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

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

                                    FORM 10-Q

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


(Mark One)

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

                FOR THE QUARTERLY PERIOD ENDED March 31, 2003, or
                                               --------------

[ ] TRANSITION REPORT UNDER 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                                                 94-322773
         --------                                                 ---------
State or other jurisdiction of                                 (IRS Employer
incorporation or organization)                               Identification No.)


     5000 Sawgrass Village Circle
         Ponte Vedra, Florida                                       32082
     ---------------------------                                    -----
(Address of principal executive offices)                          (Zip Code)

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

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  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).      Yes      No  X
                                                     ---     ---

                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

     Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.

Yes_____       No_______


                      APPLICABLE ONLY TO CORPORATE ISSUERS

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date: 116,146,478 shares as of May
16, 2003.


<PAGE>


                          Paragon Financial Corporation

                                    Form 10-Q

                                      Index


                                                                            Page
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS ..............................................   3

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................  15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .........................................................  19

ITEM 4. CONTROLS AND PROCEDURES ...........................................  20

PART II - OTHER INFORMATION ...............................................  21

ITEM 1. LEGAL PROCEEDINGS .................................................  21

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................  21

SIGNATURES ................................................................  23

CERTIFICATIONS








<PAGE>



                       PART I - FINANCIAL INFORMATION



Item 1. Financial Statements


     The accompanying  unaudited condensed  consolidated financial statements of
Paragon Financial Corporation (the "Company") and its wholly-owned  subsidiaries
include all adjustments  (consisting  only of normal  recurring  accruals) which
management  considers  necessary  for  a  fair  presentation  of  the  Company's
financial position as of March 31, 2003 and its operating results and cash flows
for the three month periods ended March 31, 2003 and 2002.

     These unaudited condensed  consolidated financial statements should be read
in conjunction  with the financial  statements  included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.













                                        3
<PAGE>



                 Paragon Financial Corporation and Subsidiaries

                      Condensed Consolidated Balance Sheets

                      (in thousands, except share amounts)



<TABLE>
                                                                                      March 31, 2003       December 31, 2002
                                                                                        (Unaudited)                *
                                                                                      --------------       -----------------
<S>                                                                                      <C>                   <C>
Assets
Cash and cash equivalents                                                                $    235              $     91
Fees receivable                                                                               271                     -
Mortgage loans receivable held for sale, net                                               14,047                     -
Prepaid expenses                                                                               84                    31
Office property and equipment, net of accumulated depreciation                              1,139                     1
Notes and mortgages receivable, other                                                         339
Available for sale securities                                                                 764                     -
Goodwill and other intangible assets                                                        8,143                     -
Other assets                                                                                   54                    83
                                                                                         --------              --------
Total Assets                                                                             $ 25,076              $    206
                                                                                         ========              ========


Liabilities and Stockholders' Equity
Warehouse lines of credit                                                                $ 13,733            $        -
Notes payable                                                                               1,771                     -
Convertible debentures payable                                                                 38                    34
Accounts payable                                                                              689                   177
Accrued expenses - related party                                                               59                   204
Accrued expenses - other                                                                      337                     -
Derivative liability                                                                          305                     -
Related party debt subsequently converted to preferred stock                                    -                   659
                                                                                         --------              --------
Total liabilities                                                                          16,932                 1,074
                                                                                         --------              --------

Stockholders' Equity:
   Preferred stock: Issuable in series, $0.0001 par
      value; 5,000,000 shares authorized:
      Series E, $1,000 stated value; 2,459 and no
      shares issued and outstanding, respectively                                               -                     -
   Common stock: $0.0001 par value; 400,000,000
      shares authorized; 116,146,478 and
      62,592,744 shares issued and outstanding,
      respectively                                                                             12                     6
   Additional paid-in capital                                                              11,623                 1,693
   Accumulated deficit                                                                     (3,490)               (2,567)
   Accumulated other comprehensive income                                                      (1)                    -
                                                                                         --------              --------
Total stockholders' equity (deficiency)                                                     8,144                  (868)
                                                                                         --------              --------
 Total liabilities and stockholders' equity                                              $ 25,076              $    206
                                                                                         ========              ========
</TABLE>


                 * Condensed from audited financial statements.
       See notes to unaudited condensed consolidated financial statements.

                                        4
<PAGE>





                 Paragon Financial Corporation and Subsidiaries
           Condensed Consolidated Statement of Operations (Unaudited)
                For the three-month periods ended March 31, 2003
                and 2002 (in thousands, except per share amounts)
--------------------------------------------------------------------------------

                                                         2003            2002
                                                       --------        ---------
Revenues
   Gain on sale of loans                               $    699        $      -
   Loan origination fees                                    876               -
   Interest earned                                          271               -
                                                       --------        --------
Total revenues                                            1,846               -

Expense
   Salaries and related expenses                          1,585             329
   Loan production costs                                    247               -
   General and administrative expenses                      670              60
   Interest expense                                         259               -
   Realized loss in derivative                               25               -
   Unrealized gain on derivative                            (17)              -
                                                       --------        --------
Total expenses                                            2,769             389
                                                       --------        --------

Net loss                                               $   (923)       $   (389)
                                                       ========        ========

Basic and diluted loss per share                       $  (0.01)       $  (0.01)
                                                       ========        ========
Weighted average shares outstanding -
   basic and diluted                                     97,673          35,310
                                                       ========        ========



      See notes to unaudited condensed consolidated financial statements.

