's
definitive  Proxy  Statement for its 2005 Annual Meeting of  Stockholders  to be
filed with the Commission within 120 days of December 31, 2004.

                                EXPLANATORY NOTE

This Form  10-K/A #2 (the  "Amendment")  amends our Form 10-K for the year ended
December 31, 2004,  which was filed with the Securities and Exchange  Commission
on April 18, 2005 (the "Original  Filing").  We are filing this Form 10-KSB/A to
amend the Financial Statements.

In  connection  with the  filing of this Form  10-K/A #2 and  pursuant  to Rules
13a-14(a)  or  15d-14(a)  under  the  Securities  Exchange  Act of 1934,  we are
including with this Form 10-K/A #2 certain currently dated certifications.

This  Amendment  does not reflect  events  occurring  after the Original  Filing
except as noted above. Except for the foregoing amended  information,  this Form
10-K/A  #2  continues  to speak as of the date of the  Original  Filing  and the
Company has not otherwise  updated  disclosures  contained  therein or herein to
reflect events that occurred at a later date.



<PAGE>
<TABLE>
<CAPTION>


<S>                                                                              <C>


                                TABLE OF CONTENTS                                Page
                                                                                 ----


PART I


Item 1.   Business                                                                1


Item 2.  Properties                                                               10


Item 3.  Legal Proceedings.                                                       10


Item 4.  Submission of Matters to a Vote of Security Holders                      11


PART II


Item 5. Market for Registrant's Common Equity,  Related Stockholder Matters, and
Issuer Purchase of Equity Securities                                              11


Item 6.  Selected Financial Data                                                  12


Item 7. Management's  Discussion and Analysis of Financial Condition and Results  12
of Operations


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk              21


Item 8.  Financial Statements and Supplementary Data                              22


Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure                                                              22


Item 9A.  Controls and Procedures                                                 22


Item 9B.  Other Information                                                       22


PART III


Item 10.  Directors and Executive Officers of the Registrant                      22


Item 11.  Executive Compensation                                                  25


Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters                                                       28


Item 13.  Certain Relationships and Related Transactions                          29


Item 14.  Principal Accountant Fees and Services                                  30


PART IV

Item 15.  Exhibits, Financial Statements Schedules and Reports on Form 8-K        30

SIGNATURES                                                                        32

NOTE: Unless otherwise  designated,  all dollar amounts are in $000s, except per
share amounts.

</TABLE>


<PAGE>




                                     PART I

FORWARD LOOKING STATEMENTS

We  believe  that  it is  important  to  communicate  our  expectations  to  our
investors.  Accordingly,  this report contains  discussions of events or results
that have not yet  occurred  or been  realized.  You can  identify  this type of
discussion,  which is often termed "forward-looking  statements",  by such words
and   phrases  as  "will",   "explore",   "consider",   "continue",   "expects",
"anticipates",  "intends", "plans", "believes",  "estimates" and "could be". You
should read forward-looking statements carefully because they discuss our future
expectations,  contain projections of our future results of operations or of our
financial position, or state other expectations of future performance. There may
be events in the future that we are not able  accurately  to predict or control.
Any cautionary language in this report provides examples of risks, uncertainties
and events that may cause our actual results to differ from the  expectations we
express  in our  forward-looking  statements.  You  should  be  aware  that  the
occurrence  of certain of the events  described in this report  could  adversely
affect our business, results of operations and financial position.

These forward looking statements are based on information available to us on the
date hereof,  and we assume no  obligation  to update any such  forward  looking
statement. It is important to note that our actual results and timing of certain
events could differ materially from those in such forward looking statements due
to a number of  factors,  including  but not  limited  to, the  ability to raise
capital  necessary to sustain  operations  and implement the business  plan, the
ability to obtain additional  regulatory permits and approvals to operate in the
financial  services area, the ability to identify and complete  acquisitions and
successfully integrate acquired businesses, if any, the ability to implement our
business plan, changes in the real estate market,  interest rates or the general
economy of the  markets in which we  operate,  the  ability to employ and retain
qualified management and employees,  changes in government  regulations that are
applicable to our businesses,  the general volatility of the capital markets and
the  establishment  of a market  for our  shares,  changes in the demand for our
services,  our  ability  to meet our  projections,  the  degree  and  nature  of
competitors,  the  ability to generate  sufficient  cash to pay  creditors,  and
disruption in the economic and financial conditions primarily from the impact of
past terrorist attacks in the United States,  threats of future attacks,  police
and  military  activities  overseas  and other  disruptive  worldwide  political
events.  Other risk factors that could cause actual results to differ materially
are set forth in this item under the heading "Management Discussion and Analysis
of Financial Condition and Results of Operations -- Overview" on page 15.

ITEM 1. BUSINESS.

General
-------

We are a financial  services company focused on acquiring  mortgage  origination
companies that broker mortgage  products in the one-to-four  family  residential
mortgage market.  We focus primarily on offering  mortgage products to borrowers
who generally satisfy the credit,  documentation or other underwriting standards
prescribed by conventional  mortgage lenders and loan buyers, such as Fannie Mae
and Freddie Mac (referred to as conforming  loans).  We originate these loans in
accordance  with the  underwriting  guidelines  of those  lenders.  We currently
conduct business in 2 states.  Our executive  offices are located in Ponte Vedra
Beach,  Florida.  We were incorporated in Delaware in August 1999 under the name
PRX Holdings, Inc. Our mortgage operations were acquired by us in January 2003.

Our mortgage  loan  origination  business is comprised of 19 loan  officers.  We
broker the loans we originate to third party lenders.  In 2003, we placed 85% of
the mortgages we brokered with 2 particular lenders to receive the highest level
of execution.  Until January 2005, our loan officers were based in Florida,  and
100% of our brokered loan volume relates to real property located in Florida.

In  2004,  82.7% of the  loans  that we  originated  were  for the  purchase  of
residential  property and 17.3% were refinances of existing mortgages.  In 2003,
84.6% of the loans  that we  originated  were for the  purchase  of  residential
property and 15.4% were refinances of existing mortgages.  In 2004 and 2003, all
of the loans we originated were secured by owner-occupied properties.

                                       1
<PAGE>





Company History

We  originally  operated  as an  online  healthcare  destination  under the name
PlanetRX.com.  In mid-2001 we began the process of liquidating our online health
store and seeking a merger partner as an alternative to complete liquidation.

On May 31, 2002, the Company  merged with Paragon  Homefunding,  Inc.  ("Paragon
Delaware"),  a privately  held  development  stage  company based in Ponte Vedra
Beach, Florida, formed for the purpose of entering the financial services market
through acquisitions. Paragon Delaware was incorporated in Delaware on August 3,
2001. For financial reporting  purposes,  the merger has been accounted for as a
recapitalization  of  Paragon  Delaware  with  Paragon  Delaware  viewed  as the
accounting   acquiror  in  what  is  commonly  called  a  reverse   acquisition.
Accordingly,  the financial  statements presented before the merger are those of
Paragon Delaware.

As a result of the merger, a new board of directors was elected and new officers
were appointed.  On December 26, 2002, we changed our name to Paragon  Financial
Corporation ("PFC").

On January 31, 2003, we completed our acquisition of Mortgage Express, Inc. (now
known as PGNF Home Lending Corp.) ("PGNF").  PGNF was a mortgage bank focused on
the wholesale  sub-prime  credit  market.  On May 31, 2004, we divested PGNF and
exited the mortgage banking business.  PGNF is shown as discontinued  operations
in the "Management Discussion and Analysis of Financial Condition and Results of
Operations"  beginning on page 15, our  financial  statements  beginning on page
F-1, and elsewhere in this Form 10-K.

On February 4, 2003, we completed the acquisition of Paragon  Homefunding,  Inc.
("PHF"), a Florida  corporation focused primarily on the brokering of conforming
loans.  PHF represents our continuing  operations in the "Management  Discussion
and Analysis of Financial Condition and Results of Operations" beginning on page
15, our financial  statements  beginning on page F-1, and elsewhere in this Form
10-K.

On January 19, 2005, we completed the acquisition of First  Charleston  Mortgage
LLC ("FCM"), a South Carolina limited liability company focused primarily on the
brokering of conforming loans.

Growth and Operating Strategies

We plan to pursue  several  strategies  to increase  revenue and  profitability.
These  strategies   include:   (i)  increasing  loan  origination  volume,  (ii)
streamlining  business  processes  through the deployment of  technology,  (iii)
diversifying product offerings, and (iv) pursuing acquisitions.

The key tactics for pursuing these strategies include:
-        Increasing  loan  origination   volume:  We  intend  to  increase  loan
         origination  volume through  geographic  expansion on the East and West
         Coasts as well as increase market  penetration in existing markets.  We
         plan to  continue  to grow our  production  volume and market  share by
         growing our branch network of wholly-owned brokers.

-        Streamlining  business  processes through the deployment of technology:
         We intend to continue our best  practices  initiative to streamline our
         business  processes and use  technology to drive loan  origination  and
         administrative costs lower and provide better service to our customers.

-        Diversifying  product  offerings:  We plan to develop a broad  range of
         products that are  desirable in the markets that we compete.  We intend
         to underwrite these products to our own underwriting guidelines.

-        Pursuing  acquisitions:  We intend  to  pursue  an  active  acquisition
         strategy of accretive acquisitions of mortgage brokerage firms. We will
         also  evaluate  and  pursue  other  new  business   opportunities   and
         relationships  in  the  marketplace  in  businesses  ancillary  to  our
         mortgage origination business.

                                       2

<PAGE>




Product Types

We broker a broad range of mortgage  products that include both fixed-rate loans
and adjustable-rate loans, or ARMs. In addition, these products are available at
different  interest rates and with different  origination and application points
and fees depending on the particular  borrower's risk classification.  Borrowers
may choose to increase or decrease  their  interest  rate through the payment of
different levels of origination  fees. The maximum loan amount is generally $500
with a  loan-to-value  ratio of up to 80%. We do,  however,  broker larger loans
with higher  loan-to-value  ratios  through  special jumbo  programs  offered by
lenders. During 2004, the average loan amount was approximately $167 compared to
$145 in 2003.

Loan Originations

We originate  loans directly to consumers  through our loan officers  located in
our offices in Florida and South  Carolina.  Leads are generated  through radio,
direct mail, referrals and the internet.  We originated a total of $86.4 million
in mortgage  loans for the twelve  months ended  December  31, 2004  compared to
$79.9 million for the eleven month period that we owned PHF in 2003.

Geographic Distribution

In 2004  and  2003,  all of our  mortgage  loans  originated  by our  continuing
operations were originated by PHF in Florida.

Competition

We continue to face intense competition in the business of originating  mortgage
loans.  Our competitors  include other mortgage  brokering  companies,  mortgage
banking companies, consumer finance companies,  commercial banks, credit unions,
thrift  institutions,  credit card  issuers  and  insurance  finance  companies.
Federally  chartered  banks and thrifts can preempt  some of the state and local
lending  laws  to  which  we are  subject,  thereby  giving  them a  competitive
advantage.  In addition,  many of these  competitors have  considerably  greater
technical and  marketing  resources  than we have.  Competition  among  industry
participants  can take many forms,  including  convenience  in obtaining a loan,
customer service,  marketing and distribution  channels,  amount and term of the
loan, loan origination fees and interest rates. Additional competition may lower
the rates we can charge borrowers,  thereby potentially  lowering gain on future
loan sales.

Regulation

Our business is regulated by federal,  state, and local  government  authorities
and  is  subject  to  extensive  federal,   state  and  local  laws,  rules  and
regulations.  We are also subject to judicial and administrative  decisions that
impose  requirements  and  restrictions  on our business.  At the federal level,
these laws and regulations  include the: Equal Credit  Opportunity  Act; Federal
Truth and Lending Act and  Regulation Z; Home  Ownership  and Equity  Protection
Act; Real Estate Settlement Procedures Act; Fair Credit Reporting Act; Fair Debt
Collection  Practices  Act;  Home  Mortgage  Disclosure  Act;  Fair Housing Act;
Telephone  Consumer  Protection Act;  Gramm-Leach-Bliley  Act; Fair and Accurate
Credit Transactions Act; CAN-SPAM Act; Sarbanes-Oxley Act; and USA PATRIOT Act.

These  laws,  rules  and  regulations,  among  other  things:  impose  licensing
obligations and financial  requirements on us; limit the interest rates, finance
charges,  and other fees that we may  charge;  prohibit  discrimination;  impose
underwriting requirements; mandate disclosures and notices to consumers; mandate
the  collection  and reporting of  statistical  data  regarding  our  customers;
regulate  our  marketing  techniques  and  practices;  require  us to  safeguard
non-public  information about our customers;  regulate our collection practices;
require  us  to  prevent  money-laundering  or  doing  business  with  suspected
terrorists;  and impose  corporate  governance,  internal  control and financial
reporting obligations and standards.

                                       3
<PAGE>





Our failure to comply with these laws can lead to: civil and criminal liability;
loss of approved status;  demands for  indemnification  or loan repurchases from
buyers of our loans;  class  action  lawsuits;  and  administrative  enforcement
actions.

Compliance, Quality Control and Quality Assurance

We regularly  monitor the laws, rules and regulations that apply to our business
and analyze any changes to them.  We also  maintain  policies and  procedures to
help our origination personnel comply with these laws.

Our training  programs are designed to teach our personnel about the significant
laws,  rules and  regulations  that affect their job  responsibilities.  We also
maintain a variety of pre-funding  quality control procedures designed to detect
compliance errors prior to brokering a loan.

Licensing

As of March 31, 2005, we were  licensed to originate  mortgages in the states of
Florida and South Carolina.

Environmental

In the course of our business, we may acquire properties securing loans that are
in default. There is a risk that hazardous or toxic waste could be found on such
properties.  If this occurs,  we could be held responsible  under applicable law
for the cost of cleaning up or removing  the  hazardous  waste.  This cost could
exceed the value of the underlying properties.

Employees

The table below presents our employees at March 15, 2005:
                  Loan officers                                19
                  Loan processors                               4
                  Administrative personnel                      6
                  Corporate                                     2
                                                     ------------
                  Total                                        31
                                                     ------------


Available Information

Through our  website  (www.pgnf.com),  we make  available,  free of charge,  our
annual reports on Form 10-K,  quarterly reports on Form 10-Q, current reports on
Form 8-K,  Section 16 reports  and any  amendments  to those  reports as soon as
reasonably practicable after such reports or amendments are electronically filed
with or furnished to the Securities and Exchange Commission.

Risk Factors

Stockholders  and  prospective  purchasers of our common stock should  carefully
consider the risks  described  below before  making a decision to buy our common
stock.  If any of the following  risks  actually  occurs,  our business could be
harmed.  In that case, the trading price of our common stock could decline,  and
you may lose all or part of your investment. When determining whether to buy our
common stock,  stockholders and prospective  purchasers should also refer to the
other information in this Form 10-K,  including our financial statements and the
related notes.

                                       4
<PAGE>





We have incurred losses since our inception.
As shown in the accompanying consolidated financial statements beginning on page
F-1, we incurred a net loss of $5,897 for the year ended  December  31, 2004 and
cumulative  losses of $9,861 since our inception  (August 3, 2001).  At December
31, 2004,  our  liabilities  exceeded our assets by $2,948.  These factors raise
substantial  doubt  about  our  ability  to  continue  as a going  concern.  Our
continued existence depends on a number of factors, including but not limited to
our ability to originate loans profitably, to secure adequate sources of capital
and to locate and fund acquisitions of suitable companies. However, there can be
no assurance that we will be successful in our endeavors and be able to continue
as a going concern.

Risks Related to Our Business

An increase in interest  rates could result in a reduction in our loan brokerage
volumes,  an increase in first  payment  defaults  on loans we  brokered,  and a
reduction in the revenue per loan brokered.

The  following  are some of the risks we face related to an increase in interest
rates:
-        A substantial  and sustained  increase in interest rates could harm our
         ability to originate  loans because  refinancing an existing loan would
         be less  attractive  and  qualifying  for a  purchase  loan may be more
         difficult; and

-        If prevailing interest rates increase after we receive a commitment to
         fund a loan, the value that we receive upon brokering of the loan
         decreases.

Our  business  may be  significantly  harmed by a  slowdown  in the  economy  of
Florida,  where  we  conduct  a  significant  amount  of  business.   Since  the
acquisition  of PHF,  most of the  mortgage  loans we have  brokered  have  been
secured by  property  in the state of  Florida.  A decline in the economy or the
residential  real estate market in Florida could  restrict our ability to broker
loans, and significantly harm our business,  financial condition,  liquidity and
results of operations.

Our  business  may be  significantly  harmed by the weather in markets  where we
conduct a significant  amount of business.  In 2004,  our PHF  subsidiary  saw a
significant  reduction in mortgage loans due to the hurricanes that affected the
state of Florida.  Hurricanes  and other natural  phenomena  could hurt the real
estate markets in which we operate and restrict our ability to originate  loans.
This would significantly harm our business,  financial condition,  liquidity and
results of operations.

We face intense competition that could adversely impact our market share and our
revenue.

We face  intense  competition  from  other  financial  and  mortgage  companies,
internet-based  lending  companies  where entry barriers are relatively low, and
from traditional bank and thrift lenders to the mortgage industry. As we seek to
expand our business  further,  we will face a  significant  number of additional
competitors,  many of whom will be  well-established  in the  markets we seek to
penetrate.   Some  of  our  competitors  are  much  larger,   have  better  name
recognition, and have far greater financial and other resources than us.

                                       5

<PAGE>




The government-sponsored  entities Fannie Mae and Freddie Mac are also expanding
their  participation  in  the  mortgage  industry.  These   government-sponsored
entities have a size and  cost-of-funds  advantage  that allows them to purchase
loans  with  lower  rates  or fees  than we are  willing  to  offer.  While  the
government-sponsored  entities  presently  do not have the  legal  authority  to
originate  mortgage  loans,  they do have the authority to buy loans. A material
expansion of their  involvement in the market to purchase loans could change the
dynamics of the  industry by virtue of their sheer size,  pricing  power and the
inherent  advantages  of a government  charter.  In addition,  if as a result of
their  purchasing  practices,  these  government-sponsored  entities  experience
significantly  higher-than-expected  losses,  such  experience  could  adversely
affect the overall  investor  perception of the mortgage  industry.  The intense
competition  in the  mortgage  industry  has  also  led to  rapid  technological
developments,  evolving industry standards and frequent releases of new products
and  enhancements.   As  mortgage  products  are  offered  more  widely  through
alternative  distribution channels,  such as the internet, we may be required to
make  significant  changes to our  current  retail  operations  and  information
systems to compete effectively.  Our inability to continue enhancing our current
capabilities,  or to adapt to other technological changes in the industry, could
significantly harm our business,  financial condition,  liquidity and results of
operations.

Competition  in the industry can take many forms,  including  interest rates and
costs of a loan, less stringent underwriting standards, convenience in obtaining
a  loan,  customer  service,  amount  and  term  of a  loan  and  marketing  and
distribution  channels.  The  need to  maintain  mortgage  loan  volume  in this
competitive  environment  creates a risk of price  competition  in the  mortgage
industry.  Price  competition could cause us to lower the interest rates that we
offer  borrowers,  which could lower the value of our loans.  If our competitors
adopt less  stringent  underwriting  standards  we will be pressured to do so as
well, which would result in greater loan risk without  compensating  pricing. If
we do not relax  underwriting  standards in response to our competitors,  we may
lose market  share.  Any increase in these  pricing and  underwriting  pressures
could  reduce the volume of our loan  originations  and sales and  significantly
harm our business, financial condition, liquidity and results of operations.

Defective loans may harm our business.

In connection  with the  origination of loans, we are required to make a variety
of customary  representations  and warranties  regarding the loans we originate,
primarily related to fraud on the application and first payment defaults.  These
representations  and warranties  relate to, among other things,  compliance with
laws; regulations and underwriting standards; the accuracy of information in the
loan documents and loan file; and the  characteristics and enforceability of the
loan.

We are subject to losses due to  fraudulent  and  negligent  acts on the part of
loan applicants, mortgage brokers, other vendors and our employees.

When we originate  mortgage loans, we rely heavily upon information  supplied by
third  parties  including  the  information  contained  in the loan  application
regarding   employment  and  income  history,   property   appraisal  and  title
information.  Whether a  misrepresentation  is made by the loan  applicant,  the
mortgage broker, another third party or one of our own employees,  we often bear
the risk of loss associated with the misrepresentation.  Even though we may have
rights   against   persons   and   entities   who   made  or  knew   about   the
misrepresentation,  such persons and entities are often  difficult to locate and
it is often  difficult to collect any monetary losses that we have suffered from
them.

Although we have  controls and  processes in place that are designed to identify
misrepresented  information in our loan origination operations, we cannot assure
you that we have detected or will detect all  misrepresented  information in our
loan  originations.  If we experience a significant number of such fraudulent or
negligent  acts,  our business,  financial  condition,  liquidity and results of
operations could be significantly harmed.

                                       6

<PAGE>




The inability to attract and retain qualified employees could significantly harm
our business.

We depend upon our loan officers to attract  borrowers,  by, among other things,
developing relationships with financial institutions,  other mortgage companies,
real estate agents,  borrowers and others.  We believe that these  relationships
lead to repeat and referral business.  The market for skilled executive officers
and loan officers is highly  competitive and historically has experienced a high
rate of  turnover.  In  addition,  if a manager  leaves our  company  there is a
likelihood  that other members of his or her team will follow.  Competition  for
qualified loan officers may lead to increased  hiring and retention  costs.  Our
inability to attract or retain a sufficient  number of skilled loan officers and
other key employees at manageable costs could harm our business.

If we do not manage our growth effectively,  our financial  performance could be
harmed.