                                        5
<PAGE>

                 Paragon Financial Corporation and Subsidiaries
           Condensed Consolidated Statement of Cash Flows (Unaudited)
               For the three-months ended March 31, 2003 and 2002
                                 (in thousands)
--------------------------------------------------------------------------------
<TABLE>


                                                                                                         2003                2002
                                                                                                       --------            ---------
<S>                                                                                                    <C>                 <C>
Cash flows from operating activities
     Net loss                                                                                          $   (923)           $   (389)
     Adjustments to reconcile net loss to net cash provided by
       used in operating activities:
       Depreciation and amortization                                                                         47                   -
       Provision for loan losses                                                                             36                   -
       Loans originated                                                                                 (35,281)                  -
       Loans sold                                                                                        45,828                   -
       Decrease in warehouse lines of credit                                                             (9,584)                  -
       Net changes in other assets                                                                          (89)                  -
       Net changes in other liabilities                                                                    (171)                174
                                                                                                       --------            --------
                Net cash used in operating activities                                                      (137)               (215)
                                                                                                       --------            --------

Cash flows from investing activities:
     Purchase of property and equipment                                                                    (149)                 (1)
     Cash acquired in purchases of businesses                                                               343                   -
     Purchase of marketable securities                                                                      (83)                  -
     Other investing proceeds                                                                                13                   -
                                                                                                       --------            --------
                Net cash provided by (used in) investing activities                                         124                  (1)

Cash Flows from financing activities:
     Proceeds from the issuance of common stock                                                               -                 364
     Proceeds from the issuance of debentures                                                               231                   -
     Proceeds from the issuance of warrants                                                                  13                   -
     Repayments of debt                                                                                     (87)                  -
                                                                                                       --------            --------
                Net cash provided by financing activities                                                   157                 364
                                                                                                       --------            --------

Net Increase or (Decrease) in Cash                                                                          144                 148

Cash and cash equivalents beginning of period                                                                91                   -
                                                                                                       --------            --------
Cash and cash equivalents end of period                                                                $    235            $    148
                                                                                                       ========            ========
</TABLE>

            See notes to condensed consolidated financial statements.


                                        6

<PAGE>

PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

1.   Principles   of  Consolidation,  Basis  of  Presentation   and  Significant
     Accounting Policies

     The accompanying  condensed  consolidated  financial  statements of Paragon
Financial  Corporation and  subsidiaries  (referred to herein sometimes as "we",
"our" or the  "Company")  are prepared in  accordance  with the  Securities  and
Exchange  Commission's  rules  regarding  interim  financial   statements,   and
therefore  do not contain all  disclosures  required  by  accounting  principles
generally  accepted  in the  United  States  of  America  for  annual  financial
statements.  Reference is made to the consolidated financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 2002.  Certain
previously  reported  amounts have been  reclassified  to conform to the current
period's  presentation.  Such  reclassifications  had no  effect  on net loss or
shareholders' equity.

     The  condensed  consolidated  balance  sheet as of March  31,  2003 and the
condensed  consolidated   statements  of  operations  and  cash  flows  for  the
three-month  periods ended March 31, 2003 and 2002 are unaudited and include all
adjustments  (consisting  only of normal  recurring  accruals) which  management
considers  necessary for a fair  presentation  of our  financial  position as of
March 31,  2003 and our  operating  results  and cash flows for the three  month
periods ended March 31, 2003 and 2002.  The results of operations  for the three
months  ended  March 31,  2003 and 2002 are not  necessarily  indicative  of the
results to be expected for the full year.

Due to our recent acquisitions,  we are no longer considered a development stage
enterprise.

Significant Accounting Policies
-------------------------------

Principles of Consolidation.  The accompanying consolidated financial statements
include the  financial  statements of our wholly owned  subsidiaries,  PNGF Home
Lending  Corp.  (formerly  known as Mortgage  Express,  Inc.  and referred to as
"PGNF" in this Form 10-Q) and Paragon Homefunding, Inc. (referred to as "Paragon
Florida" in this Form 10-Q). All material intercompany balances and transactions
are eliminated in consolidation. 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 affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Financial Statement  Presentation.  We prepare our financial statements using an
unclassified  balance sheet presentation as is customary in the mortgage banking
industry.  We operate under two business segments: wholesale and retail.

Cash and Cash  Equivalents.  For purposes of the  statements  of cash flows,  we
consider all  highly-liquid  debt  instruments with maturities when purchased of
three months or less to be cash equivalents. Cash equivalents consist of cash on
hand and due from banks.

Mortgage Loans Receivable Held for Sale. Mortgage loans receivable held for sale
are  stated  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.


                                        7
<PAGE>

PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

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
the selling  price for sales 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.

Derivatives.  As a  result  of its  merger  with  PGNF,  we  have  a  derivative
instrument.  SFAS No. 133,  Accounting  for Derivative  Instruments  and Hedging
Activities,  obligates us to record all derivatives at fair value and permits us
to designate derivative instruments as being used to hedge changes in fair value
or changes in cash flows.  Changes in the fair value of derivatives  that offset
changes  in  cash  flows  of  hedged  items  are  recorded  initially  in  other
comprehensive  income.  Amounts  recorded  in  other  comprehensive  income  are
subsequently  reclassified  into  earnings  during the same  period in which the
hedged item affects earnings.  If a derivative  qualifies as a fair value hedge,
then  changes in fair value of the hedging  derivative  are recorded in earnings
and are offset by changes in fair value  attributable  to the hedged risk of the
hedged  item.  Any  portion  of the  change  in the fair  value  of  derivatives
designated  as hedge that is deemed  ineffective  is recorded in earnings  along
with changes in the fair value of derivatives with no hedge designation.

Allowance for Loan Losses.  The allowance for loan losses  relates  primarily 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.  We purchase fraud  insurance on the loans  originated by our
wholesale segment.  The allowance represents our estimate of the total uninsured
losses expected to occur and is considered to be adequate. Provisions for losses
are charged to gain on sale of loans and credited to mortgage  loans  receivable
held for sale.

Office  Property and Equipment.  Property and equipment are carried at cost less
accumulated   depreciation.   Upon  disposal  of  property  and  equipment,  the
appropriate   accounts  are  reduced  by  the  related   cost  and   accumulated
depreciation.  The  resulting  gains and losses are  reflected  in  consolidated
earnings.  Depreciation  is  computed  using the  straight-line  method over the
estimated lives of the related assets.

Advertising.  We  account  for  our  advertising  costs  as  nondirect  response
advertising. Accordingly, advertising costs are expensed as incurred.

Segment Reporting.  Through our retail and wholesale  origination  segments,  we
provide a broad  range of mortgage  products.  Management  measures  the revenue
streams of each of its origination segments separately. We have provided revenue
and expense data by each of these business segments.

Stock-Based Compensation.  We have 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 our employee stock options is recorded on the
date of grant  only if the current  market price of the underlying stock exceeds


                                        8
<PAGE>

PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)


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.

As of March 31, 2003,  there were stock options  outstanding for the purchase of
28,433,000  shares of our  common  stock.  There were no stock  options  granted
during the quarters ended March 31, 2003 and 2002. 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 (dollars in thousands,  except per
share amounts):

                                                              Three Months Ended
                                                                  March 31, 2003
                                                              ==================

Net loss, as reported                                                   $  (923)

Stock-based employee compensation expense determined
   under fair value based method for all awards,
   net of related tax effects                                              (324)

                                                                        -------

Pro forma net loss                                                      $(1,247)
                                                                        =======

Net loss per share:

  Basic and diluted, as reported                                        $ (0.01)
                                                                        =======

   Pro forma basic and diluted                                          $ (0.01)
                                                                        =======


2.   Acquisitions and Goodwill

On January 31, 2003, we completed  our merger with PGNF,  and as a result of the
merger,  PGNF became a wholly  owned  subsidiary  of ours.  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 our 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,  we 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.  Our  payment  obligations
under the promissory note were secured by a security interest in the PGNF shares
of common stock that we own. On March 26,  2003,  the holder of this note agreed
to convert  the note 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 February 2, 2003 we completed our merger with Paragon Florida. Subject to the
terms of the merger  agreement,  at closing,  all of the  outstanding  shares of
Paragon Florida's common stock converted into 1,224,000 of shares  of our common


                                        9
<PAGE>


PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

stock valued at $836,000  (approximately  $0.6833 per share).  Additionally,  we
issued  promissory notes to the shareholders of Paragon Florida in the aggregate
principal  amount of $25,000.  The promissory notes accrue interest at 4.92% and
are  payable on February 2, 2004.  Paragon  Florida has been in the  business of
originating residential mortgage loans since 1998.

Both of these mergers were  accounted for as  acquisitions  pursuant to SFAS No.
141, Accounting for Business Combinations ("SFAS 141"). Accordingly, our results
of  operations  include  the  operating  results  of  these  companies  from the
effective date of these mergers, February 1, 2003. As a result of these mergers,
we have initially  recorded goodwill and other intangible assets of $8.1 million
which  represents  the excess of the purchase  price over the initial  estimated
fair values of the  tangible,  financial  and  intangible  assets  acquired  and
liabilities  assumed at date of  acquisition.  We are currently  evaluating  the
initial  estimates  of the fair values of the assets  acquired  and  liabilities
assumed and the application of SFAS 141. The final fair values  allocated to the
assets  acquired,  including  specifically  indentified  intangibles  other than
goodwill,  liabilities  assumed  and  goodwill  may differ  materially  from our
initial estimates.  SFAS No. 142, Accounting for Goodwill and Intangible Assets,
eliminated the  requirement to amortize  goodwill  through a periodic  charge to
earnings. We will evaluate goodwill on an annual basis for impairment based upon
the estimated fair value as of the balance sheet date.

Our unaudited  consolidated  results of operations on a pro forma basis as if we
had consummated the mergers with PGNF and Paragon Florida on January 1, 2002 are
as follows:


<TABLE>
                                                    3  Months                   3  Months
                                                  March  31, 2003             March 31, 2002
                                                  ---------------             --------------
                                                 (in thousands,exceptshare and per share data)

<S>                                                  <C>                        <C>
Revenues                                             $  4,115                   $  2,927
Net income (loss)                                    $    115                   $   (331)
Diluted Earnings (Loss) per Share                    $   0.00                   $   0.00
Weighted Average Shares-Diluted                       116,147                     88,864
</TABLE>

3.   Going Concern

We have  sustained  operating  losses since  inception.  At March 31, 2003,  our
shareholders'  equity was $8.3 million  primarily  due to the issuance of equity
securities  as a result of our  acquisitions  of PGNF and  Paragon  Florida.  We
incurred a net loss of $923,000 and used $137,000 of cash in  operations  during
the three months ended March 31, 2003.  These  factors raise  substantial  doubt
about our ability to continue as a going  concern.  The  accompanying  financial
statements do not include any adjustments  that might result from the outcome of
this  uncertainty.  Management  believes  that,  with the mergers  with PGNF and
Paragon Florida, it has taken the steps necessary to reverse the negative trend.
Our  continued  existence  depends  on a number of  factors,  including  but not
limited  to, our  ability to secure  adequate  sources of capital and locate and
fund acquisitions of suitable companies.  However,  there can be no assurance we
will be able to continue as a going concern.


                                       10
<PAGE>


PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)


4.   Comprehensive Income (Loss)

     The  components of  comprehensive income (loss)  for the three months ended
     March 31, 2003 are listed below:


Net loss as reported                                                      $(923)
Other Comprehensive Income (Loss)
     Unrealized loss of securities                                        $  (1)
                                                                          -----

Total Comprehensive Loss                                                  $(924)
                                                                          =====

5.   Mortgage Loans Receivable Held For Sale

Capitalized  as part of mortgage  loans  receivable  held for sale are  employee
costs and loan production costs.  These capitalized costs are offset against net
gains on mortgage  loan sales and fees when the loans are sold or  amortized  as
yield adjustment in the case of loans held for investment. A summary of mortgage
loans receivable held for sale, at the lower of cost or market at March 31, 2003
follows (dollars in thousands):


                                                                March 31, 2003
                                                                --------------

Mortgage loans receivable held for sale                            $13,873
Allowance for loan losses                                              (36)
Net deferred origination costs                                         210
                                                                   -------
                                                                   $14,047
                                                                   =======

6. Debentures and Warrants

On March 6, 2003, we completed a private offering of 379 units consisting of (i)
a $1,000 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.