We have  experienced  substantial  changes and rapid  growth that place  certain
pressures  on  our   management,   administrative,   operational  and  financial
infrastructure.  We expect to  continue  to  experience  this rapid  growth both
organically and through acquisitions. The increase in the size of our operations
may make it more difficult for us to ensure that we originate  quality loans. We
will need to attract and hire  additional  sales and management  personnel in an
intensely  competitive  hiring environment in order to preserve and increase our
market share. We will also need to effectively  integrate our  acquisitions.  At
the same time,  we will need to continue  to upgrade  and expand our  financial,
operational and managerial systems and controls, which could require capital and
human resources beyond what we currently have. We cannot assure you that we will
be able to meet our capital needs; expand our systems effectively;  allocate our
human resources optimally; identify and hire qualified employees; or effectively
integrate acquired businesses to achieve growth.

The  failure  to  manage  growth or  integrate  acquisitions  effectively  would
significantly harm our business,  financial condition,  liquidity and results of
operations.

An  interruption  in or breach of our  information  systems  may  result in lost
business.

We rely  heavily  upon  communications  and  information  systems to conduct our
business.  As we implement  our growth  strategy and increase our volume of loan
production,  that reliance will increase.  Any failure or interruption or breach
in security of our information systems or the third-party information systems on
which we rely could cause underwriting or other delays and could result in fewer
loan applications being received,  slower processing of applications and reduced
efficiency  in loan  servicing.  We  cannot  assure  you that such  failures  or
interruptions  will not occur or if they do occur  that they will be  adequately
addressed by us or the third  parties on which we rely.  The  occurrence  of any
failures or interruptions could significantly harm our business.

The success and growth of our business  will depend upon our ability to adapt to
and implement  technological  changes. Our mortgage loan origination business is
currently dependent upon our ability to effectively  interface with our brokers,
borrowers and other third parties and to efficiently  process loan  applications
and  closings.   The  origination   process  is  becoming  more  dependent  upon
technological advancement,  such as the ability to process applications over the
Internet, accept electronic signatures, provide process status updates instantly
and other customer-expected conveniences that are cost-efficient to our process.
Implementing  this  new  technology  and  becoming  proficient  with it may also
require significant capital expenditures.  As these requirements increase in the
future, we will have to fully develop these technological capabilities to remain
competitive or our business will be significantly harmed.

Our  financial  results  fluctuate as a result of  seasonality  and other timing
factors, which makes it difficult to predict our future performance.

Our business is generally  subject to seasonal trends.  These trends reflect the
general  pattern of housing  sales,  which  typically peak during the spring and
summer seasons.  Our quarterly operating results have fluctuated in the past and
are expected to  fluctuate  in the future,  reflecting  the  seasonality  of the
industry.

                                       7
<PAGE>




In the future,  our hedging  strategies  may not be successful in mitigating our
risks  associated with interest rates.  Although we do not currently use various
derivative  financial  instruments  to  provide  a level of  protection  against
interest rate risks,  we may elect to do so in the future.  We cannot assure you
that our hedging strategy and the derivatives that we use will adequately offset
the risk of interest rate volatility or that our hedging  transactions  will not
result in losses.

Risks  Associated with Our Acquisition  Strategy There are risks associated with
our acquisition strategy.

We intend to continue to grow through internal expansion and by making selective
acquisitions  of small- to  medium-sized  mortgage  brokers.  We cannot  predict
whether we will be successful in pursuing  these  acquisitions  or whether these
acquisitions will provide us with positive  operating  results.  Consummation of
each acquisition is subject to various conditions, such as securing the approval
of state licensing  bodies.  Acquisitions may involve a number of specific risks
including adverse short-term effects on our results of operations, dilution from
issuances of our common  stock and strain on our  financial  and  administrative
infrastructure.

Our  acquisition  strategy  involves  numerous  other  risks,   including  risks
associated with:

-  Identifying   acquisition  candidates  and  negotiating  definitive  purchase
agreements  on  satisfactory  terms;  -  Conducting  adequate due  diligence;  -
Intergrating  operations,   personnel  and  management  information  systems;  -
Managing a growing and  geographically  diverse group of employees;  - Diverting
management's  attention  from other  business  concerns;  and - Competition  for
attractive  acquisition  candidates from other  acquirers.  We cannot be certain
that we will be able to  successfully  integrate our  acquisitions or manage the
resulting  business  effectively,  or that  any  acquisition  will  achieve  the
benefits  that we  anticipate.  In addition,  we are not certain that we will be
able to acquire companies at attractive  valuations.  Depending upon the nature,
size and timing of potential  future  acquisitions,  we may be required to raise
additional financing in order to consummate additional  acquisitions.  We cannot
assure you that our  existing  or future  financing  agreements  will permit the
necessary additional financing or that additional financing will be available to
us or,  if  available,  that  financing  would  be on  terms  acceptable  to our
management.  There are risks associated with our plan to use our common stock as
acquisition  consideration.  We expect to finance future acquisitions  primarily
through  issuing  shares  of  our  common  stock  for  all or a  portion  of the
consideration to be paid. In the event that our common stock does not maintain a
sufficient  market  value,  or potential  acquisition  candidates  are otherwise
unwilling to accept our common stock as part of the  consideration  for the sale
of  their  businesses,   our  ability  to  issue  common  stock  as  acquisition
consideration may be limited. In addition,  currently our stock is thinly traded
on the NASDAQ OTC Bulletin  Board.  This lack of liquidity may  discourage  some
acquisition   candidates   from   accepting  our  common  stock  as  acquisition
consideration.

                                       8
<PAGE>




Statutory and Regulatory Risks

The  multi-state  scope of our operations  exposes us to risks of  noncompliance
with an increasing and inconsistent  body of complex laws and regulations at the
federal, state and local levels.

We are currently licensed or exempt from licensing,  in 2 states and must comply
with the laws and regulations, as well as judicial and administrative decisions,
of  these  jurisdictions,  as well as an  extensive  body of  federal  laws  and
regulations. The volume of new or modified laws and regulations has increased in
recent  years.  The laws and  regulations  of each of  these  jurisdictions  are
different,  complex and, in some cases,  in direct  conflict with each other. As
our  operations  continue  to  grow  to  include  other  states,  it may be more
difficult to comprehensively  identify,  to accurately interpret and to properly
program our technology  systems and effectively train our personnel with respect
to all of  these  laws  and  regulations,  thereby  potentially  increasing  our
exposure  to the  risks  of  noncompliance  with  these  laws  and  regulations.
Increased regulation would result in increased compliance costs.

Our failure to comply with these laws can lead to civil and criminal  liability;
loss of our  licenses  and right to do  business in the  various  states;  class
action lawsuits; and administrative enforcement actions.

Several  federal,  state and local laws and regulations have been adopted or are
under  consideration   intended  to  eliminate  so-called   "predatory"  lending
practices.  Many of these laws and  regulations  impose  broad  restrictions  on
certain commonly  accepted lending  practices,  including some of our practices.
There can be no assurance that these proposed laws,  rules and  regulations,  or
other similar  laws,  rules or  regulations,  will not be adopted in the future.
Adoption of these laws and regulations  could have a material  adverse impact on
our business by substantially  increasing the costs of compliance with a variety
of inconsistent federal, state and local rules, or by restricting our ability to
charge rates and fees  adequate to compensate  us for the risk  associated  with
certain loans.

The  increased  governmental  scrutiny  of Fannie Mae and  Freddie  Mac may also
result in regulatory  changes and oversight  which may have an adverse impact on
the industry generally, and in turn have a negative effect on our business.

Stockholder  refusal to comply with regulatory  requirements  may interfere with
our ability to do business  in certain  states.  Some states in which we operate
may impose  regulatory  requirements  on our officers and  directors and persons
holding  certain  amounts of our common  stock,  usually 10% holders.  If any of
these  persons  fails to meet or  refuses  to comply  with a state's  applicable
regulatory  requirements  for licensing,  we could lose our authority to conduct
business in that state.

We may be unable to compete  effectively  with financial  institutions  that are
exempt from certain state  restrictions.  Certain federally  chartered financial
institutions  are  exempt  from the state laws to which we are  subject  and may
operate more  effectively  under the federal laws that govern their  operations.
The increasing number of federal, state and local "anti-predatory  lending" laws
may restrict  our ability to  originate  or increase our risk of liability  with
respect to certain mortgage loans and could increase our cost of doing business.

The continued enactment of these laws, rules and regulations may prevent us from
making  certain  loans and may cause us to reduce the APR or the points and fees
on loans that we do make.  If nothing  else,  the growing  number of these laws,
rules  and  regulations  will  increase  our  cost of doing  business  as we are
required to develop  systems and procedures to ensure that we do not violate any
aspect of these new requirements.  Any of the foregoing could significantly harm
our business, financial condition, liquidity and results of operations.

                                       9
<PAGE>




ITEM 2. PROPERTIES

Our executive  office is located at 2207  Sawgrass  Village  Drive,  Ponte Vedra
Beach,  Florida.  We presently occupy  approximately 348 square feet of space at
this location and pay no annual rent on our executive office.

Our PHF subsidiary occupies approximately 2,500 square feet in Maitland, Florida
under a lease  expiring  March  31,  2006.  The  annual  rent on our  office  in
Maitland, Florida is $52, with an escalator clause based on CPI.

ITEM 3. LEGAL PROCEEDINGS

On September 24, 2004, the Company  defaulted on its promissory  note dated June
4, 2003 to Bank of America, N.A. ("BoA") being unable to repay this note in full
when demanded to do so by BoA. BoA commenced  legal action  against us and other
guarantors of the indebtedness  for repayment.  On December 13, 2004, we entered
into a standstill  agreement with BoA whereby, for a principal reduction payment
of $25 and the payment of an  extension  fee and BoA's legal fees,  the maturity
date of the note was  extended  to  December  1,  2005,  the  interest  rate was
increased  to the bank's prime rate plus 4%, and  requires  principal  reduction
payments of $5 per month through November 1, 2005.

On October 15, 2004, we were served with a summons on an eviction  action of our
executive offices by our landlord seeking unpaid rent and other damages of $268.
We agreed to vacate the office space we occupied in  forgiveness of unpaid rents
under the lease and forfeiture of our deposit of $25. Based upon this agreement,
the action was dismissed with prejudice.

In mid-2001,  the Company, and certain of its former directors and officers were
named as  defendants  in class  action  complaints  alleging  violations  of the
federal  securities  laws in the United States  District  Court for the Southern
District of New York.  In  mid-2002,  the  complaints  against the Company  were
consolidated into a single action.

The essence of the  complaint is that in connection  with the Company's  initial
public  offering in October 1999  ("IPO"),  the  defendants  issued and sold the
Company's  common  stock  pursuant  to a  registration  statement  which did not
disclose to investors  that certain  underwriters  in the offering had solicited
and received  excessive  and  undisclosed  commissions  from  certain  investors
acquiring the Company's  common stock in connection  with the IPO. The complaint
also  alleges  that the  registration  statement  failed  to  disclose  that the
underwriters   allocated   Company  shares  in  the  IPO  to  customers  of  the
underwriters  in exchange  for the  customers'  promises to purchase  additional
shares in the  aftermarket  at  pre-determined  prices above the IPO price.  The
action seeks damages in an unspecified amount.

The action is being  coordinated with  approximately  300 other nearly identical
actions filed  against  other  companies  that had initial  public  offerings of
securities between 1997 and 2000 same time period.

The Company  has  approved a  Memorandum  of  Understanding  ("MOU") and related
agreements  which set forth the terms of a settlement  between the Company,  the
plaintiff  class and the vast  majority  of the other  approximately  300 issuer
defendants.  Among other  provisions,  the  settlement  contemplated  by the MOU
provides  for a release of the Company  and the  individual  defendants  for the
conduct  alleged  in the  action to be  wrongful.  The  Company  would  agree to
undertake  certain  responsibilities,  including  agreeing to assign  away,  not
assert,  or release  certain  potential  claims the Company may have against its
underwriters.

It is  anticipated  that any  potential  financial  obligation of the Company to
plaintiffs  pursuant  to the  terms of the MOU and  related  agreements  will be
covered by existing insurance.  Therefore,  the Company does not expect that the
settlement  will  involve  any  payment  by the  Company.  The MOU  and  related
agreements are subject to a number of  contingencies,  including the negotiation
of a settlement  agreement and its approval by the Court.  We cannot opine as to
whether  or when a  settlement  will occur or be  finalized.  Whether or not the
settlement is ultimately approved, we believe the resolution of this matter will
not have a material adverse effect on the Company.

                                       10

<PAGE>




We are also party to  various  legal  proceedings  arising  out of the  ordinary
course of our business.  Management  believes that any liability with respect to
these legal actions,  individually or in the aggregate, will not have a material
adverse effect on our consolidated financial position and results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters  submitted to a vote of security holders during the fourth
quarter of 2004.
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades in the over-the-counter  market and is quoted on the OTC
Bulletin  Board under the symbol PGNF. As of March 23, 2005,  we had  85,860,249
shares of common stock issued and outstanding, respectively.

The following table sets forth, for the periods indicated,  the high and low bid
prices per share of our common stock as quoted on the OTC Bulletin Board.

<TABLE>
<CAPTION>
<S>                                                                          <C>      <C>

                                                                              High     Low
                                                                              ----     ---

                                   2005

1st Quarter through March 23, 2005                                           $ 0.09   $ 0.03

                                   2004

4th Quarter                                                                  $ 0.17   $ 0.04

3rd Quarter                                                                  $ 0.15   $ 0.04

2nd Quarter                                                                  $ 0.14   $ 0.04

1st Quarter                                                                  $ 0.34   $ 0.10

                                   2003

4th Quarter                                                                  $ 0.52   $ 0.15

3rd Quarter                                                                  $ 0.62   $ 0.44

2nd Quarter                                                                  $ 0.75   $ 0.45

1st Quarter                                                                  $ 0.80   $ 0.40


</TABLE>

Holders

As of March 23, 2005, we had  approximately  326  stockholders  of record.  Only
record  holders of shares held in "nominee" or street names are included in this
number.

Dividends

We have never declared or paid cash dividends on our common stock.  We intend to
retain  future  earnings,  if any,  for use in the  operations  of our  business
including working capital,  repayment of indebtedness,  capital expenditures and
general  corporate  purposes.  We do not anticipate paying any cash dividends on
our common stock in the foreseeable future.

                                       11

<PAGE>




Equity Compensation Plan Information

Information regarding our equity compensation plans,  including both stockholder
approved plans and non-stockholder approved plans, is included in Item 12.

Recent Sales of Unregistered Securities

During the fourth quarter of 2004, we issued 300,000 restricted shares valued at
$17 (or $0.06 per share) under our 2002 Equity Participation Plan to consultants
for services during the fourth quarter of 2004, 221,000 shares valued at $11 (or
$0.05 per share) to vendors in  settlement of certain  outstanding  obligations,
and 625,000 shares valued at $25 (or $0.04 per share) to a director for director
fees.

ITEM 6. SELECTED FINANCIAL DATA

The table below sets forth a summary of our results of operations  and financial
condition  as of and for the periods then ended for our  continuing  operations.
This  information  has been  derived  from our  audited  consolidated  financial
statements  contained  elsewhere in this report.  Such selected  financial  data
should be read in  conjunction  with those  financial  statements  and the notes
thereto and with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" also included elsewhere herein.

<TABLE>
<CAPTION>
<S>                                                     <C>         <C>         <C>         <C>


                                                         Twelve months ended December 31    Inception
                                                                                                to
                                                                                            December 31
                                                          2004        2003        2002         2001
                                                          ----        ----        ----         ----
Statement of operations data:

      Total revenues                                    $  2,034    $  1,964    $   --      $     --

      Total operating expenses                          $  3,712    $  4,066    $  2,337    $      225

      Interest expense                                  $    107    $    415    $      5    $     --

      Loss from continuing operations                   $ (2,358)   $ (1,680)   $ (2,342)   $     (225)

      Loss from continuing operations per common
         share                                          $  (0.03)   $  (0.01)   $  (0.04)   $    (0.01)


Balance sheet data:

      Total assets                                      $    257    $ 35,662    $    206    $     --

      Total liabilities                                 $  3,205    $ 27,686    $  1,074    $      197

      Stockholders' (deficit) equity                    $ (2,948)   $  7,976    $   (868)   $     (197)

      Tangible net worth                                $ (2,948)   $   (660)   $   (868)   $     (197)
</TABLE>

As mentioned  elsewhere,  prior to our  acquisitions  of PGNF and PHF, we were a
development stage enterprise and had no revenues.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  discussion and analysis of our financial condition and results of
operations  should  be read  in  conjunction  with  our  consolidated  financial
statements and related notes contained elsewhere herein.

                                       12

<PAGE>




General
-------

We are  headquartered  in Ponte Vedra Beach,  Florida and were  incorporated  in
Delaware in August  1999.  We are a financial  services  company  focused on the
acquisition of mortgage brokers in the one-to-four family  residential  mortgage
market. We conduct business in 3 states.

Overview
--------

Our business  relies on our ability to originate  mortgage loans at a reasonable
cost. The mortgage  industry is generally  subject to seasonal trends,  and loan
origination  volumes in our industry have  historically  fluctuated from year to
year and are  affected by such  external  factors as home  values,  the level of
consumer  debt and the  overall  condition  of the  economy.  In  addition,  the
premiums  we  receive  from  the  secondary  market  for  our  loans  have  also
fluctuated,  also  influenced by the overall  condition of the economy and, more
importantly,  the interest rate environment.  As a consequence,  the business of
originating and selling loans is cyclical.

Critical Accounting Policies
----------------------------

We have established  various accounting policies which govern the application of
accounting  principles generally accepted in the United States of America in the
preparation of our financial statements.  Certain accounting policies require us
to make significant estimates and assumptions that may have a material impact on
certain  assets  and  liabilities,  as well  as our  operating  results,  and we
consider these to be critical accounting policies. The estimates and assumptions
we use are based on historical  experience and other factors which we believe to
be reasonable under the circumstances. Actual results, particularly goodwill and
loss of our discontinued  segment,  could differ materially from these estimates
and  assumptions,  which could have a material  impact on the carrying  value of
assets and liabilities and our results of operations.

We  believe  the  following  critical   accounting  policies  require  the  most
significant  estimates and assumptions that are subject to significant change in
the preparation of our consolidated financial statements:

Origination Fees
----------------

Origination  fees are  comprised  of points and other fees  charged on  mortgage
loans  originated  by our loan  officers  and brokered  through  other banks and
financial  institutions.  Points and fees are primarily a function of the volume
of mortgage loans originated by our loan officers.

Loan Origination Costs
----------------------

We also measure and monitor the cost to originate our loans.  Such costs include
the points and fees we may pay to our loan officers, net of fees we receive from
borrowers,  plus our operating  expenses  associated  with the loan  origination
business.

Income Taxes
------------

We file a consolidated  federal income and combined state franchise tax returns.
We utilize the asset and liability method of accounting for income taxes,  under
which deferred taxes are recognized for the future tax consequences attributable
to the differences between the financial statement values of existing assets and
liabilities and their  respective tax bases. We measure  deferred tax assets and
liabilities  using enacted tax rates we expect to apply to taxable income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  We recognize the effect on deferred  taxes of a change in tax rates in
income in the period that includes the enactment date.

                                       13
<PAGE>





In  determining  the possible  realization  of deferred tax assets,  we consider
future  taxable income from the following  sources:  (a) the reversal of taxable
temporary  differences,  (b) future operations  exclusive of reversing temporary
differences,  and (c) tax  planning  strategies  that,  if  necessary,  would be
implemented  to  accelerate  taxable  income into periods in which net operating
losses might otherwise  expire.  Subsequent to the year ended December 31, 2004,
we  determined  to reduce the  carrying  value of  deferred  tax assets to $0 by
increasing  the deferred tax valuation  allowance  $414 (see Note 17 of Notes to
Consolidated Financial Statements).

Discontinued Operations
-----------------------

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets" (SFAS 144), a
component  classified  as held for sale is reported in  discontinued  operations
when the following  conditions are met: (a) the operations and cash flows of the
component have been (or will be) eliminated  from the ongoing  operations of the
entity as a result of the disposal  transaction and (b) the entity will not have
any significant  continuing involvement in the operations of the component after
the disposal  transaction.  In a period in which a component of an entity either
has been disposed of or is classified as held for sale, the income statement for
current and prior periods  reports the results of  operations of the  component,
including any gain or loss  recognized in accordance with SFAS 144 paragraph 37,
in  discontinued  operations.  The  results  of  discontinued  operations,  less
applicable income taxes (benefit), is reported as a separate component of income
before  extraordinary  items and the cumulative effect of accounting changes (if
applicable).  The assets and liabilities of a disposal group  classified as held
for  sale  is  presented   separately  in  the  asset  and  liability  sections,
respectively, of the statement of financial position.