Over the  course  of the  offering,  our  common  stock  was  trading  above the
conversion  price.  This  difference  has  resulted  in  the  recognition  of  a
beneficial conversion feature and,  accordingly,  a portion of the proceeds from
each  convertible note has been credited to additional  paid-in capital.  In the
three  months ended March 31, 2003,  we issued  $244,000 of units and  allocated
$227,000  and  $13,000  to  the  beneficial  conversion  feature  and  warrants,
respectively, with $4,000 remaining as principal.

As a result of the  offering,  we raised  $354,000  in cash and paid  $25,000 in
legal services to our company counsel. We allocated $20,000, $322,000 $38,000 of
the  proceeds to the  warrants,  beneficial  conversion  feature  and  debenture
values,  respectively.  Based  upon these  allocations,  the  overall  effective
interest rate on this offering is approximately 1055%.

7.   Warehouse Lines of Credit

Our subsidiary,  PGNF, has mortgage  warehouse  facilities with commercial banks
aggregating  $47.5  million.  These credit  facilities are used to fund mortgage
loans  and are  collateralized  by the  mortgage  loans funded.  These warehouse



                                       11
<PAGE>

PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

facilities  do not  require  compensating  balances.  Warehouse  lines of credit
consist of the following at March 31, 2003 (dollars in thousands):

<TABLE>
                                                                                         March 31, 2003
                                                                                         --------------

<S>                                                                                              <C>
$15 million mortgage warehouse credit facility at a commercial bank; interest at
     Prime plus 1.5%.  This line expires on July 31, 2003.                                       10,197
$25 million mortgage warehouse credit facility at a commercial bank; interest at
     Libor plus 2.25%.  This line expires on April 15, 2003.                                      3,536
                                                                                         --------------
                                                                                         $       13,733
                                                                                         ==============
</TABLE>

All of the Company's  warehouse lines contain  provisions whereby the lender can
terminate their agreement  without cause with certain notice  requirements.  The
Company's  management believes the warehouse  relationships will remain in place
until maturity;  however,  there is no assurance that one or more of the lenders
will not terminate their agreements prior to maturity,  or that additional lines
will be negotiated  when  existing  lines  terminate.  Either  occurrence  would
adversely affect the Company's ability to originate loans.

8.   Segment Data

     We provide a broad range of mortgage  products  through our  wholesale  and
retail  segments.  Our  management  measures the revenue  streams of each of our
lending segments  separately.  The table below provides revenue and expense data
by business segment.

<TABLE>
                      For the quarter ended March 31, 2003
                             (amounts in thousands)

                                   Wholesale      Retail       Corporate        Total
                                   =========     ========      =========        =====

<S>                                <C>           <C>           <C>            <C>
Mortgage loans closed              $ 35,281      $ 50,582      $       -      $ 85,863
                                   ========      ========      =========      ========
Revenues:
   Gain on sale                    $    699           $ -      $       -      $    699
   Loan origination fees                  -           876              -           876
   Interest income                      262             9              -           271
                                   --------      --------      ---------      --------
Total Revenues                     $    961      $    885      $       -      $  1,846
Salaries and benefits                   726           681            178         1,585
Other operating expenses                 80           167              -           247
Other overhead not allocated            326           168            176           670
Interest expense                        162            13            109           284
                                   --------      --------      ---------      --------
Total expenses                        1,294         1,029            463         2,786
                                   --------      --------      ---------      --------
Net loss                           $   (333)     $   (144)     $    (463)     $   (940)
                                   ========      ========      =========      ========
</TABLE>

9.   Preferred Stock

     On March 26, 2003, our board of directors authorized the issuance of Series
E preferred stock. Our Series E preferred stock has a stated value of $1,000 per
share and provides for a mandatory  dividend equal to 4% of the stated value per
annum. The Series E preferred stock is non-voting,  is not redeemable and has no
conversion rights.

     On March 26,  2003,  the holder of the $1.8  million note issued as part of
the  consideration  for the PGNF  acquisition  converted  this  note,  including
$14,000 in accrued  interest,  into 1,800 shares of Series E preferred stock. On
March 26, 2003, our executive  officers converted $659,000 due them for deferred
salaries,  benefits and other items into 659 shares of Series E preferred stock.
At March 31, 2003, the cumulative  dividend due on this Series E preferred stock
was $1,347.


                                       12
<PAGE>


PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)



10.  Commitments and Contingencies

MINIMUM OPERATING LEASE COMMITMENTS

The Company is party to real estate  leases for its corporate  headquarters  and
operations locations in Westmont, IL and Olrando, FL.


EMPLOYMENT AGREEMENTS

At March 31, 2003,  the Company is party to several  employment  contracts  with
certain  members of  management.  These  contracts  are for varying  periods and
include standard  provisions for restrictions on competition after  termination.
These  agreements  provide for  salaries,  bonuses and other  benefits  and also
specify and delineate the granting of various stock options.

LITIGATION

In March,  April and May 2001, the Company,  and its former  directors  David M.
Beirne,  Michael  Mortiz,  William J. Razzouk and  Christos M.  Cotsakos and its
former Chief Financial  Officer,  Steve Valenzuela,  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.  The
suits have been  consolidated  into a single action and a  consolidated  amended
complaint was filed on April 19, 2002.