Results of Operations
---------------------

Until our  acquisitions of PGNF and PHF, we were a development  stage enterprise
and had no revenues. The following table sets forth our results of operations as
a percentage of total revenues for our continuing operations for the years ended
December 31, 2004 and 2003:

<TABLE>
<CAPTION>
<S>                                                          <C>                   <C>


                                                               2004                  2003
                                                               ----                  ----
Revenue:

      Loan origination fees                                  100.0%                100.0%
                                                             ------                ------

            Total revenue                                    100.0%                100.0%

Expenses:

      Salaries, commissions, and benefits                     94.2%                128.2%

      Loan production costs                                    4.5%                  5.2%

      General and administrative expenses                     42.2%                 56.7%

      Impairment of goodwill                                  40.4%                   --
                                                               1.2%                 17.0%
                                                             ------                ------
            Total expenses                                   182.5%                207.1%
                                                             ------                ------

Operating loss                                               (82.5)%              (107.1)%

Other expense:

      Interest expense                                         5.3%                 21.1%

      Loss on sale of assets                                   0.7%                  0.0%

      Loss on disposal of segment                              5.0%                  0.0%
                                                             ------                ------
Loss from continuing operations before
   provision (benefit) for income taxes                      (93.5)%              (128.2)%

Provision (benefit) for income taxes                          22.4%                (42.7)
                                                             ------                ------
Net loss from continuing operations                         (115.9)%               (85.5)%
                                                             ======                ======
</TABLE>

                                       14
<PAGE>




Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Loan  Originations:  We originated  $86.4 million in mortgage loans for the year
ended  December 31, 2004 compared to $79.9  million for the year ended  December
31,  2003.  This  increase in loan  originations  was due  primarily to the loan
originations  in 2003  representing  only the  eleven  months  we owned  our PHF
subsidiary.

Revenues
--------

Revenue from loan closings.  Revenue from loan closings  increased $70, or 3.6%,
to $2,034 for the year ended  December 31, 2004  compared to $1,964 for the year
ended December 31, 2003.  These fees represent  points and other fees charged on
mortgage loans  originated by our loan  officers.  This increase in revenue from
loan  closings  is due  primarily  to the  revenue  from loan  closings  in 2003
representing  only the eleven months we owned our PHF  subsidiary.  Expressed in
terms as revenue per loan,  our revenues per loan  increased  $0.3,  or 9.4%, to
$3.9 per loan for the year ended December 31, 2004 compared to $3.6 per loan for
the year ended December 31, 2003.

Operating Expenses
------------------

Salaries, commissions and benefits. Salaries, commissions and benefits decreased
$601,  or 23.9%,  to $1,916 for the year ended  December  31,  2004  compared to
$2,517 for the year ended December 31, 2003.  This decrease was primarily due to
a reduction in salaries at our corporate  offices in the year ended December 31,
2004 compared to the year ended December 31, 2003.

Loan production costs. Loan production costs decreased $12, or 11.7%, to $91 for
the year ended  December 31, 2004  compared to $103 for the year ended  December
31, 2003. This decrease was due primarily to the higher pull through rate at our
PHF subsidiary and reductions in costs associated with originating  loans in the
year ended December 31, 2004 compared to December 31, 2003.

General  and  administrative  expenses.   General  and  administrative  expenses
decreased  $255, or 22.9%, to $858 for the year ended December 31, 2004 compared
to $1,113 for the year ended December 31, 2003.  This decrease was primarily due
to reduced  operating  expenses  resulting at our corporate  headquarters in the
year ended December 31, 2004 compared to the year ended December 31, 2003.

Impairment  of goodwill.  Subsequent  to the year ended  December  31, 2004,  we
recognized  an  impairment  charge  of $822 in  connection  with  the  value  of
goodwill. After the impairment charge, goodwill had a remaining book value of $0
(see Note 17 of Notes to the Consolidated Financial Statements).

Non-recurring  expenses.  Non-recurring expenses decreased by $308, or 92.5%, to
$25 for the year ended  December  31,  2004  compared to $333 for the year ended
December 31, 2003.  For the year ended  December  31,  2004,  the  non-recurring
expenses  relate to payments  made for  investment  banking  fees  related to an
unsuccessful  financing  effort.  For the year  ended  December  31,  2003,  the
non-recurring expenses relate to severance for our former CEO and for investment
banking fees and travel related to an unsuccessful financing effort.

Operating  loss. The operating  loss decreased by $424, or 20.2%,  to $1,678 for
the year ended  December 31, 2004 compared to $2,102 for the year ended December
31, 2003. This decrease was due primarily to factors discussed above.

Interest  expense.  Interest  expense  decreased $308, or 74.2%, to $107 for the
year ended  December 31, 2004  compared to $415 for the year ended  December 31,
2003.  This decrease was due primarily to the beneficial  conversion  feature of
our convertible  debentures  being  amortized into interest  expense in the year
ended December 31, 2003.

                                       15

<PAGE>




Loss on sale of  assets.  Loss on the sale of assets  was $15 for the year ended
December  31,  2004.  This  loss  related  to the sale of office  furniture  and
fixtures at our former  corporate office location as part of a settlement of our
lease obligation with the landlord.

Loss on disposal of segment.  Loss on the disposal of PGNF was $102 for the year
ended  December  31, 2004.  This  represents  the  non-cash  loss we incurred in
disposing of PGNF.

Provision  (benefit) for income taxes. The provision  (benefit) for income taxes
increased  $1,293 to an  expense of $456 for the year ended  December  31,  2004
compared  to a benefit of $(837)  for the year ended  December  31,  2003.  This
increase  was  primarily  due to  state  income  taxes  applicable  to  our  PHF
subsidiary in 2004,  which were not offset by our loss at our corporate  office,
and the  recognition of an increase of $708 in the deferred tax asset  valuation
allowance.

Net loss from continuing  operations.  The net loss from  continuing  operations
increased  by $678,  or 40.4%,  to $2,358 for the year ended  December  31, 2004
compared to $1,680 for the year ended  December  31,  2003.  This  increase  was
primarily due to $822 in impairment expense offset by the decreases in expenses,
and increased deferred taxes, as discussed above.

Loss  from  discontinued  operations.  The  loss  from  discontinued  operations
increased  $3,822,  or 1,350.5%,  to $3,539 for the year ended December 31, 2004
compared  to income  from  discontinued  operations  of $283 for the year  ended
December 31, 2003. This decrease  relates  primarily to an impairment  charge of
$2,582 on the goodwill  associated  with the acquisition of PGNF incurred in the
year ended December 31, 2004.

Net loss. The net loss increased $4,500, or 322.1%, to $5,897 for the year ended
December 31, 2004 compared to $1,397 for the year ended December 31, 2003.  This
increase was due to the factors discussed above.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Loan Originations:  During the eleven months we owned PHF in 2003, it originated
$79.9 million in mortgage loans.

Revenues
--------

Revenue from loan closings.  Revenue from loan closings were $1,964 for the year
ended December 31, 2003.  These fees represent  points and other fees charged on
mortgage loans  originated by our loan officers.  The revenue from loan closings
represents  only the  eleven  months we owned our PHF  subsidiary.  For the year
ended  December  31,  2002,  we  were a  development  stage  company  and had no
revenues.

Operating Expenses
------------------

Salaries, commissions and benefits. Salaries, commissions and benefits increased
$749,  or 42.4%,  to $2,517 for the year ended  December  31,  2003  compared to
$1,768  for the year ended  December  31,  2002.  This  increase  was due to the
inclusion of the salaries,  commission  and benefits paid by our PHF  subsidiary
acquired on February 4, 2003 for the year ended December 31, 2003.

Loan  production  costs.  Loan  production  costs  were $103 for the year  ended
December 31, 2003.  These costs relate to costs  incurred to originate  mortgage
loans by our PHF subsidiary acquired February 4, 2003.

General  and  administrative  expenses.   General  and  administrative  expenses
increased  $544,  or 95.6%,  to $1,113  for the year  ended  December  31,  2003
compared to $569 for the year ended December 31, 2002.  This increase was due to
a $330 increase in our operating expenses at our corporate headquarters and $214
in operating expenses for our PHF subsidiary acquired on February 4, 2003.

                                       16
<PAGE>





Non-recurring  expenses.  Non-recurring  expenses  were $333 for the year  ended
December  31, 2003 and consist of $240 in  severance  for our former CEO and $93
related  to  investment  banking  fees and  travel  related  to an  unsuccessful
financing effort.

Operating  loss. The operating  loss decreased by $235, or 10.1%,  to $2,102 for
the year ended  December 31, 2003 compared to $2,337 for the year ended December
31, 2002. This decrease was due primarily to factors discussed above.

Interest expense.  Interest expense increased $410, or 8200.0%,  to $415 for the
year ended  December  31, 2003  compared to $5 for the year ended  December  31,
2002.  This increase was due primarily to the beneficial  conversion  feature of
our convertible  debentures  being  amortized into interest  expense in the year
ended December 31, 2003.

Benefit for income  taxes.  Benefit for income taxes was $837 for the year ended
December 31, 2003  compared to $0 for the year ended  December  31,  2002.  This
increase  was due to our not  providing a tax benefit  related to net  operating
losses suffered in 2002 since we were a development stage company.

Net loss from continuing  operations.  The net loss from  continuing  operations
decreased  $662,  or 28.3%,  to $1,680  for the year  ended  December  31,  2003
compared to $2,342 for the year ended  December  31,  2002.  This  decrease  was
primarily due to the factors discussed above.

Income from discontinued operations. The income from discontinued operations was
$283 for the year  ended  December  31,  2003 and  relates  to our  former  PGNF
subsidiary  disposed of on May 31,  2004.  PGNF was acquired on January 31, 2003
and was included in the results of our operations from that date.

Net loss.  The net loss decreased  $945, or 40.4%,  to $1,397 for the year ended
December 31, 2003 compared to $2,342 for the year ended December 31, 2002.  This
decrease was due to the factors discussed above.

Quarterly Results
-----------------

Set forth below is certain  unaudited  quarterly  financial data for each of our
last eight quarters.  The information has been derived from unaudited  financial
statements  that,  in  the  opinion  of  management,   include  all  adjustments
(consisting  only of normal recurring  adjustments)  necessary to fairly present
such quarterly  information in accordance  with  generally  accepted  accounting
principles. The operating results for any quarter are not necessarily indicative
of the results to be expected for any future period.


<TABLE>
<CAPTION>
<S>                                                                        <C>        <C>       <C>       <C>


                                                                                Year Ended December 31, 2004
                                                                            (in thousands, except per share amount)

                                                                            First     Second     Third     Fourth
                                                                           Quarter    Quarter   Quarter   Quarter
                                                                           -------    -------   -------   -------



Revenue                                                                    $   582    $   637   $   479   $    336

Total operating expenses                                                   $ 1,043    $   816   $   549   $  1,304

Interest expense                                                           $    18    $    25   $    41   $     23

Loss on disposal of segment and assets                                     $  --      $   102   $  --     $     15

Loss from continuing operations                                            $  (479)   $  (306)  $  (111)  $ (1,462)

Net loss                                                                   $(3,352)   $  (972)  $  (111)  $ (1,462)

Basic and diluted loss per share                                           $ (0.03)   $ (0.01)  $ (0.00)  $  (0.03)

</TABLE>

                                       17
<PAGE>




In connection with the audit of our financial  statements as of and for the year
ended  December  31,  2003,  we  recognized  an income  tax  benefit  on our net
operating loss. We had not recognized such a benefit in our previously  reported
quarterly information. In the table below, we have allocated this tax benefit to
our previously reported quarterly information.

<TABLE>
<CAPTION>
<S>                                                                           <C>      <C>       <C>      <C>


                                                                                  Year Ended December 31, 2003
                                                                                (in thousands, except per share amount)

                                                                               First   Second     Third    Fourth
                                                                              Quarter  Quarter   Quarter  Quarter
                                                                              -------  -------   -------  -------

Revenue                                                                       $   270  $   545   $   656  $    493

Total operating expenses                                                      $   571  $ 1,072   $ 1,031  $  1,392

Interest expense                                                              $   109  $   100   $   104  $    102

Loss from continuing operations                                               $  (410) $  (627)  $  (479) $ (1,001)

Net loss                                                                      $  (923) $  (281)  $   (84) $   (109)

Basic and diluted loss per Share                                              $ (0.01) $ (0.00)  $ (0.00) $  (0.00)

</TABLE>


Liquidity and Capital Resources
-------------------------------

Our primary  source of  liquidity  is from fees earned by  originating  mortgage
loans. Our mortgage  origination  operations require continued access to cash to
fund ongoing  administrative,  operating,  and tax expenses as well as providing
cash to fund our corporate  operations.  Our corporate operations require access
to cash to fund ongoing  administrative  expenses,  our acquisition program, tax
expenses  as  well  as  interest  and  principal  payments  under  our  existing
indebtedness.

At December 31, 2004, we had cash and cash equivalents of approximately $135 and
fees receivable of $46 with which to satisfy our on-going mortgage and corporate
operation's  current  liabilities of $2,254.  We deemed this liquidity  level as
insufficient  to accomplish our goals and meet our liquidity needs for 2005, and
we continued the  implementation  of our liquidity  improvement  plan. This plan
includes:

-         Reducing our corporate operating expenses.
-         Raising equity capital
-         Acquiring  profitable  mortgage brokering  operations  producing
          positive cash flow.
-         Renegotiating the terms of our existing indebtedness with major
          creditors to defer material principal payments into the future.

As part of this plan,  we continued the reduction in the amount of cash required
to fund  our  corporate  operations  which  began  in June  2004  following  the
divestiture  of PGNF. We expect this reduction in corporate  operating  expenses
will help us obtain profitability with fewer acquisitions needed and will reduce
the dilution  that would  otherwise be required by having to raise a substantial
amount of equity capital.

On February 28, 2005,  we completed a private  placement  financing  transaction
(the  "Offering")  pursuant  to which we sold  17,207,791  units (at $0.0308 per
unit) to several  accredited  investors for an aggregate purchase price of $530.
Each unit  consisted of one share of common  stock,  par value $0.0001 per share
(the "Common  Stock"),  and one warrant to purchase one share of Common Stock at
$0.04 per share expiring on December 31, 2007. This Offering  increased our cash
and cash equivalents by $342 subsequent to our year-end.

On January  19,  2005,  we acquired  FCM, a South  Carolina  mortgage  brokering
company.  On March 15, 2005,  we announced  that we had assumed  operations of a
branch of another mortgage  origination company based in Jacksonville,  Florida.
We expect  these  operations  to provide cash to fund our  corporate  operations
during the quarter ended June 30, 2005.

                                       18
<PAGE>





We are actively  discussing  the  restructuring  of our debt with our creditors.
Below is a summary of our actions to date attempting to restructure our debt.

      Short-term  debt.  On June 4, 2003,  we entered  into a revolving  line of
credit with a commercial bank in the amount of $250,000.  This revolving line of
credit  had an  interest  rate of prime,  is  secured  by a general  lien on our
assets, and is guaranteed by our current and former subsidiaries. The commercial
bank demanded  repayment of this credit  facility on September 13, 2004. We were
not able to meet this  demand,  and, as discussed  elsewhere,  we entered into a
standstill  agreement  with this bank whereby the maturity  date of the note was
extended to December 1, 2005,  the  interest  rate was  increased  to the bank's
prime rate plus 4%, and requires  principal  reduction  payments of $5 per month
through November 1, 2005.

      Convertible debentures.  On March 6, 2003, we completed a private offering
of 379 units consisting of (i) a $1 convertible promissory note due December 31,
2003 with interest payable  quarterly at a stated interest rate of 15% per annum
and (ii) a warrant to purchase shares of common stock,  exercisable at $0.25 per
share,  for each $5.00 in principal of the  promissory  note issued in the unit.
The holder  has the right to convert  the  outstanding  principal  amount of the
convertible  promissory  note (or any portion  thereof),  together  with accrued
interest thereon, into shares of our common stock at a conversion price of $0.25
per share,  subject to standard  anti-dilution  adjustments  as specified in the
note.  In  2005,  we  repaid  principal  of $40 to  certain  holders  of our 15%
convertible  notes and the  remaining  holders have agreed to amend the maturity
date of the convertible  notes to December 31, 2006 and reduce the interest rate
thereon to 10% in  consideration  for a  reduction  in the  strike  price of the
warrants to $0.05 per share. The convertible  notes require  quarterly  interest
payments on March 31, June 30, September 30, and December 31 of each year.

      Notes payable and liabilities to formerly related party: On April 7, 2005,
the  holder of notes with a face value of $1,531  and  accrued  interest  of $46
agreed to accept monthly  interest  payments of approximately $7 in lieu of what
is contractually  due. There was no set timeframe within which the holder agreed
to  accept  interest  only  payments.  We  anticipate  working  towards a formal
standstill agreement with the holder, but we cannot be certain such an agreement
will be reached.

      Accrued expenses - related parties:  On February 28, 2005,  certain of our
former executives and current shareholders agreed in principal to convert amount
currently due them into additional  shares of our Series E Preferred  Stock. The
stated value of each share of the Series E Preferred is $1,000 per share;  has a
mandatory  dividend of 4% of the stated value, per annum and shall be payable on
January 1st of each year and is payable in either shares of the Company's common
stock or cash; has no voting rights; and is not convertible.

In addition to the above, we continue to explore  additional ways to enhance our
liquidity and reduce our insolvency risk.

Recent Accounting Pronouncements
--------------------------------

In January 2003, the FASB issued FIN 46(R),  "Consolidation of Variable Interest
Entities -- an  interpretation  of ARB No. 51" ("FIN  46(R)").  The objective of
this Interpretation is not to restrict the use of variable interest entities but
to improve  financial  reporting by enterprises  involved with variable interest
entities.  FIN  46(R)  states  that a  business  enterprise  with a  controlling
financial  interest in a variable  interest  entity  should  include the assets,
liabilities,  and results of the activities of the variable  interest  entity in
consolidated  financial  statements with those of the business  enterprise.  FIN
46(R) applied  immediately to variable  interest  entities created after January
31, 2003, and to variable  interest  entities in which an enterprise  obtains an
interest  after that date. It applies in the first fiscal year or interim period
beginning  after  December 15, 2003, to variable  interest  entities in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
The adoption of this interpretation has had no effect on the Company's financial
statements.


                                       19
<PAGE>




On December 12, 2003,  the American  Institute of Certified  Public  Accountants
issued  Statement of Position No. 03-3,  "Accounting  for Certain  Loans or Debt
Securities  Acquired  in a  Transfer"  (SOP 03-3).  SOP 03-3  requires  acquired
impaired  loans for which it is  probable  that the  investor  will be unable to
collect all  contractually  required  payments  receivable to be recorded at the
present value of amounts expected to be received and prohibits  carrying over or
creation of valuation  allowances in the initial accounting for these loans. SOP
03-3 is effective for loans  acquired in fiscal years  beginning  after December
31,  2004.  SOP  03-3  does not  have an  impact  on the  Company's  results  of
operations or financial condition.

In March 2004,  Securities  and Exchange  Commission  ("SEC")  Staff  Accounting
Bulletin No. 105 was issued,  which provides guidance regarding loan commitments
that  are  accounted  for as  derivative  instruments  under  FASB  No.  133 (as
amended),  "Accounting for Derivative  Instruments and Hedging  Activities".  In
this Bulletin,  the SEC ruled that the amount of the expected  servicing  rights
should not be included when  determining  the fair value of derivative  interest
rate lock  commitments.  This guidance  must be applied to rate locks  initiated
after March 31, 2004.  SAB No. 105 has had no impact on our financial  condition
or results of operations.

In March,  2004,  the Emerging  Issues Task Force (EITF) issued EITF 03-1,  "The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments"  (EITF  03-1).  EITF  03-1  provides  recognition  and  measurement
guidance regarding when impairments of equity and debt securities are considered
other-than-temporary  thereby  requiring  a charge to  earnings.  EITF 03-1 also
requires  additional  annual  disclosures  for  investments  in unrealized  loss
positions.  The additional annual disclosure requirements were previously issued
by the EITF in November 2003 and were  effective for the year ended December 31,
2003. In September  2004, the FASB issued FASB Staff Position (FSP) EITF 03-1-1,
which delays the recognition and measurement provisions of EITF 03-1 pending the
issuance of further  implementation  guidance.  EITF 03-1 and EITF 03-1-1 do not
have an impact on our results of operations or financial condition.

In June 2004,  the FASB released EITF 03-6,  "Participating  Securities  and the
Two-Class Method under FASB Statement No. 128" (EITF 03-6).  This  pronouncement
provides  guidance on when to apply the two-class method for computing basic and
diluted  earnings  per  share  for  participating  securities.  A  participating
security is a security that  participates in undistributed  earnings with common
stock  regardless of whether the  participation is dependent upon the occurrence
of a  specific  event.  EITF  03-6  did not  impact  the  Company's  results  of
operations or financial condition.

In December,  2004, the FASB issued Statement of Financial  Accounting Standards
(SFAS) No. 123 (revised 2004) "Share-based Payment" (SFAS 123R) which eliminates
the  ability  to  account  for  share-based   compensation   transactions  using
Accounting  Principles Board (APB) Opinion No. 25,  "Accounting for Stock Issued
to  Employees,"  (APB 25) and  generally  requires  that  such  transactions  be
accounted for using a fair  value-based  method with the resulting  compensation
cost recognized over the period that the employee is required to provide service
in order to  receive  their  compensation.  SFAS 123R also  amends  SFAS No. 95,
"Statement of Cash Flows," requiring the benefits of tax deductions in excess of
recognized  compensation  cost to be reported as a financing  cash flow,  rather
than as an operating  cash flow as currently  required.  The  provisions of this
statement are effective in the first fiscal  beginning  after June 15, 2005. The
impact  of  the  adoption  of  SFAS  123 is  addressed  above  (see  stock-based
compensation)  and the  impact  of  adopting  SFAS  123R is not  expected  to be
materially different.

Impact of Inflation
-------------------

Inflation affects us most significantly in the area of loan originations and can
have a substantial  effect on interest rates.  Interest rates normally  increase
during periods of high  inflation and decrease  during periods of low inflation.
Profitability  may be directly affected by the level and fluctuation in interest
rates that affect our ability to earn a spread between interest  received on its
loans  and the  costs of its  borrowings.  Our  profitability  is  likely  to be
adversely  affected during any period of unexpected or rapid changes in interest
rates.  A  substantial  increase in interest  rates could  adversely  affect our
ability to originate loans and affect the mix of first and second-lien  mortgage
loan products.  Generally,  first-lien mortgage production increases relative to
second-lien   mortgage   production  in  response  to  low  interest  rates  and
second-lien  mortgage  production  increases  relative  to  first-lien  mortgage
production during periods of high interest rates.