The  purported  class  action  alleges  violation  of  Sections 11 and 15 of the
Securities Acts of 1933 and Sections 10(b) and 20(a) of the Securities  Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.  The essence of the complaint
is that the defendants  issued and sold the Company's common stock pursuant to a
registration  statement for its October 7, 1999 initial public offering  ("IPO")
without  disclosing to investors that certain  underwriters  in the offering had
solicited  and  received  excessive  and  undisclosed  commissions  from certain
investors.  The complaint also alleges that the registration statement failed to
disclose that the underwriters  allocated Company shares in the IPO to customers
in exchange for the  customers'  promises to purchase  additional  shares in the
aftermarket at pre-determined  prices above the IPO price,  thereby maintaining,
distorting  and/or inflating the market price for the shares in the aftermarket.
The  action  seeks  damages  in an  unspecified  amount.  The  action  is  being
coordinated  with  approximately  three hundred other nearly  identical  actions
filed against other  companies.  On July 15, 2002,  the Company moved to dismiss
all claims against it and the individual  defendants.  On February 19, 2003, the
Court denied the motion to dismiss the complaint against the Company.  The Court
dismissed the Section 10(b) claim against the individual defendants,  but denied
the motion to dismiss the Section 11 claim and the Section 15 and 20(a)  control
person claims.  The Company and the individual  defendants  intend to vigorously
defend the action.  At this time,  the Company does not believe this matter will
have a material impact on its financial position, operations or liquidity.

On June 19, 2001,  vTraction,  Inc.  filed a complaint for breach of contract in
the Chancery Court of Tennessee for the Thirtieth  Judicial  District at Memphis
alleging that the Company  entered into an oral agreement with vTraction to sell
certain  equipment  and  later  reneged,  and  claiming  damages  in  an  amount
including, but not limited to, the difference between the price agreed to in the
alleged oral  contract and the market  price of the  equipment.  The Company has
filed an answer  asserting the affirmative  defenses of failure of consideration
and statute of frauds and denying the  existence  of an oral  contract.  At this


                                       13
<PAGE>


PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

time,  the Company does not believe  this matter will have a material  impact on
its financial position, operations or liquidity.

11.  New Accounting Pronouncements

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  addresses  financial  accounting and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging  Issues Task Force Issue No. 94-3,  "Liability  Recognition for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in  a  Restructuring)"   (EITF  94-3).  The  principal
difference  between  SFAS  No.  146 and EITF  94-3  relates  to SFAS  No.  146's
requirements  for  recognition of a liability for a cost associated with an exit
or  disposal  activity.  SFAS  No.  146  requires  that a  liability  for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred.  Under EITF 94-3, a liability for an exit cost as generally defined in
EITF 94-3 was recognized at the date of an entity's  commitment to an exit plan.
We adopted the new standard  effective January 1, 2003. The adoption of SFAS No.
146 did not have a  material  impact on our  results  of  operations,  financial
position or cash flows.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others". The interpretation  elaborates on the disclosures to
be made by a guarantor in its financial statements under certain guarantees that
is has issued.  It also clarifies that a guarantor is required to recognize,  at
the inception of a guarantee,  a liability for the fair value of the  obligation
undertaken in issuing the guarantee.  We adopted the disclosure  requirements of
the  Interpretation  as of December  31,  2002,  the date upon which they became
effective.  These  provisions of the  Interpretation  require  disclosure of the
nature of the guarantee,  the maximum  potential  amount of future payments that
the  guarantor  could be required to make under the  guarantee,  and the current
amount of the  liability,  if any,  for the  guarantor's  obligations  under the
guarantee.  The recognition  requirements of the  Interpretation  were effective
January 1, 2003.  The  implementation  of the  recognition  requirements  of the
Interpretation  did not have a material  impact on our  results  of  operations,
financial position or cash flows.

In January 2003, the FASB issued FASB  Interpretation No. 46,  "Consolidation of
Variable Interest Entities".  This interpretation provides guidance with respect
to  the   identification   of  variable   interest  entities  and  when  assets,
liabilities,  noncontrolling  interests,  and the  results  of  operations  of a
variable  interest  entity  need  to be  included  in a  company's  consolidated
financial  statements.  The  Interpretation  requires  consolidation by business
enterprises of variable  interest  entities in cases where the equity investment
at risk is not sufficient to permit the entity to finance its activities without
additional  subordinated financial support from other parties, which is provided
through other  interests that will absorb some or all of the expected  losses of
the  entity,  or in cases  where the  equity  investors  lack one or more of the
essential characteristics of a controlling financial interest, which include the
ability to make decisions about the entity's  activities  through voting rights,
the obligation to absorb the expected losses of the entity if they occur, or the
right to receive the expected  residual returns of the entity if they occur. The
Interpretation  applies  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. We are currently  assessing the impact that
the  Interpretation  will  have  on  our  consolidated  financial  position  and
consolidated  results of operations and do not believe this  Interpretation will
have a material impact on our results of operations,  financial position or cash
flows.

12.  Subsequent Event

On May 12, 2003, we amended our $25 million revolving  warehouse facility with a
commercial  bank.  Under this amendment,  the revolving  warehouse  facility was
reduced  from $25 million to $10 million,  provided  only for an advance of only
95% of the principal balance of the mortgage loans, requiring the Company to use
working  capital to fund the remaining  portion of the principal  balance of the
mortgage loans and had an interest rate of Libor plus 2.25%.

On April  23,  2003,  our  $7.5  Million  revolving  warehouse  facility  with a
commercial bank expired and was not renewed.

13.  Supplemental Cash Flow Information

                                                      Three Months Ended
                                              March 31, 2003      March 31, 2002
                                              --------------      --------------
                                                        (in thousands)


Non-cash investing and financing activities
   Consideration for purchases of businesses         $ 9,103             $     -
                                                     =======             =======

14.  Income Taxes

We utilize an asset and liability  approach in our  accounting for income taxes.
This approach  requires the  recognition of deferred tax assets and  liabilities
for the expected future tax  consequences of temporary  differences  between the
financial  statement and tax basis carrying  amounts of assets and  liabilities.
Our results of  operations  do not  recognize a tax benefit on the net operating
losses incurred in the three month periods ended March 31, 2003 and 2002.


                                       14
<PAGE>



Item 2. Management's Discussion and Analysis of Financial Condition and  Results
        of Operations.

The discussion  below should be read in conjunction  with the Paragon  Financial
Corporation  and  Subsidiaries  (the "Company",  "we",  "our" or "us") Unaudited
Consolidated Financial Statements and Notes appearing elsewhere in this report.