                                       20
<PAGE>





Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

The following  table  presents our  contractual  obligations  as of December 31,
2004:
<TABLE>
<CAPTION>

<S>                       <C>                    <C>                     <C>                    <C>

                                                             Payment Due By Period
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
                                  Total            Less than One Year        1 to 3 Years           3 to 5 Years
                                  -----            ------------------        ------------           ------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Subordinated debt due
formerly related party                   $1,531                   $ 580                   $951                   $---
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Convertible debentures                    $ 379                   $ 379                 $-----                   $---
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Short-term debentures                     $ 221                   $ 221                 $-----                   $---
Promissory notes                          $  48                   $  48                 $-----                   $---
Notes due related                         $  25                   $  25                 $-----                   $---
Operating leases                          $  78                   $  55                 $   23                   $---
                          ---------------------- ----------------------- ---------------------- ----------------------

                                         $2,282                  $1,308                   $974                   $---
                          ====================== ======================= ====================== ======================

</TABLE>

The fair value of our contractual obligations approximate the carrying value.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

We carry  interest-sensitive  assets on our balance  sheet that are  financed by
interest-sensitive   liabilities.  Since  these  interest-sensitive  assets  and
liabilities  are not  necessarily  correlated,  we are subject to  interest-rate
risk. A sudden and sustained increase or decrease in interest rates would impact
the fair value of any interest-sensitive  assets on our balance sheet. We do not
hedge against this interest-rate risk.

The  following   table   illustrates   the  timing  of  the  re-pricing  of  our
interest-sensitive  assets and  liabilities as of December 31, 2004 and 2003. We
have made certain  assumptions in  determining  the timing of re-pricing of such
assets and liabilities.
<TABLE>
<CAPTION>
<S>                                      <C>                      <C>

Description                                 Zero to Six Months
-----------                                 ------------------

                                         ------------------------ ------------------------
                                                  2004                     2003
                                         ------------------------ ------------------------
Interest-sensitive assets:
                                         ------------------------ ------------------------
  Cash and cash equivalents                                $ 135                    $  70
                                         ------------------------ ------------------------

   Total interest-sensitive assets                         $ 135                    $  70
                                         ======================== ========================

Interest-sensitive liabilities:
  Promissory notes                                         $ 221                    $ 245
                                         ------------------------ ------------------------

   Total interest-sensitive liabilities                    $ 221                    $ 245
                                         ======================== ========================
</TABLE>

                                       21

<PAGE>






ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is  incorporated  by reference  from our  consolidated
financial  statements  and notes  thereto  which  are  included  in this  report
beginning on page F-1.  Certain  selected  quarterly  financial data is included
under Item 7 of this Report.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

The information  called for pursuant to this Item 9 is incorporated by reference
from our definitive proxy statement, which we intend to file with the Securities
and Exchange Commission no later than April 29, 2005.

ITEM 9A. CONTROLS AND PROCEDURES

As of  the  end  of  the  period  covered  by  this  report,  we  evaluated  the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  Our  disclosure  controls  and  procedures  are designed to provide
reasonable  assurance that the information  that we must disclose in our reports
filed under the Securities and Exchange Act is  communicated  and processed in a
timely manner. Paul K. Danner,  Chairman and Chief Executive Officer,  and Scott
Vining, Chief Financial Officer and Treasurer, participated in this evaluation.

Based on such  evaluation,  Mr. Danner and Mr. Vining  concluded that, as of the
date of such evaluation,  our disclosure controls and procedures were effective.
During the most  recent  fiscal  quarter,  there  have not been any  significant
changes in our internal  controls or in other  factors that could  significantly
affect those controls.

ITEM 9B. OTHER INFORMATION

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Identification of Directors.

The Board of Directors presently consists of four members. Directors are elected
annually at the annual meeting of stockholders. Their respective terms of office
continue  until  the  next  annual  meeting  of  stockholders  and  until  their
successors  have been  elected  and  qualified  in  accordance  with our Bylaws.
Certain  information  regarding  each of our current  directors,  including  his
principal  occupation during the past five years and current  directorships,  is
set forth below.

                  Name                      Age               Position
                  ----                      ---               --------
                  Paul K. Danner            47                Chairman and Chief
                                                              Executive Officer
                  George O. Deehan          62                Director
                  Charles D. Van Sickle     63                Director
                  Stephen J. Croskrey       44                Director

                                       22
<PAGE>




PAUL K.  DANNER,  has served as our Chairman  and Chief  Executive  Officer from
November  2005 and as a Director  since June 2002.  Mr.  Danner is active in the
United  States Naval  Reserve  where he currently  holds the rank of Captain and
serves  as  the  Commanding   Officer  of  a  Naval  Air  Systems  Command  unit
headquartered  at Naval  Station  Newport,  RI.  Mr.  Danner was  Chairman  from
September  2002 to December  2003 and Vice  Chairman from June 2002 to September
2002.  Mr.  Danner  also  served  as  Secretary  from  June 2002 to May 2003 and
Treasurer  from June 2001 to December  2002.  From August 2001 to May 2002,  Mr.
Danner was a director and Chief Executive Officer of Paragon Homefunding,  Inc.,
the entity  that merged  with a  subsidiary  of the  Company.  Mr.  Danner was a
founder  of that  company.  From  January  1999 to October  2000 Mr.  Danner was
employed in various  roles at  MyTurn.com,  Inc.,  including as Chief  Executive
Officer.  MyTurn later filed for protection under the federal bankruptcy laws in
March 2001.  From 1997 to 1998,  Mr.  Danner  served as Vice  President of Zekko
Corp.,  a technology  company and from 1996 to 1997 Mr.  Danner was the managing
partner of Technology  Ventures,  a consulting  firm.  From 1985 to 1998 he held
executive-level  and sales &  marketing  positions  with a number of  technology
companies  including NEC Technologies and Control Data  Corporation.  Mr. Danner
previously  served on active duty with the United  States Navy where he flew the
F-14 Tomcat.

GEORGE O. DEEHAN,  has served as a Director since  September  2003, our Chairman
from  January  2004 to November  2004 and as our Chief  Executive  Officer  from
October 2003 to November  2004. Mr. Deehan is a consultant to and an investor in
eOriginal,  Inc., a software development  company,  since March 2002. Mr. Deehan
was President of eOriginal,  Inc. from August 2000 until March 2002.  Mr. Deehan
was President  and Chief  Executive  Officer of Advanta  Leasing  Services,  the
business equipment leasing unit of Advanta Business  Services,  from August 1998
until August 2000. Prior to joining, Advanta, Mr. Deehan served as President and
Chief Operating Officer of Information Technology Services for AT&T Capital. Mr.
Deehan is a director of NYFIX, Inc. and Sunset Financial  Resources,  Inc. which
file reports under the Securities Exchange Act of 1934.

CHARLES D. VAN SICKLE,  has served as a director  since  February  2004. Mr. Van
Sickle is a founder  and  director  of KVI  Capital,  an  equipment  leasing and
finance company based in  Jacksonville,  Florida since April 2000. From November
1998 to May 2000,  Mr. Van Sickle was President and CEO of Healthcare  Financial
Services Corporation, a New York City based healthcare finance company. From May
1986 to January 1998, Mr. Van Sickle had various roles and  responsibilities  at
AT&T Capital Corporation headquartered in Morristown, New Jersey.

STEPHEN E. CROSKREY,  has served as a director  since March 2005.  From February
1999 to March 2005, Mr.  Croskrey  served as the President & CEO of the Products
Division of Armor  Holdings,  Inc. Prior to Armor  Holdings,  Mr.  Croskrey held
senior  executive  positions with Allied Signal and Mobil Oil. Mr. Croskrey is a
graduate of the Kellogg School of Management at Northwestern University where he
completed  the MBA program in 1998,  and the United States  Military  Academy at
West  Point  where  in  1982  he  earned  a BS  degree  in  Engineering  and was
commissioned as an officer in the United States Army. Mr. Croskrey spent 6 years
on active duty during which time he attained the rank of Captain and served as a
Company Commander in Korea and Fort Lewis, Washington.

(b) Identification of Executive Officers.

Officers  are  elected  annually  by our  Board of  Directors  and  serve at the
discretion  of the Board of Directors.  Our  executive  officers as of April 29,
2005 are set forth below.

PAUL K. DANNER,  see  "Identification of Directors" in Item 10(a) of this Annual
Report on Form 10-K/A for Mr. Danner's biographical information.

SCOTT L. VINING,  42, has served as our Chief  Financial  Officer and  Treasurer
since March 2003.  From September 1996 to March 2003, Mr. Vining was employed by
Armor Holdings,  Inc. most recently as Treasurer and Chief  Accounting  Officer.
Mr. Vining is a certified public accountant.

                                       23

<PAGE>




(c) Identification of Certain Significant Employees.

Not applicable.

(d) Family Relationships.

There are no family  relationships  between any director,  executive officer, or
person nominated or chosen by us to become a director or executive officer.

(e) Business Experience.

The business  experience of each of our directors and executive  officers is set
forth in Item  10(a)--Identification  of Directors of this Annual Report on Form
10-K/A and the business  experience of those executive officers who are not also
our directors is set forth in Item  10(b)--Identification  of Executive Officers
of this Annual Report on Form 10-K/A.
The  directorships  held by each of our directors in any company with a class of
securities  registered  pursuant to Section 12 of the Securities Exchange Act of
1934,  as  amended,  or  subject  to  Section  15(d) of such Act or any  company
registered as an investment company under the Investment Company Act of 1940, as
amended, are set forth in Item 10(a)--Identification of Directors of this Annual
Report on Form 10-K/A.

(f) Involvement in Certain Legal Proceedings.

Except as set forth in Item  10(a)--Identification  of  Directors of this Annual
Report on Form 10-K/A related to Mr. Danner, to the best of our knowledge,  none
of our other  directors or executive  officers has been involved during the past
five years in any legal  proceedings  required to be disclosed  pursuant to Item
401(f) of Regulation S-K.

(g) Promoters and Control Persons.

Not applicable.

(h) and (i) Audit Committee and Audit Committee Financial Expert.

The  full  Board of  Directors  currently  performs  the  functions  of an Audit
Committee.  Two  members  of the Board of  Directors,  Charles D. Van Sickle and
Stephen  Croskrey  satisfy the definition of  "independent" as defined under the
NASDAQ listing  standards.  The Board has not adopted a written  charter for the
audit committee at this time.

(j) Procedures for Stockholder Nominations to our Board of Directors.

No  material  changes  to  the  procedures  for  nominating   directors  by  our
stockholders were made in 2004.

Code of Conduct and Ethics

We have  adopted a Code of  Business  Conduct  and  Ethics  that  applies to all
Paragon employees,  including our chief executive and financial  officers.  This
document has been filed as Exhibit  14.1 to this Annual  Report on Form 10-K for
the year ended December 31, 2004.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Exchange Act requires our directors and executive officers,
and persons who own more than ten  percent of a  registered  class of our equity
securities,  to file  reports of  ownership  and changes in  ownership  with the
Securities and Exchange Commission.  Directors,  executive officers, and greater
than ten percent  holders are  required  by SEC  regulations  to furnish us with
copies of all Section 16(a) forms they file.

The Company  believes that during the 2004 fiscal year, the officers,  directors
and holders of more than 10% of the  Company's  Common Stock  complied  with all
Section 16(a) filing requirements, with the following exceptions:

Mr. Deehan received options to purchase  3,000,000 shares of our common stock on
July 29,  2004 at  $0.04  per  share  (the  market  price  on that  date).  This
transaction has not been reported on Form 4.


                                       24
<PAGE>




Mr. Vining received options to purchase  3,000,000 shares of our common stock on
July 29,  2004 at  $0.04  per  share  (the  market  price  on that  date).  This
transaction  was  subsequently  reported on Form 4 filed by Mr. Vining on May 2,
2005.

Mr.  Christopher  Liston sold 4,970,000  shares of our common stock in 2004. The
transactions associated with these sales have not been reported on Form 4.

Mr. Van Sickle  received  625,000 shares of our common stock (valued at $25,000)
on December 31, 2004 in payment for services as a director. This transaction has
not been reported on Form 4.

ITEM 11. EXECUTIVE COMPENSATION

The following table provides certain summary information concerning compensation
(including salary,  bonuses, stock options, and certain other compensation) paid
by us for  services  in all  capacities  or accrued  for the fiscal  years ended
December 31, 2004, 2003 and 2002 to our Chief Executive  Officer during the most
recently  completed  fiscal  year-end  and to the other person who served as our
executive  officer at  December  31, 2004 and whose  salary plus bonus  exceeded
$100,000  in Fiscal Year 2004  (together  being  hereinafter  referred to as the
"Named Executive Officers").

<TABLE>
<CAPTION>
<S>                                       <C>       <C>         <C>            <C>              <C>        <C>

                                                         Annual Compensation               Long-term Compensation
                                                         -------------------               ----------------------
                                          Fiscal    Salary      Bonus          Other Annual   Securities    All Other
                                          Year      ($)           $               Comp        Underlying   Compensation
Name and Principal Position               ----      ------      -----               $           Options(#) ------------
---------------------------                                                    ------------     ----------

                                           2004  $     --       $   --    $      --              --            --
Paul K. Danner
   Current Chairman of the Board
   and CEO
                                           2004  $  100,000         --           --         3,000,000        70,000
George O. Deehan                           2003  $   51,846         --           --        12,500,000          --
   Former Chairman of the Board
   and Former CEO
                                           2003  $  150,000         --           --              --            --
Steven A. Burleson                         2002  $   66,667(1)  $  30,000      $14,281(2)  16,000,000          --
   Former CEO, Former Interim
   Chief Financial Officer and
   Former Director
                                           2004  $   45,000         --           --         3,000,000          --
Scott L. Vining                            2003  $  100,000         --           --              --            --
   Chief Financial Officer and
   Treasurer
</TABLE>
(1) Represents salary earned during 2002 for Mr. Burleson pursuant to Mr.
Burleson's employment agreement dated September 5, 2002.  Mr. Burleson received
no cash compensation in 2002 and amounts due for 2002 were converted into Series
E Preferred Stock in March 2003.  The Company began paying Mr. Burleson's salary
pursuant to his employee agreement in February 2003.

(2) Represents auto allowance of $10,500 and the value of health and other
personal benefits in the amount of $3,781.


                                       25
<PAGE>




Stock Option Grants in 2004

We granted the following  options to our Named Executive  Officers during fiscal
2004.

<TABLE>
<CAPTION>
<S>                                        <C>          <C>             <C>      <C>          <C>

                                    Individual Grants

Name                                         Number of    Percent of    Exercise              Potential Realizable Value
                                           Securities   Total Options   Price    Expiration     At Assumed Annual
                                            Underlying    Granted to    Per       Date                 Rate
                                              Option     Employees in   Share    ---------    of Stock Price Appreciation
                                            Grants (#)    Fiscal Year   -----                       for Option Term
                                            ----------    -----------                               ---------------

                                                                                                   5%          10%

Paul K. Danner                                     --             --       --          --          --          --

George O. Deehan                              3,000,000           13.1  $  0.04   7/29/2014 $    75,467 $   191,249

Scott L. Vining                               3,000,000           13.1  $  0.04   7/29/2014 $    75,467 $   191,249

Stock Option Exercises and Option Values for 2004
</TABLE>

None of the Executive Officers named in the Summary Compensation Table exercised
any stock options in 2004. The table below sets forth information concerning the
number and value of their unexercised stock options at December 31, 2004.

<TABLE>
<CAPTION>
<S>                                                            <C>           <C>          <C>             <C>


                                                                 Number of Securities         Value of Underlying
                                                                Underlying Unexercised       In-The-Money Options
                                                                Options at 12/31/04 (#)        at 12/31/04 (1) (2)

                                                                                Non-                         Non-
Name                                                           Exercisable   Exercisable  Exercisable     Exercisable
----                                                           -----------   -----------  -----------     -----------

Paul K. Danner

George O. Deehan                                                2,000,000     3,000,000     $    --       $    --

Scott L. Vining                                                   666,667     3,333,333     $    --       $    --
</TABLE>

(1)  Calculated on the basis of $0.04 per share,  the closing sales price of the
     common stock on the OTC Bulletin Board December 31, 2004, less the exercise
     price payable for such shares.

(2)  The exercise  prices of shares  underlying  unexercised  options were at or
     above the market value of the common

                                       26

<PAGE>



Equity Compensation Plan Information

The following table  summarizes our equity  compensation  plan information as of
December 31, 2004.

                     Equity Compensation Plan Information(1)
<TABLE>
<CAPTION>
<S>                             <C>                    <C>                                    <C>

                                   Number of                                                   Number of securities
                                securities to be                                              remaining available for
                                  issued upon                                                 future issuance under
                                  exercise of                                                 equity compensation plans
                                outstanding option             Weighted-average               (excluding issued and
                                 and warrants           exercise price of outstanding         (outstanding options,
Plan category                   ---------------        options, warrants and rights           warrants and rights)
-------------                                           ----------------------------           --------------------

Equity compensation plans
   approved by security
   holders:                            54,245,342         $                 0.15                45,754,658

Equity compensation plans
   approved by security
   holders:                                  --                               --                        --
                                       ----------         ----------------------                ----------
TOTAL                                  54,245,342         $                 0.15                45,754,658

</TABLE>

Employment   Contracts  and   Termination,   Severance  and  Change  of  Control
Arrangements

Messrs.  Danner,  Deehan and Vining were  employed  by the  Company  pursuant to
written employment  agreements.  On May 31, 2004, we released Messrs. Deehan and
Vining from these agreements by the Company.

Our current  named  executive  officers  are not  covered by written  employment
agreements.

Compensation of Directors

Mr. Van Sickle received 625,000 shares of our common stock (valued at $25,000 on
December 31,  2004) for his  services as a director for the year ended  December
31, 2004.

All  members  of the  Board of  Directors  receive  reimbursement  for  expenses
associated with attendance of meeting of the Board of Directors.

Report on Executive Compensation

The Company's executive  compensation  program is designed to attract,  motivate
and retain  management  with  incentives  linked to  financial  performance  and
enhanced  stockholder  value. Our compensation  program currently  consists of a
number of components, including a cash salary, cash incentive bonuses, and stock
option grants.

We currently do not have a compensation  committee.  The Board of Directors as a
whole,  reviews  salary,  bonus and option  award  information  for  competitive
companies of comparable size in similar industries, as well as that of companies
not in its  industry  which do  business  in  locations  where the  company  has
operations.  Based in part on this information, the Board of Directors generally
sets  salaries at levels  comparable  to such  companies.  Bonuses are generally
discretionary,  but in some cases may be set forth in employment  agreements and
based on the achievements of performance thresholds. In either case, bonuses are
linked to company  performance  during the year and thus align the  interest  of
executive  officers with those of the stockholders.  The Board of Directors also
assesses each executive  officer's  individual  performance and  contribution in
determining  bonus  levels.  The Board of Directors  uses grants out of our 2002
Equity  Participation  Plan to motivate  its  executive  officers and to improve
long-term market performance of the Company's common stock.

                                       27

<PAGE>




Since the Board of Directors  believes  that the granting of options to purchase
shares of common  stock  provides its  executive  employees  with the  long-term
incentive to work for the  betterment of the Company,  stock options are granted
to executives,  in some cases upon  commencement of employment and in some cases
periodically.  Additionally,  grants of options are made  periodically  to other
selected employees which  contributions and skills are critical to the long-term
success of the Company.  Options are generally  granted with the exercise  price
equal to the market  price of our  shares of common  stock on the date of grant,
generally vest over a period of at least three years and generally  expire after
ten years.

Compensation Committee Interlocks and Insider Participation

During the year ended  December 31, 2004 each of Messrs.  Deehan and Danner were
directors and employees of the Company.  Mr. Deehan received  compensation as an
employee in  accordance  with his  agreement  with the Company.  See  "Executive
Officers--Employment Agreements" and "Related Party Transactions." Each director
participated in discussions regarding executive compensation.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following  table sets forth certain  information  with respect to beneficial
ownership of our shares of common stock as of April 29, 2005: (i) by each person
(or group of affiliated  persons) who we know to own beneficially more than five
percent of our outstanding  shares of common stock;  (ii) by the individuals who
served as our chief  executive  officer  during the fiscal  year ended  December
31,2004;  (iii) by the executive  officer other than the chief executive officer
who was employed by us on December 31, 2004; (iv) by each of our directors;  and
(v) by all of our current  directors  and executive  officers as a group.  As of
April 29, 2005, we had 86,706,250 shares of common stock outstanding.  Except as
indicated in the  footnotes to this table,  the persons  named in the table have
sole  voting  and  investment   power  with  respect  to  all  shares  shown  as
beneficially owned by them.

<TABLE>
<CAPTION>
<S>                                                                                          <C>           <C>

                                                                                             Beneficially  Percent
                                                                                                Owned        of
                                                                                               Shares      Class
Name and Address of Beneficial Owner*                                                         Number(1)   --------
-------------------------------------                                                         ---------
5% Stockholder
Christopher Liston                                                                             9,458,684      9.3%
918 Ponte Vedra Blvd.
Ponte Vedra, FL 32082

Abhijit Deshmukh (2)                                                                           6,493,506      6.4%
830-13 A1A North, #414
Ponte Vedra Beach, FL 32082

Steven A. Burleson (3)                                                                         7,000,000      6.9%
1828 Lake Marshall Dr.
Gibsonia, PA 15044


Named Executive Officers and Directors

Stephen Croskrey (4)                                                                          22,103,896     21.8%

Paul K. Danner (5)                                                                            19,699,928     19.4%

George O. Deehan (6)                                                                           2,336,000      2.3%

Charles Van Sickle (7)                                                                           745,000        *%

Scott L. Vining (8)                                                                              666,667        *%


All current directors and executive officers as a group (5 persons) (9)                       45,551,491     44.9%
</TABLE>

* - Less than 1%

                                       28

<PAGE>




(1)  As used in this table, a beneficial owner of a security includes any person
     who, directly or indirectly, through contract, arrangement,  understanding,
     relationship  or otherwise  has or shares (a) the power to vote,  or direct
     the voting of, such  security or (b)  investment  power which  includes the
     power to  dispose,  or to direct the  disposition  of,  such  security.  In
     addition,  a person is deemed to be the  beneficial  owner of a security if
     that person has the right to acquire beneficial  ownership of such security
     within 60 days.

(2)  Includes warrants to purchase 3,246,753 shares of common stock.

(3)  Includes options to purchase 7,000,000 shares of common stock.

(4)  Includes  warrants  to  purchase  11,551,948  shares of common  stock.  The
     address for Mr. Croskrey is 830-13 A1A

(5)  Includes 825,000 shares held in a custodial accounts for the benefit of Mr.
     Danner's minor children of which

(6)  Includes options to purchase 2,000,000 shares of common stock,  warrants to
     purchase 56,000 shares of common

(7)  Includes  warrants  to  purchase  20,000  shares  of  common  stock and the
     conversion into 100,000 shares of common

(8)  Includes  options to purchase  666,667 shares of common stock.  The address
     for Mr. Vining is 830-13 A1A North,

(9)  See footnote (4 - 8).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 4, 2004, subject to certain conditions,  confidentiality  provisions and
approval of the majority of the holders of our common  stock,  we agreed to sell
our largest  subsidiary,  PGNF Home Lending  Corp.  ("PGNF"),  to Philip  Lagori
("Lagori"), the former owner of PGNF, and formerly, our largest shareholder (the
"PGNF Transaction") holding 52,329,734 shares of our common stock (or 50.5%). On
June 30, 2004, we received consent from holders of 97,647,656 shares (or 83.89%)
of our common stock on a pre-PGNF  Transaction  basis and  completed  this sale.
After  affecting  the  number  of  outstanding  shares  resulting  from the PGNF
Transaction,  we received consent from holders of 45,317,921  shares (or 70.74%)
of our common stock. Pursuant to the agreement, we exchanged the common stock of
PGNF, as well as the  assumption of all of PGNF's  liabilities,  contingent  and
otherwise, for 52,329,735 shares of our common stock valued at $2,355,000 (based
upon the  closing  price of  $0.045 on June 30,  2004)  and 1,800  shares of our
Series E preferred stock plus accrued dividend valued at $1,904,000.

                                       29

<PAGE>




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

During the years ended December 31, 2004 and 2003, fees for services provided by
Stevens, Powell & Company, P.A. ("Stevens,  Powell & Company"),  our independent
registered public accounting firm, were as follows:

<TABLE>
<CAPTION>
<S>                                        <C>                                      <C>

                                                                     Year Ended December

                                                           2004                                2003
                                                           ----                                ----

Audit Fees (1)                             $                      68,623            $                  74,000

Tax Fees (2)                                                      11,215                                --

Total                                      $                      79,838            $                  74,000
</TABLE>

(1)  Audit Fees  consisted  of fees billed for  services  rendered  and expenses
     incurred for the audit of the Company's annual financial statements, review
     of financial statements included in the Company's quarterly reports on Form
     10-Q, and other services normally provided in connection with statutory and
     regulatory filings.

(2)  Tax Fees consisted of fees billed for  preparation  of required  income tax
     returns.

Our Board of Directors has determined  that the rendering of non-audit  services
by Stevens, Powell & Company was compatible with maintaining their independence.

Audit Committee Pre-Approval Policy

Our Board of  Directors  requires  the  pre-approval  of any audit or  non-audit
engagement  of  Stevens,  Powell & Company.  In the event that we wish to engage
Stevens, Powell & Company to perform accounting,  technical,  diligence or other
permitted  services  not related to the services  performed by Steven,  Powell &
Company as our independent  registered public accounting firm, management of the
company  summarizes  for the Board of  Directors  the proposed  engagement,  the
nature  of the  engagement  and  the  estimated  cost  of the  engagement.  This
information  is reviewed by our Board of Directors,  who  evaluates  whether the
proposed  engagement will interfere with the  independence of Stevens,  Powell &
Company in the  performance  of its auditing  services.  For 2004, all audit and
non-audit  services  were  approved  by the  Board  of  Directors  prior  to the
commencement of such work by Steven, Powell & Company.
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a)           The following  financial  statements  (which  appear  sequentially
              beginning  at page number F-1) are included in this report on Form
              10-K.  Financial  statement schedules have been omitted since they
              are either not required,  not  applicable,  or the  information is
              otherwise included.

                  Reports of Independent Certified Public Accountants

                  Consolidated Balance Sheets

                  Consolidated Statements of Operations

                  Consolidated Statements of Comprehensive Loss

                  Consolidated Statements of Stockholders' Deficiency

                  Consolidated Statements of Cash Flows

                  Notes to Consolidated Financial Statements

                                       30

<PAGE>




(b)       Reports on Form 8-K

                  None.

(c)       Exhibits

            The  following  Exhibits  are  hereby  filed as part of this  Annual
Report on Form 10-K:
<TABLE>
<CAPTION>
<S>               <C>

Exhibit
Number            Description of Exhibit
------            ----------------------

2.1               Agreement and Plan of Merger dated as of October 14, 2002 among PlanetRx.com, Inc. (n/k/a
                  Paragon Financial Corporation), Paragon Homefunding, Inc. a Delaware Corporation and Mortgage Express, Inc. (n/k/a
                  PGNF Home Lending Corp., et al (the "Mortgage Express Plan of Merger").**

2.2               Amendment No. 1 to the Mortgage Express Plan of Merger.***

2.3               Agreement and Plan of Merger dated December 9, 2002 among PlanetRx.com, Inc. (n/k/a Paragon
                  Financial Corporation), Paragon Acquisition Corp. II, Paragon Homefunding, Inc., a Florida corporation, et al.(the
                  "Paragon Homefunding Plan of Merger").***

2.4               Amendment No. 1 to the Paragon Homefunding Florida Plan of Merger.***

2.5               Stock Purchase Agreement between Paragon and Philip Lagori for the sale of PGNF Homelending
                  Corp. +

3.1               Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on
                  October 6, 1999. ****

3.2               Certificate of Amendment of the Restated Certificate of Incorporation filed with the Secretary of
                  State of the State of Delaware on October 13, 2000. ****

3.3               Certificate of Amendment to Restated Certificate of Incorporation filed with the Secretary of State
                  of the State of Delaware on November 30, 2002. ****

3.4               Certificate of Amendment of the Restated Certificate of Incorporation filed with the Secretary of
                  State of the State of Delaware on December 26, 2002. ****

3.5               Certificate of Designations of Series E Preferred Stock.*****

3.6               Amended and Restated By-laws. ****

4.1               Form of convertible promissory note. ****

4.2               5% Subordinated promissory note due November 30, 2005 for $480,000 +

4.3               5% Subordinated promissory note due May 31, 2008 for $1,051,225 +

10.1              Amended and Restated Employment Agreement, dated as of September 1, 2002 by and between
                  PlanetRx.com, Inc. (now known as Paragon Financial Corporation) and Paul Danner. ****

10.2              Employment Agreement, dated as of September 4, 2002 by and between PlanetRx.com, Inc. (now
                  known as Paragon Financial Corporation) and Steven A. Burleson. ****
</TABLE>

                                       31

<PAGE>


<TABLE>
<CAPTION>

<S>               <C>


10.3              Employment Agreement, dated as of January 31, 2003 by and between Paragon Financial
                  Corporation and Philip Lagori. ****

10.4              Employment Agreement, dated as of December 30, 2002 by and between Paragon Financial
                  Corporation and Scott Vining. ****


10.5              Lease dated January 1, 2003 between Ponte Vedra Management Group, Ltd. and Paragon
                  Financial Corporation. ****

10.6              Lease dated September 1, 2000 between 820 West Lake, LLC and Mortgage Express, Inc. (n/k/a
                  PGNF Home Lending Corp.). ****

10.7              Employment Agreement, dated October 16, 2003, by and between Paragon Financial Corporation
                  and George O. Deehan *****

10.8              Employment Agreement, dated June 17, 2003, by and between Paragon Financial Corporation and
                  Joseph P. Bryant, Jr. *****

10.9              Employment Agreement, dated May 6, 2003, by and between Paragon Financial Corporation and
                  Steven L. Barnett. *****

21.1              Subsidiary of the Registrant*

23.1              Consent of Accountant*

31.1              Certification of Chief Executive Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 12, 2005 *

31.2              Certification of Chief Financial Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 12, 2005 *

32.1              Certification  of Chief Executive  Officer and Chief Financial
                  Officer  pursuant  to  18  U.S.C.  Section  1350,  as  Adopted
                  Pursuant  to Section  906 of the  Sarbanes-Oxley  Act of 2002,
                  dated April 12, 2005 *
</TABLE>

-------------------------

*    Filed herewith

+    Filed as an exhibit to Paragon's  Current Report on Form 8-K/A, as amended,
     for an event dated June 30, 2004

@    This exhibit represents a management contract

**   This exhibit represents a compensatory plan

***  Filed as an exhibit to  Paragon's  Current  Report on Form 8-K for an event
     dated January 31, 2003

**** Filed as an exhibit to Paragon's  Annual Report
     on Form 10-K for the year ended December 31, 2002

*****Filed as an  exhibit to  Paragon's  Quarterly  Report for the period  ended
     September 30, 2003, as amended


                                       32
<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of  Independent Registered Public Accounting Firms               F-1 & 2
Consolidated Balance Sheets                                              F-3
Consolidated Statements of Operations                                    F-4
Consolidated Statements of Comprehensive Loss                            F-5
Consolidated Statements of Cash Flows                                    F-6
Consolidated Statements of Stockholders' Deficiency                      F-7 & 8
Notes to Consolidated Financial Statements                               F-9



<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS
PARAGON FINANCIAL CORPORATION

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Paragon
Financial  Corporation and subsidiaries  (the "Company") as of December 31, 2004
and 2003, and the related consolidated  statements of operations,  comprehensive
loss, cash flows, and stockholders'  deficiency for the years then ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company  as of  December  31,  2004  and  2003,  and  the  related  consolidated
statements of operations,  comprehensive  loss,  cash flows,  and  stockholders'
deficiency for the years then ended, in conformity  with  accounting  principles
generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 3 to the
consolidated  financial  statements,   the  Company  has  suffered  losses  from
operations and has a negative  tangible net worth that raise  substantial  doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these  matters are also  described in Note 3. The  accompanying  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

As  discussed  in Note 17, the  accompanying  consolidated  balance  sheet as of
December 31, 2004, and the consolidated statements of operations,  comprehensive
loss, cash flows, and  stockholders'  deficiency for the year ended December 31,
2004, have been restated.

/s/ STEVENS, POWELL & COMPANY, P.A.

Jacksonville, Florida
March 23,  2005,  except as to Note 16 for which the date is April 7, 2005,  and
October 1, 2008, as to the effects of the restatement discussed in Note 17

                                      F-1

<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS
PARAGON FINANCIAL CORPORATION

We  have  audited  the  accompanying  statements  of  operations,  stockholders'
deficiency and cash flows of Paragon Financial  Corporation (a development stage
company) for the year ended December 31, 2002.  These  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  results of  operations  and cash flows of Paragon
Financial  Corporation  for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.

The financial  statements referred to above have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  described  in  Note 3 to the
financial  statements,  the Company has suffered  losses from operations and has
net working capital and  stockholders'  deficiency that raise  substantial doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these matters are also described in Note 3. The financial statements referred
to above do not include any  adjustments  that might  result from the outcome of
this uncertainty.

/s/ BP PROFESSIONAL GROUP LLP

Farmingdale, New York
March 6, 2003

                                      F-2

<PAGE>
<TABLE>
<CAPTION>


                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
            AS OF DECEMBER 31, 2004 AND DECEMBER 31, 2003 (Dollars in
                          thousands, except share data)
<S>                                                                       <C>              <C>

                                                                              2004              2003
                                                                          --------------   ---------------
                                                                    (As Restated, Note 17)
Assets
        Current Assets:
               Cash                                                               $ 135              $ 70
               Fees receivable                                                       46                80
               Prepaid and other current assets                                       9                37
                                                                          --------------   ---------------
        Total Current Assets                                                        190               187
                                                                          --------------   ---------------
               Office property and equipment, net of accumulated
                  depreciation of $43 and $27                                        64               132
               Goodwill                                                               -               822
               Other assets                                                           3               475
               Assets of discontinued operations                                      -            34,046
                                                                          --------------   ---------------
Total Assets                                                                      $ 257          $ 35,662
                                                                          ==============   ===============

Liabilities and Stockholders' Deficiency
        Current liabilities
               Current portion of long-term debt                                  $ 100               $ -
               Short-term debt                                                      221               245
               Notes payable - related parties                                      528                20
               Notes payable - related parties                                       25                25
               Convertible debentures payable                                       379               379
               Accounts payable                                                     371               290
               Stock subscription proceeds received                                 178                 -
               Accrued expenses - related parties                                    59                59
               Income taxes payable                                                  10                 -
               Accrued expenses - other                                             383               514
                                                                          --------------   ---------------
        Total Current Liabilities                                                 2,254             1,532

Long-term debt:
               Liabilities to formerly related parties, less current
               portion                                                              951                 -
               Liabilities of discontinued operations                                 -            26,154
                                                                          --------------   ---------------
        Total Liabilities                                                         3,205            27,686
                                                                          --------------   ---------------
Stockholders' deficiency
        Preferred stock:  Issuable in series, $0.0001 par value; 5,000,000
          shares authorized: Series E, $1,000 stated value;
          659 and 2,459 shares issued and outstanding, respectively                   -                 -
        Common stock, $0.0001 par value; 400,000,000 shares
          authorized, 65,212,744 and 116,396,479 shares issued and
          outstanding at December 31, 2004 and December 31, 2003,
          respectively                                                                6                11
        Additional paid-in capital                                                6,914            11,779
        Accumulated deficit                                                      (9,861)           (3,964)
        Cumulative comprehensive income                                               -               202
        Unearned stock-based compensation                                            (7)              (52)
                                                                          --------------   ---------------
               Total Stockholders' (deficit) equity                              (2,948)            7,976
                                                                          --------------   ---------------
Total liabilities and stockholders' deficiency                                    $ 257          $ 35,662
                                                                          ==============   ===============

      See accompanying notes to consolidated financial statements.

                                      F-3
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                    (Dollars in thousands, except share data)
<S>                                                                          <C>                 <C>                 <C>


                                                                                  2004                2003                2002
                                                                             ----------------    ----------------    ---------------
                                                                          (As Restated, Note 17)
Revenue:
         Loan orgination fees                                                        $ 2,034             $ 1,964                 $ -
                                                                             ----------------    ----------------    ---------------
Expenses:
         Salaries, commissions, benefits, and stock-based compensation                 1,916               2,517               1,768
         Loan production costs                                                            91                 103                   -
         General ad administrative expenses                                              858               1,113                 569
         Impairment of goodwill                                                          822                   -                   -
         Non-recurring charges                                                            25                 333                   -
                                                                             ----------------    ----------------    ---------------
                         Total expenses                                                3,712               4,066               2,337
                                                                             ----------------    ----------------    ---------------
Operating loss                                                                        (1,678)             (2,102)            (2,337)

         Interest expense, net                                                           107                 415                   5
         Loss on disposal of assets                                                       15                   -                   -
         Loss on disposal of segment                                                     102                   -                   -
                                                                             ----------------    ----------------    ---------------
Loss from continuing operations before provision for income taxes                     (1,902)             (2,517)            (2,342)

Provisions (benefit) for income taxes                                                    456                (837)                  -
                                                                             ----------------    ----------------    ---------------
Loss from continuing operations                                                       (2,358)             (1,680)            (2,342)

Discontinued operations (Note 2):
         (Loss) income from discontinued operations before provision
             (benefit) for taxes                                                      (3,539)                565                   -
         (Benefit) provision for income taxes                                              -                 282                   -
                                                                             ----------------    ----------------    ---------------
(Loss) income from discontinued operations                                            (3,539)                283                   -
                                                                             ----------------    ----------------    ---------------
Net Loss                                                                            $ (5,897)           $ (1,397)           $(2,342)
                                                                             ================    ================    ===============
Per share information

Net Income Per Share - Basic and Diluted:
         Loss from continuing operations                                             $ (0.03)            $ (0.01)           $ (0.04)
         (Loss) income from discontinued operations                                    (0.04)                  -                   -
                                                                             ----------------    ----------------    ---------------
                                                                                     $ (0.07)            $ (0.01)           $ (0.04)
                                                                             ================    ================    ===============

Weighted average shares outstanding - basic and diluted                               85,799             111,620              54,407
                                                                             ----------------    ----------------    ---------------


      See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                 FOR THE YEARS ENDED DECEMBER 31, 2004, AND 2003
                    (Dollars in thousands, except share data)

<S>                                                                                     <C>                  <C>


                                                                                              2004                 2003
                                                                                        -----------------    -----------------

                                                                                    (As Restated, Note 17)

Net Loss                                                                                        $ (5,897)            $ (1,397)
                                                                                        -----------------    -----------------
Other comprehensive income:
         Unrealized gain on available-for-sale securities, net of income taxes                         -                  202
                                                                                        -----------------    -----------------
Comprehensive loss                                                                              $ (5,897)            $ (1,195)
                                                                                        =================    =================





        See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-5
<PAGE>
<TABLE>
<CAPTION>


                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                             (Dollars in thousands)

<S>                                                                  <C>              <C>              <C>

                                                                         2004             2003             2002
                                                                     --------------   --------------   --------------
                                                                  (Restated, Note 17)

        Net loss from continuing operations                               $ (2,358)        $ (1,680)        $ (2,342)

Adjustments to reconcile  net loss to cash  provided by operating
 activities of
        continuing operations:
        Depreciation                                                            30               26                1
        Impairment of goodwill                                                 822                -                -
        Loss on sale of assets                                                  15                -                -
        Loss on disposal of segment                                            102                -                -
        Deferred compensation to related parties, subsequently
          converted to preferred shares                                          -                -              504
        Non-cash stock compensation                                             87               86            1,256
        Deferred taxes                                                         444             (446)               -
        Changes in assets and liabilities:
              (Increase) decrease in fees receivable                            34              (31)               -
              Decrease (increase) in prepaid and other current assets           57              105              (31)
              Increase in accounts payable                                      91              113               67
              (Decrease) increase in accrued expenses                          (93)             617              225
              Increase in income taxes payable                                  10                -                -
                                                                     --------------   --------------   --------------
                     Cash used in operating activities
                         from continuing operations                           (759)          (1,210)            (320)
                                                                     --------------   --------------   --------------
CASH FLOWS USED IN INVESTING ACTIVITIES
  OF CONTINUING OPERATIONS:
        Purchase of property and equipment                                      (2)            (117)              (2)
        Cash acquired in purchase of business                                    -               44                -
        Proceeds from the sale of assets                                        25                -                -
        Proceeds from the sale of websites                                      30               52                -
        Deposits made                                                            -                -              (25)
        Deferred merger costs                                                    -                -              (58)
                                                                     --------------   --------------   --------------
                     Cash provided by (used in) investing
                       activities from continuing operations                    53              (21)             (85)
                                                                     --------------   --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES
  OF CONTINUING OPERATIONS:
        Proceeds from issuance of common stock                                   -                -              386
        Proceeds from the issuance of warrants                                   -               18                6
        Proceeds from common stock subscriptions                               178                -                -
        Proceeds from issuance of debentures                                     -              222              104
        Borrowings under line of credit                                          -              245                -
        Repayments of debt                                                     (45)             (35)               -
                                                                     --------------   --------------   --------------
                     Cash provided by financing activities
                       from continuing operations                              133              450              496
                                                                     --------------   --------------   --------------
Net cash provided by discontinued operations                                   638              760                -

Increase (decrease) in cash and cash equivalents                                65              (21)              91

Cash and Cash Equivalents - Beginning of Period                                 70               91                -
                                                                     --------------   --------------   --------------
Cash and Cash Equivalents - End of Period                                    $ 135             $ 70             $ 91
                                                                     ==============   ==============   ==============


           See accompanying notes to consolidated financial statements.