Special Note Regarding Forward-Looking Information
--------------------------------------------------

     Certain information  contained in this Report may include  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995,  and is subject  to the safe  harbor  created  by that act.  We caution
readers that certain  important  factors may affect our actual results and could
cause such  results to differ  materially  from any  forward-looking  statements
which may be deemed to have been made in this Report or which are otherwise made
by or on behalf of us. For this purpose, any statements contained in this Report
that are not statements of historical  fact may be deemed to be  forward-looking
statements.  Without  limiting the  generality of the  foregoing,  words such as
"may,"  "will,"  "expect,"  "believe,"  "explore,"   "consider,"   "anticipate,"
"intend," "could,"  "estimate," "plan," or "continue" or the negative variations
of  those   words  or   comparable   terminology   are   intended   to  identify
forward-looking statements. Factors that may affect our results include, but are
not limited to the risks and uncertainties associated with:


     -    our ability to raise capital  necessary to sustain our  operations and
          to implement our business plan,

     -    our  ability  to obtain  regulatory  permits and approvals to continue
          operating in the financial services area,

     -    our ability to identify and  complete  acquisitions  and  successfully
          integrate the businesses we acquire, if any,

     -    changes  in the real  estate  market,  interest  rates or the  general
          economy of the markets in which we operate,

     -    our ability to employ and retain qualified management and employees,

     -    changes  in  government   regulations   that  are  applicable  to  our
          businesses,

     -    general  volatility  of the  capital markets and the  maintenance of a
          market for our shares,

     -    changes in the demand for our services,

     -    the degree and nature of our competition,

     -    our ability to generate sufficient cash to pay our 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.

     We are  also  subject  to other  risks  detailed  from  time to time in our
Securities  and  Exchange  Commission   filings.   Any  one  or  more  of  these
uncertainties, risks and other influences could materially affect our results of
operations and whether forward-looking statements made by us ultimately prove to
be accurate.  Our actual  results,  performance  and  achievements  could differ
materially from those expressed or implied in these forward-looking  statements.
We  undertake no  obligation  to publicly  update or revise any  forward-looking
statements, whether from new information, future events or otherwise.

     The following is a discussion of the results of operations  and analysis of
financial  condition for the three months ended March 31, 2003 compared to March
31, 2002.  The results of operations  for PGNF and Paragon  Florida are included
since February 1, 2003, the effective date of our mergers with them.

General

We are  headquartered  in Ponte Vedra Beach,  Florida and were  incorporated  in
Delaware in August 1999.  We are a nationwide  mortgage  banking  company  that,
through  our  subsidiaries,  originates  and sells  residential  mortgage  loans
secured primarily by first mortgages on single-family residences.  Our borrowers
generally have  considerable  equity in the property securing the loan, but have
impaired  or  limited  credit  profiles  or higher  debt-to-income  ratios  than
traditional  mortgage lenders allow. Our borrowers also include individuals who,
due to self-employment or other  circumstances,  have difficulty verifying their
income through conventional  methods, and who prefer the prompt and personalized
service we provide.

We originate loans through our wholesale and retail  divisions.  Wholesale loans
are originated through independent mortgage brokers by the Wholesale Division of
our subsidiary, PGNF. We do not purchase bulk pools of loans from third parties.


                                       15
<PAGE>

After originating we then sell those loans.

Our retail division  originates loans direct to the consumer at our locations in
Illinois  and  Florida.  By creating a direct  relationship  with the  borrower,
retail  lending  provides a more  sustainable  loan  origination  franchise  and
greater control over the lending  process.  The loan origination fees contribute
to profitability and cash flow and offset the higher costs of retail lending.

Market Conditions

The financial services industry,  including the markets in which we operate,  is
highly  competitive.  Competition is based on the type of loan,  interest rates,
and service.  Traditional competitors in the financial services industry include
commercial  banks,  credit  unions,  thrift  institutions,  credit card issuers,
consumer and commercial finance companies, and leasing companies.  While we face
significant  competition  in  connection  with our mortgage  loan  products,  we
believe  that we compete  effectively  in our markets by  providing  competitive
rates and efficient, complete services.

Seasonality

The mortgage  banking industry is generally  subject to seasonal  trends.  These
trends  reflect  the  general  national  pattern of sales and  resales of homes,
although  refinancings  tend to be less  seasonal  and more  closely  related to
changes in mortgage  interest  rates.  Sales and resales of homes typically peak
during  the  spring  and  summer  seasons  and  decline  to  lower  levels  from
mid-November through February. In addition, mortgage delinquency rates typically
rise temporarily in the winter months.

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. Our significant accounting policies are
described  in Footnote 1 to the  Condensed  Consolidated  Financial  Statements,
beginning on page 7. 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 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 are critical  accounting policies that require the most
significant  estimates and assumptions that are subject to significant change in
the preparation of our consolidated financial statements:


     -    Allowance for loan losses.

     -    Gain on sale of loans.

     -    Income taxes.


                                       16
<PAGE>


Results of Operations

     Three Months Ended March 31, 2003 Compared To Three Months Ended March 31,
2002.


     Originations  and Purchases.  We originated  $85.9 million in loans for the
three  months  ended March 31,  2003.  Wholesale  loan  originations  were $35.2
million,  or 41.1% of total  originations  for the three  months ended March 31,
2003.  Retail  loan  originations  were  $50.6  million,   or  58.9%,  of  total
originations for the three months ended March 31, 2003.

     Gain  on sale of  loans.  The  gain on the  sale of  loans  originated  was
$699,000 in the three months ended March 31, 2003, and represents only the sales
of loans completed in February and March of 2003.

     Loan origination fees. Revenues from loan origination fees were $876,000 in
the three months ended March 31, 2003.

     Interest  earned.  Interest  earned was  $271,000 in the three months ended
March 31, 2003 and was  entirely  the result of the  Company's  merger with PGNF
completed on January 31, 2003.