</TABLE>

                                      F-6
<PAGE>
<TABLE>
<CAPTION>

                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
          FOR THE YEARS ENDED DECEMBER 31, 2004 (As Restated, Note 17),
                      2003 AND 2002 (Dollars in thousands)
<S>                             <C>             <C>       <C>                      <C>        <C>            <C>        <C>


                                                                                   Additional
                                 Preferred                      Common Stock         paid-in  Subscriptions  Treasury   Accumulated
                                   Shares       Amount    Number of shares Amount    Capital   Receivable     Stock       Deficit
                                ----------------------------------------------------------------------------------------------------
Balance - January 1, 2002                  -          $ -     33,822,480        $ 3      $ 26         $ (1)         $ -      $ (225)

March 1 Contribution from
  financing shareholders of
  5,477,325 shares as treasury
  stock                                    -            -              -          -       200            1         (200)           -
March 1 Issuance of 16,431,975
  restricted and unrestricted shares
  for services                             -            -     10,954,650          1       399            -          200            -
May 31 Issuance of shares for cash         -            -     10,783,486          1       384            -            -            -
May 31 Issuance of shares to effect
  reverse acquisition                      -            -      6,173,403          1       (73)           -            -            -
June 30 Amortization of restricted
  shares                                   -            -              -          -         -            -            -            -
July10 Issuance of shares for
  services                                 -            -        458,725          -        46            -            -            -
July 16 Rescision of 16,431,975
  shares and re-issuance and
  reallocation as unrestricted shares      -            -              -          -       148            -            -            -
August 1 Contribution of services
  by shareholder                           -            -              -          -         5            -            -            -
November 8 Issuance of shares for
  services                                 -            -        400,000          -        36            -            -            -
December 30 Issuance of options to
  consultants                              -            -              -          -       421            -            -            -
December 31 Issuance of warrants
  included in convertible debentures       -            -              -          -         6            -            -            -
December 31 Beneficial conversion
  feature on convertible debentures        -            -              -          -        95            -            -            -
Net loss                                   -            -              -          -         -            -            -      (2,342)
                                      ----------------------------------------------------------------------------------------------
Balance - December 31, 2002                -            -     62,592,744          6     1,693            -            -      (2,567)

January 31 Issuance of shares
  for acquisition                          -            -     52,329,735          5     6,362            -            -            -
February 4 Issuance of shares
  for acquisition                          -            -      1,224,000          -       836            -            -            -
March 26 Issuance of preferred
  stock for accrued compensation         659            -              -          -       659            -            -            -
March 26 Issuance of preferred
  stock for promissory note and
  accrued interest                     1,800            -              -          -     1,812            -            -            -
March 31 Issuance of warrants
  included in convertible debentures       -            -              -          -        18            -            -            -
March 31 Beneficial conversion
  feature on convertible debentures        -            -              -          -       222            -            -            -
March 31 Receipt of cash for
  websites                                 -            -              -          -        13            -            -            -
May 12 Issuance of restricted
  stock award                              -            -        250,000          -       125            -            -            -
May 30 Receipt of cash for
  websites                                 -            -              -          -        35            -            -            -
June 30 Amortization of restricted
  stock award                              -            -              -          -         -            -            -            -
September 12 Receipt of cash for
  websites                                 -            -              -          -         1            -            -            -
September 30 Amortization of
  restricted stock award                   -            -              -          -         -            -            -            -
November 14 Receipt of cash for
  website                                  -            -              -          -         3            -            -            -
December 31 Amortization of
  restricted stock award                   -            -              -          -         -            -            -            -
Comprehensive loss:
Net loss                                   -            -              -          -         -            -            -      (1,397)
Unrealized gain on marketable
  securities                               -            -              -          -         -            -            -            -
Total comprehensive loss                   -            -              -          -         -            -            -            -
                                     -----------------------------------------------------------------------------------------------

Balance - December 31, 2003            2,459            -    116,396,479         11    11,779            -            -      (3,964)

March 31 Amortization of restricted
  stock award                              -            -              -          -         -            -            -            -
May 27 Receipt of cash for
  website                                  -            -              -          -        30            -            -            -
June 30 Amortization of restricted
  stock award                              -            -              -          -         -            -            -            -
May 31 Disposal of segment           (1,800)           -    (52,329,735)        (5)   (4,948)           -            -            -
July 1 Issuance of restricted stock
  award to consultant                      -            -        200,000          -        10            -            -            -
September 30 Amortization of
  restricted stock award                   -            -              -          -         -            -            -            -
October 13 Issuance of shares for
  insurance premium                        -            -        125,000          -         6            -            -            -
November 18 Issuance of shares
  for services                             -            -         96,000          -         5            -            -            -
November 18 Issuance of restricted
  shares for services                      -            -        100,000          -         7            -            -            -
December 31 Issuance of shares for
  directors fees                           -            -        625,000          -        25            -            -            -
December 31 Amortization of stock
  award                                    -            -              -          -         -            -            -            -
  Realization of comprehensive
    income                                 -            -              -          -         -            -            -            -
  Net loss                                 -            -              -          -         -            -            -      (5,897)
                                    ------------------------------------------------------------------------------------------------

Balance - December 31, 2004              659          $ -     65,212,744        $ 6   $ 6,914          $ -          $ -    $ (9,861)
                                    ================================================================================================




      See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-7


<PAGE>

                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
          FOR THE YEARS ENDED DECEMBER 31, 2004 (As Restated, Note 17),
                      2003 AND 2002 (Dollars in thousands)
                                  (Continued)

                                           Accumulated
                                             Other     Unearned      Total
                                        Comprehensive  Stock-based Stockholders'
                                           Income    Compensation   Deficiency
                                         --------------------------------------
Balance - January 1, 2002                          $ -         $ -      $ (197)

March 1 Contribution from
  financing shareholders of
  5,477,325 shares as treasury
  stock                                              -           -           1
March 1 Issuance of 16,431,975
  restricted and unrestricted shares
  for services                                       -        (400)        200
May 31 Issuance of shares for cash                   -           -         385
May 31 Issuance of shares to effect
  reverse acquisition                                -           -         (72)
June 30 Amortization of restricted
  shares                                             -          62          62
July10 Issuance of shares for
  services                                           -           -          46
July 16 Rescision of 16,431,975
  shares and re-issuance and
  reallocation as unrestricted share                 -         338         486
August 1 Contribution of services
  by shareholder                                     -           -           5
November 8 Issuance of shares for
  services                                           -           -          36
December 30 Issuance of options to
  consultants                                        -           -         421
December 31 Issuance of warrants
  included in convertible debentures                 -           -           6
December 31 Beneficial conversion
  feature on convertible debentures                  -           -          95
Net loss                                            -           -      (2,342)
                                         ---------------------------------------
Balance - December 31, 2002                         -           -        (868)

January 31 Issuance of shares
  for acquisition                                     -           -       6,367
February 4 Issuance of shares
  for acquisition                                    -           -         836
March 26 Issuance of preferred
  stock for accrued compensation                     -           -         659
March 26 Issuance of preferred
  stock for promissory note and
  accrued interest                                   -           -       1,812
March 31 Issuance of warrants
  included in convertible debentures                 -           -          18
March 31 Beneficial conversion
  feature on convertible debentures                  -           -         222
March 31 Receipt of cash for
  websites                                           -           -          13
May 12 Issuance of restricted
  stock award                                        -        (125)          -
May 30 Receipt of cash for
  websites                                           -           -          35
June 30 Amortization of restricted
  stock award                                        -          10          10
September 12 Receipt of cash for
  websites                                           -           -           1
September 30 Amortization of
  restricted stock award                             -          31          31
November 14 Receipt of cash for
  website                                            -           -           3
December 31 Amortization of
  restricted stock award                             -          32          32
Comprehensive loss:
Net loss                                            -            -           -
Unrealized gain on marketable
  securities                                       202           -           -
Total comprehensive loss                             -           -      (1,195)
                                         ---------------------------------------

Balance - December 31, 2003                       202          (52)      7,976

March 31 Amortization of restricted
  stock award                                        -          31          31
May 27 Receipt of cash for
  website                                            -           -          30
June 30 Amortization of restricted
  stock award                                        -          21          21
May 31 Disposal of segment                          -           -      (4,953)
July 1 Issuance of restricted stock
  award to consultant                                -         (10)          -
September 30 Amortization of
  restricted stock award                             -           5           5
October 13 Issuance of shares for
  insurance premium                                  -           -           6
November 18 Issuance of shares
  for services                                       -           -           5
November 18 Issuance of restricted
  shares for services                                -          (7)          -
December 31 Issuance of shares for
  directors fees                                     -           -          25
December 31 Amortization of stock
  award                                              -           5           5
  Realization of comprehensive
    income                                        (202)          -        (202)
  Net loss                                           -           -      (5,897)
                                         ---------------------------------------

Balance - December 31, 2004                        $ -        $ (7)   $ (2,948)
                                         =======================================

See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>

                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING POLICIES

THE COMPANY - Paragon Financial  Corporation (the "Company") was incorporated in
Delaware on August 27, 1999 under the name PRx Holdings, Inc. and operated as an
online healthcare destination for commerce,  content and community.  The Company
closed its online health store in March 2001.  Shortly  thereafter,  the Company
began the process of  liquidating  its online  health store and seeking a merger
partner as an alternative to complete liquidation.

Paragon   Homefunding,    Inc.   ("Paragon   Delaware"),   a   privately   held,
development-stage  company based in Ponte Vedra Beach, Florida, was incorporated
in  Delaware  on August 3, 2001,  for the  purpose  of  entering  the  financial
services market through  acquisitions.  On May 31, 2002, the Company merged with
Paragon Delaware.

Pursuant to the merger,  the Company merged with and into Paragon Delaware,  and
issued 55,560,616 shares of common stock to the Paragon Delaware's  stockholders
constituting 90% of the total shares of the Company's  common stock  outstanding
immediately after the merger.  As a result of the merger,  Paragon Delaware also
assumed approximately $72 of the Company's accrued liabilities,  principally for
legal services.

For  financial  reporting  purposes,  the  merger  has been  accounted  for as a
recapitalization  of  Paragon  Delaware  with  Paragon  Delaware  viewed  as the
accounting   acquiror  in  what  is  commonly  called  a  reverse   acquisition.
Accordingly,  the financial  statements presented before the merger are those of
Paragon Delaware.

ACQUISITIONS - On January 31, 2003,  the Company  completed its merger with PGNF
Home Lending Corp.  ("PGNF") (f/k/a Mortgage Express,  Inc.), and as a result of
the merger, PGNF became a wholly-owned subsidiary. PGNF has been in the business
of originating  residential  mortgage loans since 1998.  Subject to the terms of
the merger agreement, at closing, all of the outstanding shares of PGNF's common
stock converted into 52,329,735  shares of the Company's  common stock valued at
$6.4 million (or approximately  $0.122 per share), or approximately 45.5% of the
then   outstanding   common  stock  after  the   consummation   of  the  merger.
Additionally, the Company issued a promissory note in the amount of $1.8 million
to an entity  wholly-owned by the sole  shareholder of PGNF. The promissory note
accrued  interest at 4.92% and was payable on July 31, 2004.  On March 26, 2003,
the holder of this note  agreed to convert the note and  accrued  interest  into
1,800  shares of our  Series E  preferred  stock with a face value of $1,000 per
share,  and a 4% stated  dividend  payable in cash or shares of common stock, at
the  Company's  option.  This  series of  preferred  stock does not  provide for
redemption  and is non-voting.  On May 31, 2004, the Company  divested PGNF (See
Note 2 - Discontinued Operations).

On February 2, 2003 the Company  completed its merger with Paragon  Homefunding,
Inc. ("PHF").  PHF has been in the business of originating  residential mortgage
loans since 1998. Subject to the terms of the merger agreement,  at closing, all
of the  outstanding  shares of PHF's common stock  converted  into  1,224,000 of
shares of the Company's common stock valued at

                                      F-9

<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING  POLICIES (continued)

$836  (approximately  $0.6833  per  share).  Additionally,  the  Company  issued
promissory notes to the shareholders of PHF in the aggregate principal amount of
$25. The promissory notes accrue interest at 4.92% per annum.

These  mergers  were  accounted  for as  acquisitions  pursuant to SFAS No. 141,
Accounting for Business  Combinations ("SFAS 141").  Accordingly,  the Company's
results of operations  include the operating results of these companies from the
effective date of these mergers, February 1, 2003.

GENERAL - This summary of significant accounting policies is presented to assist
in  understanding  the  financial  statements  of  the  Company.  The  financial
statements  and notes  are  representations  of the  Company's  management.  The
Company's  management is responsible  for the integrity and objectivity of these
financial statements.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include  the  accounts  of the Company  and its wholly  owned  subsidiaries.  In
consolidation,  all material  intercompany  balances and transactions  have been
eliminated.   Results  of  operations  of  companies  acquired  in  transactions
accounted  for under the  purchase  method of  accounting  are  included  in the
financial  statements  from  the  date  of  the  acquisition.  The  consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America.

USE  OF  ESTIMATES  - In  preparing  financial  statements  in  conformity  with
generally  accepted  accounting  principles,  management  is  required  to  make
estimates and assumptions that materially  affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the  financial  statements,  and revenues and expenses  during the  reporting
period.  Material  estimates  that are  particularly  susceptible to significant
change in the near term relate to the  determination  of the  allowance for loan
repurchases  and  premium  recapture,  goodwill,  and  loss on  disposal  of our
discontinued segment. Actual results could differ from those estimates.

                                      F-10


<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING  POLICIES  (continued)

The  determination  of the adequacy of the  allowance for loan  repurchases  and
premium  recapture  losses  is  based  on  estimates  that  may be  affected  by
significant  changes in the  economic  environment  and market  conditions.  The
Company has obtained insurance to mitigate some of this risk.

CASH AND CASH  EQUIVALENTS - For purposes of the  statements of cash flows,  the
Company  considers all highly liquid  investments  purchased with  maturities of
three months or less on their acquisition date to be cash equivalents.  Cash and
cash equivalents include cash on hand and funds held in checking,  money market,
and savings accounts.

FEES RECEIVABLE - Fees  receivable  consist of fees due on loans closed prior to
the balance sheet date. Fees receivable are typically collected within 30 days.

MORTGAGE   LOANS   RECEIVABLE   HELD-FOR-SALE   -  Mortgage   loans   receivable
held-for-sale   consist  of  loans  made  to  individuals   that  are  primarily
collateralized by residential one to four unit family dwellings.  Mortgage loans
are recorded at the principal  amount  outstanding  net of deferred  origination
costs and fees and any  premium or  discounts.  These  loans are  carried at the
lower of amortized cost or fair value as determined by  outstanding  commitments
from  investors  or  current  investor-yield  requirements,   calculated  on  an
aggregate  basis.  Interest  on loans  receivable  held-for-sale  is credited to
income as earned. Interest is accrued only if deemed collectible.

ALLOWANCE FOR LOAN  REPURCHASES  AND PREMIUM  RECAPTURE - The allowance for loan
repurchases  and  premium  recapture  relates to  expenses  incurred  due to the
potential  repurchase  of loans or  indemnification  of losses  based on alleged
violations of representations and warranties which are customary to the mortgage
banking industry. Provisions for losses are charged to gain on sale of loans and
credited to the allowance.  The allowance  represents the Company's  estimate of
the  total  losses  expected  to  occur  and is  considered  to be  adequate  by
management based upon the Company's evaluation of the potential exposure related
to the loan sale  agreements  over the life of the  associated  loans sold.  The
Company  has  purchased  insurance  to cover  third party  broker  fraud,  which
mitigates some of the risks.

OFFICE  PROPERTY AND EQUIPMENT,  NET - Office  property and equipment,  net, are
stated at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the asset as follows:


Computer hardware                                Five years
Furniture and fixtures                           Five to seven years
Computer software                                Three years
Leasehold improvements                           Lower of life of lease or asset


                                      F-11
<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING POLICIES (continued)

AVAILABLE-FOR-SALE    SECURITIES   AND    COMPREHENSIVE    LOSS   -   Securities
available-for-sale  are carried at fair value with  unrealized  gains and losses
reported in other  comprehensive  income.  Realized gains (losses) on securities
available-for-sale  are  included in other  income  and,  when  applicable,  are
reported as a reclassification  adjustment,  net of tax, in other  comprehensive
income.  Gains  and  losses  on  sales  of  securities  are  determined  on  the
specific-identification method.

Equity securities held principally for resale in the near term are classified as
trading  securities  and  recorded at their fair  values.  Unrealized  gains and
losses on trading securities are included in other income. During 2004 and 2003,
the Company did not engage in trading securities.

Declines in the fair value of individual and available-for-sale securities below
their cost that are other than temporary result in write-downs of the individual
securities to their fair value. The related write-downs are included in earnings
as  realized  losses.  As of  December  31, 2004 and 2003,  no  securities  were
determined to have other than a temporary decline in fair value below cost.

In fiscal 2004 and 2002,  the Company had no items of  comprehensive  loss other
than net loss.

DERIVATIVES - The Company does not purchase,  sell, or utilize off-balance sheet
derivative financial instruments or derivative commodity instruments.

GOODWILL - Goodwill  represents  the excess of the purchase  price over the fair
value of the net assets acquired in a purchase  business  combination.  Goodwill
and  other  intangible  assets  are  stated  on the  basis  of  cost.  See  also
"Impairment" which follows.

IMPAIRMENT - Long-lived assets,  including certain identifiable  intangibles and
goodwill,  are reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of the asset in question may not
be recoverable  including,  but not limited to, a deterioration of profits for a
business segment that has long-lived  assets, and when other changes occur which
might  impair  recovery  of  long-lived  assets.  Management  has  reviewed  the
Company's  long-lived  assets and has recorded an impairment charge of $2,582 in
the year ended  December 31, 2004 related to its PGNF  subsidiary  to reduce the
carrying  value  of PGNF to  estimated  realizable  value.  The  method  used to
determine  the  existence of an  impairment  would be generally by comparing the
undiscounted  operating cash flows estimated over the remaining  useful lives of
the related  long-lived assets to their related carrying amounts.  Impairment is
measured as the difference  between fair value and unamortized  cost at the date
impairment is determined.

Subsequent  to the year ended  December  31,  2004,  the Company  recognized  an
impairment  charge of $822 in connection  with the value of goodwill.  After the
impairment  charge,  goodwill  had a remaining  book value of $0 (see Note 17).

GAIN ON SALES OF LOANS - Gains or losses  resulting from sales of mortgage loans
are recognized at the date of settlement and are based on the difference between

                                      F-12
<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING  POLICIES  (continued)

the  selling  price of the  mortgage  loans sold and the  carrying  value of the
related  loans sold.  Nonrefundable  fees and direct costs  associated  with the
origination  of mortgage  loans are deferred and  recognized  when the loans are
sold.  Loan  sales  are  accounted  for as sales  when  control  of the loans is
surrendered, to the extent that consideration other than beneficial interests in
the loans transferred is received in the exchange.

ORIGINATION  FEES -  Origination  fees are  comprised  of points  and other fees
charged on  mortgage  loans  originated  by the retail  segment of the  Company.
Points  and fees are  primarily  a  function  of the  volume of  mortgage  loans
originated by our retail segment.  Origination  fees on loans  originated by the
Company that are  subsequently  sold are deferred and  recognized as part of the
gain on sale of loans.

INCOME TAXES - The Company  accounts  for income taxes  pursuant to Statement of
Financial  Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under the asset and liability  method specified  thereunder,  deferred taxes are
determined based on the difference between the financial reporting and tax bases
of assets and  liabilities.  Deferred tax liabilities are offset by deferred tax
assets  relating to net operating loss  carryforwards  and deductible  temporary
differences.

ADVERTISING  -  The  Company's  advertising  costs  are  expensed  as  incurred.
Advertising expense were $20, $60, and $0 for the years ended December 31, 2004,
2003 and 2002 respectively.

RECLASSIFICATIONS  -  Certain  reclassifications  have  been  made  to the  2003
financial  statements in order to conform to the presentation  adopted for 2004.
These reclassifications had no effect on net income or retained earnings.

FAIR VALUE OF  FINANCIAL  INSTRUMENTS  -  Financial  instruments  of the Company
consist of cash and cash  equivalents,  receivables for fees,  accounts payable,
notes  payable,  and  convertible  debentures  payable.  The carrying  amount of
financial instruments approximates fair value.

CONCENTRATIONS  OF RISKS - The  Company is required by  Statement  of  Financial
Accounting  Standards  No.  105  to  disclose   concentrations  of  credit  risk
regardless of the degree of such risk. The Company's operations are concentrated
in  single-family  first mortgage  residential  real estate market.  The Company
operates in a heavily regulated  environment.  The operations of the Company are
subject to changes in laws,  administrative directives and rules and regulations
of federal,  state, and local governments and regulatory agencies.  Such changes
may occur  with  little  notice of time for  compliance.  Further,  the  Company
performs credit evaluations of its customers' financial condition,  performs its
operations  under  contracts  and  requires   deposits  when  deemed  necessary.
Historically, the Company has not incurred any significant credit losses.

The  Company  originates  and  processes  loans that are closed and  immediately
assigned to financial  institutions  or mortgage  banking  companies  throughout
Florida, although the majority of PHF's business is in the Central Florida area.
The Company  closed  loans with  approximately  ten  financial  institutions  or
mortgage  companies  of which  only two,  Irwin  Mortgage  and  Chase  Mortgage,
exceeded 10% of the total volume for the years ended December 31, 2004 and 2003.

                                      F-13


<PAGE>







                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING POLICIES (continued)

The Company maintains its cash in bank deposit accounts at a high credit-quality
financial  institution.  At times  during the years ended  December 31, 2004 and
2003,  the  Company's  cash  balances  exceeded  the  federally-insured   limit.
Management  believes  this  policy will not  adversely  affect the  Company.  At
December 31, 2004 and 2003, cash balances exceeded the  federally-insured  limit
by $0 and $225, respectively.

STOCK-BASED  COMPENSATION  -  The  Company  has  elected  to  follow  Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB 25"),  and related  interpretations,  in  accounting  for  employee  stock
options  rather  than the  alternative  fair  value  accounting  allowed by FASB
Statement No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS 123"). APB
25 provides that compensation  expense relative to the Company's  employee stock
options is recorded on the date of grant only if the current market price of the
underlying  stock exceeds the exercise price.  Under SFAS 123, the fair value of
stock  options at the date of grant is  recognized  in earnings over the vesting
period of the options.  In December 2002, FASB issued SFAS No. 148,  "Accounting
for Stock-Based  Compensation--Transition  and Disclosure"  ("SFAS 148"),  which
amends SFAS 123 to provide  alternative  methods of  transition  for a voluntary
change  to  the  fair  value  method  of  accounting  for  stock-based  employee
compensation.  In addition,  SFAS 148 amends the disclosure requirements of SFAS
123 to  require  prominent  disclosures  in both  annual and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method on reported  results.  The Company will continue to
report  stock  based  compensation  under  APB 25 but has  adopted  the  interim
reporting requirements of SFAS 148.

As of December 31, 2004,  there were stock options  outstanding for the purchase
of 34,411,750 shares of the Company's common stock.  There were 22,935,000 stock
options  granted and  29,262,000  forfeited  during the year ended  December 31,
2004.

The following  table shows the pro forma net loss as if the fair value method of
SFAS No. 123 had been used to account for stock-based  compensation  expense for
the years ended December 31, 2004,  2003 and 2002 (dollars in thousands,  except
per share amounts):
<TABLE>
<CAPTION>
<S>                             <C>                    <C>                   <C>

                                            2004                   2003                  2002
                                            ----                   ----                  ----
Net loss from continuing
  operations, as reported                   $ (2,358)              $(1,680)               $(2,342)
  Stock based employee
  compensation expense
  determined under fair value
  method for all awards,
  net of related tax effects                     521                   707                     47
                                ---------------------- --------------------- ----------------------

Proforma net loss from
  continuing operations                      $(2,879)              $(2,387)               $(2,389)
                                ====================== ===================== ======================

Net loss per share from
 continuing operations:
    Basic and diluted, as
       reported                               $(0.03)               $(0.01)                $(0.04)
                                ====================== ===================== ======================

    Pro forma basic and
      diluted                                 $(0.03)               $(0.02)                $(0.04)
                                ====================== ===================== ======================

</TABLE>

                                      F-14

<PAGE>







                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING  POLICIES  (continued)  RECENT  ACCOUNTING  DEVELOPMENTS - In January
2003, the FASB issued FIN 46(R), "Consolidation of Variable Interest Entities --
an  interpretation  of  ARB  No.  51"  ("FIN  46(R)").  The  objective  of  this
Interpretation  is not to restrict the use of variable  interest entities but to
improve  financial  reporting by  enterprises  involved with  variable  interest
entities.  FIN  46(R)  states  that a  business  enterprise  with a  controlling
financial  interest in a variable  interest  entity  should  include the assets,
liabilities,  and results of the activities of the variable  interest  entity in
consolidated  financial  statements with those of the business  enterprise.  FIN
46(R) applied  immediately to variable  interest  entities created after January
31, 2003, and to variable  interest  entities in which an enterprise  obtains an
interest  after that date. It applies in the first fiscal year or interim period
beginning  after  December 15, 2003, to variable  interest  entities in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
The adoption of this interpretation has had no effect on the Company's financial
statements.

On December 12, 2003,  the American  Institute of Certified  Public  Accountants
issued  Statement of Position No. 03-3,  "Accounting  for Certain  Loans or Debt
Securities  Acquired  in a  Transfer"  (SOP 03-3).  SOP 03-3  requires  acquired
impaired  loans for which it is  probable  that the  investor  will be unable to
collect all  contractually  required  payments  receivable to be recorded at the
present value of amounts expected to be received and prohibits  carrying over or
creation of valuation  allowances in the initial accounting for these loans. SOP
03-3 is effective for loans  acquired in fiscal years  beginning  after December
31,  2004.  SOP  03-3  does not  have an  impact  on the  Company's  results  of
operations or financial condition.

In March 2004,  Securities  and Exchange  Commission  ("SEC")  Staff  Accounting
Bulletin No. 105 was issued,  which provides guidance regarding loan commitments
that  are  accounted  for as  derivative  instruments  under  FASB  No.  133 (as
amended),  "Accounting for Derivative  Instruments and Hedging  Activities".  In
this Bulletin,  the SEC ruled that the amount of the expected  servicing  rights
should not be included when  determining  the fair value of derivative  interest
rate lock  commitments.  This guidance  must be applied to rate locks  initiated
after March 31, 2004.  SAB No. 105 has had no impact on our financial  condition
or results of operations.

In March,  2004,  the Emerging  Issues Task Force (EITF) issued EITF 03-1,  "The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments"  (EITF  03-1).  EITF  03-1  provides  recognition  and  measurement
guidance regarding when impairments of equity and debt securities are considered
other-than-temporary  thereby  requiring  a charge to  earnings.  EITF 03-1 also
requires  additional  annual  disclosures  for  investments  in unrealized  loss
positions.  The additional annual disclosure requirements were previously issued

                                      F-15

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 1.  PRINCIPLES OF  CONSOLIDATION,  BASIS OF  PRESENTATION,  AND SIGNIFICANT
ACCOUNTING  POLICIES  (continued)

by the EITF in November 2003 and were  effective for the year ended December 31,
2003. In September  2004, the FASB issued FASB Staff Position (FSP) EITF 03-1-1,
which delays the recognition and measurement provisions of EITF 03-1 pending the
issuance of further  implementation  guidance.  EITF 03-1 and EITF 03-1-1 do not
have an impact on our results of operations or financial condition.

In June 2004,  the FASB released EITF 03-6,  "Participating  Securities  and the
Two-Class Method under FASB Statement No. 128" (EITF 03-6).  This  pronouncement
provides  guidance on when to apply the two-class method for computing basic and
diluted  earnings  per  share  for  participating  securities.  A  participating
security is a security that  participates in undistributed  earnings with common
stock  regardless of whether the  participation is dependent upon the occurrence
of a  specific  event.  EITF  03-6  did not  impact  the  Company's  results  of
operations or financial condition.

In December,  2004, the FASB issued Statement of Financial  Accounting Standards
(SFAS) No. 123 (revised 2004) "Share-based Payment" (SFAS 123R) which eliminates
the  ability  to  account  for  share-based   compensation   transactions  using
Accounting  Principles Board (APB) Opinion No. 25,  "Accounting for Stock Issued
to  Employees,"  (APB 25) and  generally  requires  that  such  transactions  be
accounted for using a fair  value-based  method with the resulting  compensation
cost recognized over the period that the employee is required to provide service
in order to  receive  their  compensation.  SFAS 123R also  amends  SFAS No. 95,
"Statement of Cash Flows," requiring the benefits of tax deductions in excess of
recognized  compensation  cost to be reported as a financing  cash flow,  rather
than as an operating  cash flow as currently  required.  The  provisions of this
statement are effective in the first fiscal  beginning  after June 15, 2005. The
impact  of  the  adoption  of  SFAS  123 is  addressed  above  (see  stock-based
compensation)  and the  impact  of  adopting  SFAS  123R is not  expected  to be
materially different.

NOTE 2. DISCONTINUED OPERATIONS

On June 30,  2004,  we closed the sale of our PGNF Home Lending  Corp.  ("PGNF")
subsidiary  effective  May 31,  2004.  Pursuant  to the  agreement,  the Company
exchanged the common stock of PGNF,  as well as the  assumption of all of PGNF's
liabilities, contingent and otherwise, for 52,329,735 shares of our common stock
valued at $3,140  (based  upon the closing  price of $0.06 on May 31,  2004) and
1,800  shares of our Series E preferred  stock plus accrued  dividend  valued at
$1,998. In accordance with Statement of Financial  Accounting Standards No. 144,
"Accounting  for  Impairment or Disposal of  Long-Lived  Assets," the assets and
liabilities of the PGNF have been  classified as discontinued  operations,  with
its operating  results in the current and prior periods reported in discontinued
operations for the years ended December 31, 2004 and 2003.

                                      F-16
<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 2. DISCONTINUED OPERATIONS (continued)

A summary of the operating results of the discontinued  operations for the years
ended December 31, 2004 and 2003 is as follows.
<TABLE>
<CAPTION>
<S>                                       <C>                                   <C>

                                              2004                                 2003
                                              ----                                 ----

Revenue:

      Gain on sale of loans              $                   2,160              $                 7,230

      Loan origination fees                                    551                                3,031

      Interest, dividends,
         and other income                                      546                                1,680
                                         -------------------------              -----------------------
            Total revenue                                    3,257                               11,941
                                         -------------------------              -----------------------
Expenses:

      Salaries, commissions,
         benefits, and
         stock-based
         Compensation                                        2,151                                5,914

      Loan production costs                                    310                                1,168

      General and
         administrative
         expenses                                            1,519                                2,989

      Impairment of goodwill                                 2,582                                 --

      Non-recurring expense
         (income)                                             (198)                                --

      Interest expense                                         436                                1,259

      Other (income) expense                                    (4)                                  46
                                         -------------------------              -----------------------
            Total expenses                                   6,796                               11,376
                                         -------------------------              -----------------------
(Loss) income from
   discontinued operations
   before provision for
   income taxes                                             (3,539)                                 565

Provision for income taxes                                    --                                    282
                                         --------------------------             -----------------------
(Loss) income from
   discontinued operations               $                  (3,539)             $                   283
                                         =========================              =======================

</TABLE>

                                      F-17
<PAGE>




The  following is a summary of the assets and  liabilities  of our  discontinued
operations as of December 31, 2003:

<TABLE>
<CAPTION>
<S>                                                                             <C>


ASSETS:

Cash and cash equivalents                                                       $                   482

Fees receivable                                                                                      93

Mortgage loans receivable held-for-sale, net                                                     23,245

Office property and equipment, net of accumulated depreciation
   of $259                                                                                        1,021

Other notes and mortgages receivable                                                                136

Available-for-sale securities                                                                       995

Goodwill                                                                                          7,814

Prepaid and other assets                                                                            260
                                                                    -----------------------------------

Total assets of discontinued operations                             $                            34,046
                                                                    ===================================

LIABILITIES:

Warehouse lines of credit                                           $                            22,711

Notes payable                                                                                     1,581

Subordinated note payable - related party                                                           776

Accounts payable                                                                                    541

Accrued expenses - other                                                                            342

Derivative liability                                                                                203
                                                                    -----------------------------------

Total liabilities of discontinued operations                        $                            26,154
                                                                    ===================================

</TABLE>
                                      F-18
<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 3. GOING CONCERN

As shown in the  accompanying  consolidated  financial  statements,  the Company
incurred  net  losses  of $5,897  for the year  ended  December  31,  2004,  and
cumulative  losses of $9,861.  At December  31, 2004,  we had a working  capital
deficit of $2,064 and  stockholders'  deficits of $2,948.  These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The  accompanying   consolidated   financial   statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

To remain viable as a going concern, the Company has initiated and executed upon
a plan that includes  reducing  operating  expenses,  raising  additional equity
capital,  acquiring  profitable mortgage brokering operations producing positive
cash flow, and  renegotiating  the terms of its existing  indebtedness to reduce
their  current  cash   requirements   (See  Note  16).  Though   management  has
accomplished  certain  aspects of its plan,  there can be no assurance  that its
plan will be  successful  and the  Company  will be able to  continue as a going
concern.

NOTE 4. OFFICE PROPERTY AND EQUIPMENT

Office property and equipment from continuing operations as of December 31, 2004
and 2003 are summarized as follows:
<TABLE>
<CAPTION>
<S>               <C>                                   <C>

                                 2004                                  2003
                                 ----                                  ----

Furniture and
   fixtures       $                                20   $                                66

Office equipment                                   87                                    93
                  -----------------------------------   -----------------------------------
                                                  107                                   159

Accumulated
   depreciation                                   (43)                                  (27)
                  -----------------------------------   -----------------------------------
                  $                                64   $                               132
                  ===================================   ===================================
</TABLE>


Depreciation  expense for the years ended  December 31, 2004,  2003 and 2002 was
$30, $26, and $1 respectively.

                                      F-19

<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 5. GOODWILL

Goodwill  represents the excess of the merger  consideration over the fair value
of the net assets of PHF on January 31, 2003.  A summary of goodwill  recognized
from continuing operations follows:


PHF - Consideration  for the merger was $876 consisting of $836 in shares of the
Company's  common stock (1,224,000  shares at approximately  $0.6833 per share),
$25 in a promissory note issued by the Company, and $15 in costs associated with
the merger. At the time of the merger, the fair value of the net
assets of PHF was $54.
                                                         $                822

Less impairment charge (see below)                                       (822)
                                                         -----------------------

                                                         $                 --
                                                         -----------------------

Subsequent  to the year ended  December  31,  2004,  the Company  recognized  an
impairment  charge of $822 in connection  with the value of goodwill.  After the
impairment  charge,  goodwill  had a remaining  book value of $0 (see Note 17).


NOTE 6. OTHER ASSETS

Other assets from continuing operations at December 31, 2004 and 2003 were:

                                    2004                                2003
                                    ----                                ----

Deferred tax assets  $                    --             $                  446

Security deposits
   and other                              3                                  29
                     ------------------------            -----------------------
                     $                    3              $                  475
                     ========================            =======================

                                      F-20

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 7. DEBT

The Company's debt as of December 31, 2004 and 2003 was as follows:
<TABLE>
<CAPTION>

<S>                                                                             <C>

                                                                                           2004                                2003
                                                                                           ----                                ----


Revolving line of credit  subject to a  standstill  agreement  with a commercial
   bank  secured by certain  equipment  and  furniture  of the  Company  bearing
   interest  at prime rate  requiring  monthly  principal  reductions  of $5 per
   month, through November 1, 2005 (see below)

                                                                                $           221                  $               245

Insurance  premium  finance  note  bearing an interest  rate of 8% with  monthly
   principal and interest payments of $6,  due May 1, 2005                                   24                                   20

Promissory  note to vendor  bearing  interest of 8% with monthly  principal  and
   interest payments of $4, currently past due since October 15, 2004                        24                                   --

Promissory note to shareholders of PHF  bearing interest at 4.92%, due December
   31, 2005                                                                                  25                                   25

Convertible debentures bearing interest at 15%, due December 31, 2004;
   subsequently modified to mature December 31, 2006 (See Note 16)                          379                                  379

Subordinated  note  payable to former  stockholder  bearing  interest at 5%, due
   November 30, 2005, currently in default for current payments due at December
   31, 2004 (see Note 16)                                                                   480                                   --

Subordinated note payable to former stockholder  bearing interest at 5%, due May
   31, 2008, currently in default for current payments due at December 31,
   2004 (see Note 16)                                                                     1,051                                   --
                                                                                ---------------                  -------------------
                                                                                $         2,204                  $               669
                                                                                ===============                  ===================

</TABLE>

On September 24, 2004, the Company  defaulted on its promissory  note dated June
4, 2003 to Bank of America, N.A. ("BoA") being unable to repay this note in full
when  demanded to do so by BoA. BoA has  commenced  legal action  against us and
other  guarantors of the  indebtedness  for repayment.  On December 13, 2004, we
entered into a standstill  agreement with BoA whereby, for a principal reduction
payment of $25 and the payment of an  extension  fee and BoA's  legal fees,  the
maturity  date of the note was extended to December 1, 2005,  the interest  rate
was increased to the bank's prime rate plus 4%, and requires principal reduction
payments of $5 per month through November 1, 2005.

                                      F-21
<PAGE>






                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 7. DEBT (continued)

On January 1, 2005, the Company  defaulted on its subordinated  promissory notes
due a formerly related party. These notes represent indebtedness incurred in the
divestiture of PGNF. On April 7, 2005, the Company reached an agreement with the
holder of the notes  whereby the Company  would begin  making  monthly  interest
payments of  approximately  $7 on the notes  beginning April 2005. The agreement
does not include a waiver of rights by the holder.

Maturities of debt at December 31, 2004 are as follows:

Year Ending                                                            Amount
-----------                                                            ------

2005                                                     $                 1,253

2006                                                                         100

2007                                                                         100

2008                                                                         751
                                                         -----------------------
Total                                                    $                 2,204
                                                         =======================

NOTE 8. STOCKHOLDERS' DEFICIENCY

PREFERRED STOCK - The Company's certificate of incorporation authorizes a series
of 5,000,000 shares of preferred stock with a par value of $0.0001 and with such
rights, privileges and preferences, as the board of directors may determine.

On March 26, 2003, the Company's  board of directors  authorized the issuance of
3,000 shares of preferred stock, par value $0.0001 per share, and designated the
shares as Series E Preferred Shares (the "Series E Preferred"). The stated value
of each share of the Series E  Preferred  is $1,000 per share;  has a  mandatory
dividend  of 4% of the stated  value,  per annum and shall be payable on January
1st of each year and is payable in either shares of the  Company's  common stock
or cash;  has no voting  rights;  and is not  convertible.  On March  26,  2003,
certain of the Company's executive officers converted certain accrued salary and
benefits into 659 shares of Series E Preferred.

On March 26, 2003, the holder of the note issued for the PGNF acquisition agreed
to convert  the note and  accrued  interest  into  1,800  shares of our Series E
preferred stock with a face value of $1,000 per share,  and a 4% stated dividend
payable in cash or shares of common stock, at the Company's option.  This series
of preferred  stock does not provide for redemption  and is non- voting.  On May
31,  2004,  these  1,800  shares  were  returned  to the  Company as part of the
divestiture of PGNF discussed above (See Notes 1 and 2).

STOCK PURCHASE WARRANTS - As part of its convertible notes offering, the Company
issued detachable  warrants to purchase up to 75,800 shares of common stock at a
rate of $0.25 per share.  The  warrants are  exercisable  at a rate of $0.25 per
share for a period of three years.

COMMON  STOCK - In March 2002,  the  Company,  partially  through  its  founding
shareholders, issued a total of 16,431,975 shares of restricted and unrestricted
common stock to its newly recruited  chief executive  officer in connection with
his  employment  agreement  and  recorded  $200 of non-cash  stock  compensation
applicable to the 5,477,325 of shares that were unrestricted.  Immediately prior
to their issuance to the new chief executive officer, they had been contributed,
at no consideration,  to the Company by the Company's two founding shareholders.
Of the  10,954,650  restricted  shares  issued,  all of which were newly  issued
shares, 8,215,875 were to vest over time with the value of the stock award to be


                                      F-22
<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 8. STOCKHOLDERS' DEFICIENCY (continued)

amortized to expense over the related  vesting period.  The remaining  2,738,775
restricted  shares  were to vest  upon  the  Company's  completing  its  initial
acquisition, with a compensation charge to be recorded based on the market value
of the stock at the time of such initial  acquisition.  On July 16,  2002,  this
individual  resigned as chief  executive  officer of the Company.  In connection
with his  resignation,  he rescinded the stock grant as well as all options that
he had been granted. In accordance with Accounting  Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations,  the
Company recorded  approximately $62 of income in order to reverse the effects of
amounts  previously  recorded  as  expense  for  the  amortization  of  unvested
restricted  stock  that  was  forfeited.  Also,  pursuant  to the  terms  of the
rescission agreement, the unrestricted shares that were issued to the individual
that had been  contributed  to the  Company by the  founding  shareholders  were
reissued to them and  pursuant to the merger  agreement  with  PlanetRx.com  the
restricted  shares were  reallocated to all  shareholders  that had existed just
prior  to  the  merger  with   PlanetRx.com.   The  reallocation  to  all  other
shareholders  was a "de facto"  proportional  stock  split,  not  requiring  any
accounting   recognition.   The  re-issuance  of  the  shares  to  the  founding
shareholders  resulted in a $548 charge to  non-cash  stock-based  compensation,
since among other  factors,  they  assumed  the  responsibilities  of the former
executive.

In May of 2002, the Company completed an offering of 10,783,486 shares of common
stock  for  approximately  $394 to  private  investors  at  $0.0365  per  share.
Approximately $9 of offering costs were charged against these proceeds.  Also in
May of 2002, as described in Note 1, the Company merged with PlanetRx.com.  As a
result, the shareholders of PlanetRx.com  became shareholders of the Company. At
the time of the merger, these shareholders owned 6,173,403 shares. In accordance
with standard accounting  practices for reverse  acquisitions,  the shares owned
and retained by the PlanetRX.com  shareholders are treated as if they were newly
issued by the Company to effect the merger.

In July 2002 the Company  issued  458,725 shares of common stock valued at $0.10
per share,  to certain  consultants  as  consideration  for their  services  and
recorded $46 of non-cash compensation expense.

In November 2002,  the Company issued 400,000 shares of common stock,  valued at
$0.09 per share, to a consultant as consideration  for his services and recorded
$36 of non-cash compensation expense.

STOCK OPTIONS - In December 2002, the Company's  shareholders  approved the 2002
Equity  Participation  Plan (the "2002 Plan").  The maximum  number of shares of
common  stock that may be issued  pursuant  to options  or as  restricted  stock
granted  under  the 2002  Plan is one  hundred  million  shares.  The 2002  Plan
authorizes the granting of stock options,  restricted stock and stock bonuses to
employees,  officers,  directors and  consultants,  independent  contractors and
advisors of the Company and its subsidiaries.

                                      F-23

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 8. STOCKHOLDERS' DEFICIENCY (continued)

Under SFAS 123,  the fair value of each option grant is estimated on the date of
grant  using  the   Black-Scholes   option-pricing   model  with  the  following
weighted-average  assumptions  for the years ended  December 31, 2004,  2003 and
2002:


                                                 2004     2003     2002
                                                 ----     ----     ----

Expected life of option                           4        4        4

Dividend yield                                    0%       0%       0%

Volatility                                      136%      37%     115%
                                               3.43%   2 .89%    3.94%

Risk free interest  rate.

The weighted  average fair value of options granted to employees,  directors and
consultants  during the years  ended  December  31,  2004,  2003 and 2002 was as
follows:


                                      2004              2003              2002
                                      ----              ----              ----

Fair value of each option granted  $     0.03      $      0.18      $       nil

Total number of options granted    22,935,000       27,609,750       38,433,000

Total fair value of all options
granted                            $      790      $     4,852      $        83

Outstanding options, consisting of ten-year incentive options typically vest and
become  exercisable  over a  three-year  period  from  the  date of  grant.  The
outstanding  options expire ten years from the date of grant or upon  retirement
from the Company,  and their exercise is contingent  upon  continued  employment
during the applicable ten-year period.