     Salaries and related expenses.  Salaries and related expenses  increased by
$1,256,000,  or 381.8%,  to  $1,585,000 in the three months ended March 31, 2003
compared to $329,000 in the three months ended March 31, 2002. This increase was
primarily  due to the mergers of PGNF and Paragon  Florida  completed on January
31, 2003 and February 2, 2003, respectively and effective from February 1, 2003.
In addition,  the three months ended March 31, 2003 contains the salary  expense
associated  with the hiring of our chief  executive  officer and chief financial
officer,  both  of  whom  were  not  employed  by the  Company  in the  previous
comparable period.

     Loan production  costs.  Loan  production  costs were $247,000 in the three
months  ended March 31, 2003.  Loan productin costs  exclude  those costs which,
pursuant  to SFAS 91,  were  capitalized  and  included in the basis of mortgage
loans receivable held for sale.

     General and administrative expenses.  General and administrative costs were
$670,000 in the three  months  ended  March 31, 2003  compared to $60,000 in the
three  months  ended March 31,  2002.  This  increase  was due  primarily to the
mergers of PGNF and Paragon  Florida  completed on January 31, 2003 and February
2, 2003, respectively and effective from February 1, 2003.

     Interest  expense.  Interest expense was $284,000 in the three months ended
March 31, 2003.  Interest  expense was incurred  primarily from borrowings under
our revolving warehouse  facilities and interest on our convertible  debentures.
Interest  expense  related  to  borrowings  under  our  warehouse  facility  was
approximately  $141,000  for the three  months  ended March 31,  2003.  Interest
expense on our convertible  debentures was approximately  $109,000 for the three
months ended March 31, 2003.

     Net loss.  Net loss  increased  by $538,000 to $927,000 in the three months
ended March 31, 2003  compared to $389,000  for the three months ended March 31,
2003 due to the factors discussed above.


                                       17
<PAGE>

Liquidity and Capital Resources

     Our primary sources of liquidity are:

     -    fundings under revolving warehouse facilities,

     -    sale of mortgage loans and related servicing rights, and

     -    fees earned from  originating  retail  mortgage loans. We historically
          have relied on the issuance of convertible debt and equity  securities
          to finance our operating cash requirements.

     Our operations require continued access to short-term and long-term sources
of cash. Our primary operating cash requirements include:

     -    funding of mortgage loan originations prior to their sale,

     -    fees and expenses incurred in connection with the sale of loans,

     -    ongoing administrative, operating, and tax expenses, and

     -    interest  and  principal   payments  under  our  revolving   warehouse
          facilities and other existing indebtedness.

     We had cash and cash  equivalents of  approximately  $235,000 and available
for sale securities of $764,000 at March 31, 2003.

     Warehouse  Facilities.  We rely on our  revolving  warehouse  facilities to
originate  mortgage loans and hold them prior to sale. At March 31, 2003, we had
committed revolving warehouse  facilities in the amount of $47.5 million. Of the
$47.5 million of committed  revolving  warehouse  facilities  available to us at
March 31, 2003,  $25.0  million and $7.5  million  expired on April 15, 2003 and
April 30, 2003,  respectively.  We  subsequently  entered into a new $10 million
revolving  warehouse facility with one of the expiring lenders.  Generally,  the
Company's revolving  warehouse  facilities have 364-day terms and are renewed on
an annual  basis.  No  assurances  can be made that we will be successful in our
efforts to renew our warehouse facilities.

     Certain of the Company's  warehouse and repurchase facility lenders advance
less than 100% of the  principal  balance of the mortgage  loans,  requiring the
Company to use working  capital to fund the  remaining  portion of the principal
balance of the mortgage loans.

     All of the Company's  revolving  warehouse  facilities  contain  provisions
requiring  the  Company to meet  certain  periodic  financial  covenants,  which
establish,  among other things,  liquidity,  stockholders' equity, leverage, and
net income levels.  If the Company is unable to meet these  financial  covenants
going  forward,  or is unable to obtain  subsequent  amendments  or waivers,  if
required,  or for any other reason is unable to maintain  existing  warehouse or
repurchase  lines or renew  them when they  expire,  it would have to cease loan
production  operations which would jeopardize the Company's  ability to continue
to operate as a going concern.

     The Sale of Mortgage Loans. The Company's  ability to sell loans originated
by it in the secondary  market through whole loan sales is necessary to generate
cash  proceeds to pay down its warehouse  facilities  and fund new mortgage loan
originations. The ability of the Company to sell  loans in the secondary  market


                                       18
<PAGE>


on acceptable  terms is essential  for the  continuation  of the Company's  loan
origination operations.

     Due to our recent mergers with PGNF and Paragon Florida, we anticipate that
the cash  generated  from these  operations,  cash on hand,  available  for sale
securities and available  borrowings under our warehouse  facilities will enable
us to meet our existing  liquidity  requirements  during the next 12 months.  We
may, however,  require  additional  financing to pursue our growth strategies or
pursue acquisitions of other mortgage origination businesses.  If such financing
is required, there are no assurances that it will be available, or if available,
that it can be  obtained  on  terms  favorable  to us or on a basis  that is not
dilutive to our stockholders.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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  and sustained  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.
Fluctuating  interest rates may also affect the net interest income earned by us
resulting  from the  difference  between  the yield to us on loans held  pending
sales and the interest paid by us for funds borrowed  under our warehouse  lines
of credit.

Market Risk

Our market risk is the risk of economic loss resulting  from adverse  changes in
market  prices  of  mortgage  loans  and  interest  rates.  We rely  heavily  on
borrowings  under our  warehouse  credit  facilities  to conduct  our  wholesale
origination  business.  Borrowings  under these  credit  facilities  are done at
variable  rates that will increase as interest  rates rise.  Additionally,  when
interest rates rise,  loans held for sale and any  applications  in process with
locked-in  rates  decrease  in  value.  This  risk of loss can be  reflected  in
diminished current market values and/or reduced potential net interest income in
future periods.

When  interest  rates  decline,  fallout  may  occur  as a result  of  customers
withdrawing their applications. In those instances, we may be required to reduce
our interest rates to meet the market demands.  Our wholesale  segment  operates
primarily in the subprime credit market.  This market is less sensitive than the
prime credit markets are to the daily fluctuations in mortgage rates.