                                      F-24

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 8. STOCKHOLDERS' DEFICIENCY (continued)

A summary of the stock option grants  outstanding as of December 31, 2004,  2003
and 2002 as well as changes during the years then ended is presented below:

<TABLE>
<CAPTION>
<S>                                            <C>                              <C>


                                                   NUMBER OF                     WEIGHTED
                                                    OPTIONS                       AVERAGE
                                                    --------                     EXERCISE
                                                                                   PRICE
                                                                                   -----
Outstanding at January 1, 2002                              --                                     --

Granted                                               38,433,000                $                0.19

Assumed in merger                                         18,750                $                2.12

Exercised                                                   --                                     --

Forfeited                                                   --                                     --
                                               -----------------                ---------------------

Outstanding at December 31, 2002                      38,451,750                $                0.19

Granted                                               27,609,750                $                0.47

Exercised                                                   --                                     --

Rescinded                                            (15,000,000)               $                0.26

Forfeited                                            (10,322,750)               $                0.16
                                               -----------------                ---------------------
Outstanding at December 31, 2003                      40,738,750                $                0.37

Granted                                               22,935,000                $                0.06

Exercised                                                   --                                     --

Forfeited                                            (29,262,000)               $                0.31
                                               -----------------                ---------------------
Outstanding at December 31, 2004                      34,411,750                $                0.21
                                               =================                =====================
Options exercisable at December 31, 2004              10,110,083                $                0.18
                                               =================                =====================
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 2004:
<TABLE>
<CAPTION>
<S>                                                   <C>                       <C>            <C>

                                                          12/31/04             Options         Remaining
                                                           Options           Exercisable       Life In
Exercise Price Range                                     Outstanding         -----------         Years
--------------------                                     -----------                             -----

$0.04 - $0.05                                                13,000,000                 --          9.6

$0.09 - $0.10                                                 7,408,000            7,408,000        7.8

$0.17 - $0.26                                                 1,340,000              683,333        8.8

$0.44 - $0.45                                                12,645,000            2,000,000        8.5

$2.12 *                                                          18,750               18,750        5.8
                                                      -----------------         ------------
                                                             34,411,750           10,110,083
                                                      =================         ============
</TABLE>

*  Granted by predecessor issuer

                                      F-25
<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 9. COMMITMENTS AND CONTINGENCIES

Off-Balance  Sheet Risks - The Company enters into  commitments to extend credit
in the normal course of business. These commitments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount  recognized in
the  balance  sheet.  Commitments  to fund  loans  are  agreements  to lend to a
customer as long as there is no violation of any  condition  established  in the
contract. Commitments generally have fixed expiration dates or other termination
clauses.   One-to-four  family   residential   properties,   if  funded,   would
collateralize   the   commitments.   The  Company   evaluates  each   customer's
creditworthiness  and obtains  appraisals to support the value of the underlying
collateral.  Also,  external market forces affect the probability of commitments
being exercised;  therefore,  total  commitments  outstanding do not necessarily
represent  future  cash  requirements.  The  Company  quotes  interest  rates to
borrowers,  which are generally  subject to change by the Company.  Although the
Company typically honors such interest rate quotes, the quotes do not constitute
interest rate locks,  minimizing the potential interest rate risk exposure.  The
Company had no binding commitments to fund loans at December 31, 2004.

Supervisory Regulation - The Company's mortgage brokering business is subject to
the rules and  regulations  of the  Department of Housing and Urban  Development
("HUD") and various  state and federal  agencies  with  respect to  originating,
processing, and selling mortgage loans as a nonsupervised  correspondent lender.
Those rules and  regulations  require,  among other  things,  that the Company's
subsidiary,  PHF,  maintain a minimum net worth of $63. As of December 31, 2004,
PHF was in compliance with these  requirements.  The Company  currently does not
service loans for other investors or federal agencies.

Minimum  Operating  Lease  Commitments  - The  Company is party to a real estate
lease for its Orlando  location as well as leases for certain office  equipment.
The  Company  pays  taxes,  insurance,  other  operating  expenses,  and general
maintenance for all lease  arrangements.  Rent expense of continuing  operations
for the years ended December 31, 2004 and 2003 was $163 and $128,  respectively,
and included facilities rent of $157 and $121, respectively.  Equipment rent for
the same periods totaled $6 and $7, respectively. The minimum rental commitments
for the lease agreement for the Company's premises are as follows:


Year ending December 31,

      2005  $                                55

      2006                                   23
            -----------------------------------
            $                                78
            -----------------------------------

Litigation  - On October 15,  2004,  the Company was served with a summons on an
eviction  action by its landlord  seeking unpaid rent and other damages of $268.
The Company  agrees to vacate the office  space it occupied  in  forgiveness  of
unpaid rents under the lease and  forfeiture  of its deposit of $25.  Based upon
this agreement, the action was dismissed with prejudice.

On September 24, 2004, the Company  defaulted on its promissory  note dated June
4, 2003 to Bank of America, N.A. ("BoA") being unable to repay this note in full
when  demanded  to do so by BoA.  BoA has  commenced  legal  action  against the
Company and other guarantors of the indebtedness for repayment.  On December 13,
2004, the Company entered into a standstill  agreement whereby,  for a principal
reduction  payment  of $25 and the  payment of an  extension  fee and the bank's
legal fees,  the maturity date of the note was extended to December 1, 2005, the
interest  rate was  increased  to the bank's  prime  rate plus 4%, and  requires
principal reduction payments of $5 per month through November 1, 2005.


                                      F-26
<PAGE>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 9. COMMITMENTS AND CONTINGENCIES (continued)

In mid-2001,  the Company, and certain of its former directors and officers were
named as  defendants  in class  action  complaints  alleging  violations  of the
federal  securities  laws in the United States  District  Court for the Southern
District of New York.  In  mid-2002,  the  complaints  against the Company  were
consolidated into a single action.

The essence of the  complaint is that in connection  with the Company's  initial
public  offering in October 1999  ("IPO"),  the  defendants  issued and sold the
Company's  common  stock  pursuant  to a  registration  statement  which did not
disclose to investors  that certain  underwriters  in the offering had solicited
and received  excessive  and  undisclosed  commissions  from  certain  investors
acquiring the Company's  common stock in connection  with the IPO. The complaint
also  alleges  that the  registration  statement  failed  to  disclose  that the
underwriters   allocated   Company  shares  in  the  IPO  to  customers  of  the
underwriters  in exchange  for the  customers'  promises to purchase  additional
shares in the  aftermarket  at  pre-determined  prices above the IPO price.  The
action seeks damages in an unspecified amount.

The action is being  coordinated with  approximately  300 other nearly identical
actions filed  against  other  companies  that had initial  public  offerings of
securities between 1997 and 2000 same time period.

The Company  has  approved a  Memorandum  of  Understanding  ("MOU") and related
agreements  which set forth the terms of a settlement  between the Company,  the
plaintiff  class and the vast  majority  of the other  approximately  300 issuer
defendants.  Among other  provisions,  the  settlement  contemplated  by the MOU
provides  for a release of the Company  and the  individual  defendants  for the
conduct  alleged  in the  action to be  wrongful.  The  Company  would  agree to
undertake  certain  responsibilities,  including  agreeing to assign  away,  not
assert,  or release  certain  potential  claims the Company may have against its
underwriters.

It is  anticipated  that any  potential  financial  obligation of the Company to
plaintiffs  pursuant  to the  terms of the MOU and  related  agreements  will be
covered by existing insurance.  Therefore,  the Company does not expect that the
settlement  will  involve  any  payment  by the  Company.  The MOU  and  related
agreements are subject to a number of  contingencies,  including the negotiation
of a  settlement  agreement  and its approval by the Court.  The Company  cannot
opine as to whether or when a settlement will occur or be finalized.  Whether or
not the settlement is ultimately  approved,  the Company believes the resolution
of this matter will not have a material adverse effect on the Company.

The  Company is also  party to  various  legal  proceedings  arising  out of the
ordinary  course  of  the  Company's  business.  Management  believes  that  any
liability with respect to these legal actions, individually or in the aggregate,
will not have a material adverse effect on the Company's  consolidated financial
position and results of operations.

                                      F-27

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 10. INCOME TAXES

Income tax expense  (benefit) from the Company's  continuing  operations for the
years ended December 31, 2004, 2003 and 2002 were as follows:
<TABLE>
<CAPTION>

<S>                   <C>                    <C>                   <C>


                              2004                   2003                  2002
                              ----                   ----                  ----
Current:
  Federal                              $---                $(809)                   $---
  State                                  42                    14                    ---
                      ---------------------- --------------------- ----------------------

                                         42                 (795)                    ---
                      ---------------------- --------------------- ----------------------

Deferred:
  Federal                               414                  (42)                    ---
  State                                 ---                   ---                    ---
                      ---------------------- --------------------- ----------------------

                                        414                  (42)                    ---
                      ---------------------- --------------------- ----------------------

                                      $ 456               $ (837)                   $---
                      ====================== ===================== ======================
</TABLE>

 The  components  of the  Company's  net  deferred tax assets as of December 31,
2004, and 2003 were as follows:

                                               2004              2003
                                         ----------------- -----------------

Deferred tax assets:

  Deferred salaries and benefits        $     735           $    756
  Operating loss carryforwards              1,462              1,234
  Reserves not currently deductible            14                 14
  Deferred organization costs                  68                103
                                         ----------------- -----------------
                                            2,279               2,107

  Deferred tax valuation allowance         (2,263)             (1,555)
  Deferred tax asset, net of valuation
  allowance                                    16                 552
                                         ----------------- -----------------
Deferred tax liabilities:
  Property and equipment                      (16)               (106)
                                         ----------------- -----------------
                                         $      -                 446
                                         ================= =================

                                      F-28
<PAGE>

Recognition  of deferred tax assets is based on  management's  belief that it is
more likely than not that the tax benefit associated with temporary  differences
and operating  loss  carryforwards  will be utilized.  A valuation  allowance is
recorded for those deferred tax assets for which it is more likely than not that
the realization will not occur (see Note 17).

Through  December 31, 2002, the Company was considered to be in the  development
stage and had incurred losses since inception.  Due to the uncertainty of future
taxable  income  during  its  development  stage,  no future tax  benefits  were
recognized. With the acquisitions completed in 2003, the Company was no longer a
development  stage  enterprise  and  deferred  tax assets and  liabilities  were
recognized  for the year ended  December  31, 2003.  While the Company  suffered
losses in 2004, in management's opinion, the Company has taken steps to generate
future  taxable  income  believed to be sufficient to recognize a portion of the
deferred tax assets.

Subsequent  to the year ended  December 31, 2004,  we  determined  to reduce the
carrying  value of deferred  tax assets to $0 by  increasing  the  deferred  tax
valuation  allowance  $414  (see  Note 17).

Our  valuation  allowance  at December  31,  2004,  consisted  of $1,462 for net
operating loss carryforwards,  and $735 for deferred salaries and benefits,  and
$66 for other.

As of December 31, 2004, we have federal and state NOLs providing a tax effected
benefit of $1,849.  The NOLs expire in varying  amounts in fiscal  years 2022 to
2024.

The  following  reconciles  the  income  tax  expense  computed  at the  federal
statutory  income tax rate to the  provision  for income  taxes  recorded in the
income statement for the years ended December 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
<S>                                          <C>                   <C>                   <C>


                                             2004                  2003                  2002
                                             ----                  ----                  ----


Income tax benefit at statutory
   federal rate                                     35.0%                (35.0)%                35.0%

State and local income tax
   (benefit), net of federal benefit                 3.9%                  2.5%                  3.5%

Effect of non-deductible items                       0.1%                  3.1%                 --

Valuation allowance                                (15.0)%                (3.9)%                (38.5)%
                                       ------------------         --------------         ------------

Effective expense (benefit) rate                    24.0%                (33.3)%                  0.0%
                                       ==================         ==============         ============
</TABLE>


                                      F-29
<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 11. NON-RECURRING CHARGES

During 2004,  the Company  expensed  certain  investment  banking fees and other
costs of $25 associated  with a failed  financing  effort.  In 2003, the Company
expensed  certain  amounts that were  considered  non-recurring,  which included
severance and  employment  related  expense of $240 and costs related to raising
capital of $93.

NOTE 12. UNAUDITED QUARTERLY RESULTS

Set forth below is certain  unaudited  quarterly  financial data for each of our
last eight quarters.  The information has been derived from unaudited  financial
statements  that,  in  the  opinion  of  management,   include  all  adjustments
(consisting  only of normal recurring  adjustments)  necessary to fairly present
such quarterly  information in accordance  with  generally  accepted  accounting
principles. The operating results for any quarter are not necessarily indicative
of the results to be expected for any future period.

<TABLE>
<CAPTION>
<S>                                                                        <C>        <C>       <C>       <C>

                                                                                Year Ended December 31, 2004
                                                                            in thousands, except per share amount)
                                                                           -------------------------------------
                                                                            First     Second     Third     Fourth
                                                                           Quarter    Quarter   Quarter   Quarter
                                                                           -------    -------   -------   -------


Revenue                                                                    $   582    $   637   $   479   $    336

Total operating expenses                                                   $ 1,043    $   816   $   549   $  1,304

Interest expense                                                           $    18    $    25   $    41   $     23

Loss on disposal of segment and assets                                     $  --      $   102   $  --     $     15

Loss from continuing operations before provision for income taxes          $  (479)   $  (306   $  (111)  $ (1,462)

Net loss                                                                   $(3,352)   $  (972   $  (111   $ (1,462)

Basic and diluted loss per share                                           $ (0.03)   $ (0.01   $ (0.00   $ (0.03)
</TABLE>

In connection with the audit of our financial  statements as of and for the year
ended  December  31,  2003,  we  recognized  an income  tax  benefit  on our net
operating loss. We had not recognized such a benefit in our previously  reported
quarterly information. In the table below, we have allocated this tax benefit to
our previously reported quarterly information.
<TABLE>
<CAPTION>
<S>                                                                           <C>      <C>       <C>      <C>


                                                                                  Year Ended December 31, 2003
                                                                                (in thousands, except per share amount)
                                                                                --------------------------------------
                                                                               First   Second     Third    Fourth
                                                                              Quarter  Quarter   Quarter  Quarter
                                                                              -------  -------   -------  -------

Revenue                                                                       $   270  $   545   $   656  $    493

Total operating expenses                                                      $   571  $ 1,072   $ 1,031  $  1,392

Interest expense                                                              $   109  $   100   $   104  $    102

Loss from continuing operations                                               $  (410  $  (627)  $  (479  $ (1,001)

Net loss                                                                      $  (932  $  (281)  $   (84  $   (109)

Basic and diluted loss per Share                                              $ (0.01  $ (0.00)  $ (0.00  $  (0.00)
</TABLE>

                                      F-30

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 13. SEGMENT DATA

The Company previously operated in two separate business segments: wholesale and
retail.  With the  disposal  of PGNF  (See Note 2),  the  Company  is  currently
operating in one business segment: retail mortgage brokering.

NOTE 14. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S>                                           <C>               <C>               <C>

                                                    2004              2003             2002
                                              ----------------- ----------------- ----------------

Supplemental Cash Flow Data:
  Cash interest received                      $--               $1,649            $--
  Cash interest paid                          $--               $1,674            $--
  Income taxes paid                           $ 5               $35               $--
                                              ================= ================= ================

Non-cash investing and financing activities:
  Issuance of stock for settlement of
    obligations and payment for services
    rendered                                  $232              $--               $--
  Issuance of debentures for legal fees       $--               $--               $25
  Liabilities assumed in reverse
   acquisition                                $--               $--               $72
                                              ================= ================= ================

Acquisitions of businesses, net of cash
 acquired:
  Fair value of assets acquired               $--               $        26,931   $--
  Goodwill                                    $--               $         8,636   $--
  Liabilities assumed                         $--               $       (26,761)  $--
  Note issued                                 $--               $        (1,800)  $--
 Stock issued                                 $--               $        (7,203)  $--
                                              ----------------- ----------------- ----------------

  Cash acquired in purchases of
    businesses                                $--               $           197   $--
                                              ================= ================= ================

</TABLE>

NOTE 15. OTHER RELATED PARTY TRANSACTIONS

The Company has entered into  employment  agreements with certain of its current
and former  executive  officers.  These executive  officers had elected to defer
receipt of the salaries,  related  benefits and other items due them pursuant to
such contracts until the Company acquired  sufficient  operating capital through
the  acquisition  of operating  companies,  raising of debt or equity capital or
both.  At December  31,  2002,  the Company had accrued  $666  pursuant to these
contracts.  Subsequent to December 31, 2002,  the Company's  executive  officers
converted  $659 of  such  accrued  compensation  due to  them  to  newly  issued
preferred shares. (See Note 8).

Another  minority  stockholder  provided  services  to the Company at no cost in
August of 2002.  These  services  have been  valued  at $5 and are  included  in
operating expenses with an offsetting credit to paid-in capital.

At  December  31,  2004,  promissory  notes  payable  in the  amount of $25 were
outstanding  from the  acquisition  of PHF,  bearing an interest  rate of 4.92%,
payable December 31, 2005.

                                      F-31

<PAGE>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

NOTE 16. SUBSEQUENT EVENTS

On January 19, 2005, the Company  completed the acquisition of First  Charleston
Mortgage,  LLC,  a  privately  held South  Carolina  limited  liability  company
("FCM"),  pursuant to the terms and  conditions of a Member  Purchase  Agreement
dated January 19, 2005 (the "Purchase  Agreement")  among us, FCM and all of the
members of FCM. Pursuant to the Purchase Agreement,  the Company acquired all of
the members'  interests of FCM for 4,285,714 shares of its common stock,  valued
at $214 based upon the closing  price of $0.05 on January 19,  2005.  The actual
value of FCM is subject to earnout and minimum  future  earnings  provisions  as
specified   in  the   Purchase   Agreement.   All  members   also  entered  into
non-competition agreements with the Company.

On February  28,  2005,  the Company  completed  a private  placement  financing
transaction  pursuant to which it sold 17,207,791 units (at $0.0308 per unit) to
several accredited  investors for an aggregate purchase price of $530. Each unit
consisted of one share of common stock, par value $0.0001 per share (the "Common
Stock"),  and one  warrant to  purchase  one share of Common  Stock at $0.04 per
share expiring on December 31, 2007.

On January 1, 2005, the Company  defaulted on its subordinated  promissory notes
due a formerly related party. These notes represent indebtedness incurred in the
divestiture of PGNF. On April 7, 2005, the Company reached an agreement with the
holder of the notes  whereby the Company  would begin  making  monthly  interest
payments on the notes  beginning  April 2005.  The agreement  does not include a
waiver of rights by the holder.

On January 1, 2005, the Company defaulted on its 15% convertible  debentures due
December  31,  2004.  The Company has  subsequently  repaid  principal of $40 to
certain  holders of its 15% convertible  debentures,  and holders of $309 of the
convertible debentures have agreed to amend the maturity date of the convertible
debentures to December 31, 2006 and reduce the interest  rate on the  debentures
to 10% in  consideration  for a reduction in the strike price of the warrants to
$0.05 per share. The convertible  debentures require quarterly interest payments
on March 31, June 30, September 30, and December 31 of each year.

On February 28, 2005, certain of our former executives and current  shareholders
agreed in principal to convert amount currently due them into additional  shares
of our Series E Preferred  Stock. The stated value of each share of the Series E
Preferred  is $1,000 per share;  has a  mandatory  dividend  of 4% of the stated
value, per annum and shall be payable on January 1st of each year and is payable
in either shares of the Company's  common stock or cash;  has no voting  rights;
and is not convertible.

NOTE 17. RESTATEMENT

In connection with a Comment Letter received by the Company in 2006, the Company
determined  that  the  consolidated  financial  statements  for the  year  ended
December 31, 2004 should be revised in light of such comment  letter and changes
in the Company's  operational  activities  subsequent to December 31, 2004. As a
result,  the Company took an impairment  charge of $822 in  connection  with the
value of its goodwill,  and adjusted its deferred tax assets through an increase
in the  deferred tax  valuation  allowance of an  additional  $414,  leaving the
carrying  value of  deferred  tax  assets at $0.  Both the net loss for 2004 and
stockholders'  deficiency  as of  December  31, 2004 were  increased  by $1,236.
Accordingly,  total  consolidated  assets at December  31, 2004 were  reduced by
$1,236.

As a result, we are restating our previously issued  consolidated  balance sheet
as of  December  31,  2004,  and  the  consolidated  statements  of  operations,
comprehensive loss, cash flows, and stockholders'  deficiency for the year ended
December 31, 2004, and the related  footnotes  thereto,  principally Notes 1, 5,
and 10 1, 5, and 10.

                                      F-32
<PAGE>



                                   SIGNATURES

Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Act of
1934,  the  Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.



Paragon Financial Corporation
(KNA New Market Latin America, Inc.)

/s/Aubrey Brown
--------------
Aubrey Brown, Chief Executive Officer

Dated: October 7, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S>                                            <C>                                  <C>


Signature                                      Title                                Date
---------                                      -----                                ----

/s/Aubrey Brown                        Chief Executive Officer                   October 7, 2008
---------------
Aubtey Brown

/s/ Philip Verges                              Director                          October 7, 2008
-----------------
Philip Verges

/s/Philip J. Rauch                     Chief Financial Officer                   October 7, 2008
------------------
Philip J. Rauch


</TABLE>