We do not  maintain a trading  account nor are we subject to  currency  exchange
risk or commodity price risk.  Responsibility for monitoring  interest rate risk
rests with senior management.  Senior management  regularly reviews our interest
rate risk  position and adopts  balance  sheet  strategies  that are intended to
optimize  operating  earnings while  maintaining  market risk within  acceptable
guidelines.

While we monitor  interest  rates and may, from time to time,  employ a strategy
designed to hedge some of the risks  associated  with changes in interest rates,
no assurance can be given that our results of operations and financial condition
will not be adversely affected during periods of fluctuations in interest rates.
There were no open hedging positions at March 31, 2003.

                                       19
<PAGE>

Item 4. Controls and Procedures

An evaluation  was performed  within the last ninety days under the  supervision
and with the  participation  of the  Company's  management,  including the Chief
Executive  Officer  ("CEO")  and the Chief  Financial  Officer  ("CFO"),  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures and its internal controls and procedures for financial reporting.
Based on that evaluation,  the Company's management,  including the CEO and CFO,
concluded that the Company's  disclosure  controls and procedures were effective
as of March 31, 2003. Also as a result of that evaluation,  the CEO and CFO made
improvements to the Company's  internal  controls during the quarter ended March
31, 2003.  The  Company's  goal is to monitor  disclosure  controls and internal
controls  and to make  modifications  as  necessary  so that these  controls are
dynamic systems that change as conditions warrant.











                                       20
<PAGE>

                                     PART II


Item 1. Legal Proceedings

We have previously  disclosed our material  litigation and regulatory  issues in
our 2002 Annual  Report on Form 10-K.  Below we have  provided  updates on those
matters for which there were material  developments  during the first quarter of
2003.

With respect to the  securities  litigation  class action  pending in the United
States  District  Court for the Southern  District of New York,  in which we are
named as one of the  issuer-defendants,  the court  denied the motion to dismiss
the complaint  against the company on February 19, 2003. The court dismissed the
Securities  Exchange Act Section 10(b) claim against the individual  defendants,
but  denied  the  motion to  dismiss  the  Securities  Act  Section 11 claim and
Sections 15 and 20(a) control person claims.  The  issuer-defendants,  including
the company,  have engaged in  settlement  discussions  with the  plaintiffs.  A
Memorandum of  Understanding  reflecting  the  settlement  discussions  is being
drafted.  The Company and the individual  defendants intend to vigorously defend
the action.  At this time,  the Company does not believe this matter will have a
material impact on its financial position, operations or liquidity, however, due
to inherent uncertainties in litigation, such an outcome cannot be assured.

Item 2. Changes in Securities and Use of Proceeds

The  information  in response to this item is set forth in  footnotes 6 and 9 on
pages 11 and 12 of this Form 10-Q and is incorporated hereinby reference.

Item 6. Exhibits and Reports on Form 8-K

         (a) Exhibits

         The following exhibits are hereby filed as part of this Quarterly
         Report on Form 10-Q.


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


  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 **

  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 +


                                       21
<PAGE>



  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 Promissory Note ***

  4.2       Certificate of Designations of Series E Preferred Stock ****

  10.1      Employment  Agreement,  dated as of January  31, 2003 by and between
            Paragon Homefunding Corporation and Philip Lagori ***


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

  99.1      Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +

  99.2      Certification  of Chief  Financial  Officer  Pursuant  to 18  U.S.C.
            Section Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +


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

 *   Filed  as an Exhibit 2 to  Paragon's Quarterly  Report for the period ended
     September 30, 2002

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

***  Filed herewith as an exhibit to Paragon's Annual Report on Form 10-K

**** Filed herewith as Exhibit 3.5

 +   Filed herewith


         (b) Reports on Form 8-K


             Current  Report on Form 8-K for an Event  Dated  January  31,  2003
         filed on February  14, 2003  relating to the  acquisitions  of PGNF and
         Paragon Homefunding, Inc.

             Current  Report on Form 8-K for an Event  Dated  February  12, 2003
         filed on February 20, 2003 relating to change in accountants.


                                       22
<PAGE>



PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
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


                            /s/ Steven A. Burleson
                            -----------------------------------------------
                            Steven A. Burleson
                            President, Chief Executive Officer and Director
                            Dated: May 27, 2003

                            /s/ Scott L. Vining
                            -----------------------------------------------
                            Scott L. Vining
                            Chief Financial Officer
                            Dated: May 27, 2003









                                     23
<PAGE>



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Steven A. Burleson, certify that:

1.   I have reviewed  this  quarterly  report on Form 10-Q of Paragon  Financial
     Corporation;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          a) designed  such  disclosure  controls and  procedures to ensure that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

          (b)  evaluated  the  effectiveness  of  the  registrant's   disclosure
          controls  and  procedures  as of a date  within  90 days  prior to the
          filing date of this annual report (the "Evaluation Date"); and

          (c)  presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

          a) all significant deficiencies in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
          ther  employees  who  have a  significant  role  in  the  registrant's
          internal controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.


Date: May 27, 2003

                   By: /s/ Steven A. Burleson
                   ================================================
                   Steven A. Burleson, Chief Executive Officer
                      (Principal Operating Officer)



                                     24
<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Scott L. Vining, certify that:

1.   I have reviewed  this  quarterly  report on Form 10-Q of Paragon  Financial
     Corporation;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          a) designed  such  disclosure  controls and  procedures to ensure that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

          (d)  evaluated  the  effectiveness  of  the  registrant's   disclosure
          controls  and  procedures  as of a date  within  90 days  prior to the
          filing date of this annual report (the "Evaluation Date"); and

          (e)  presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

          a) all significant deficiencies in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
          ther  employees  who  have a  significant  role  in  the  registrant's
          internal controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.


Date: May 27, 2003

                By: /s/ Scott L. Vining
                ================================================
                 Scott L. Vining, Chief Financial Officer
                     (Principal Accounting Officer)






                                     25