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


                                   FORM 10-Q/A
                                   -----------


(Mark One)

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

        FOR THE QUARTERLY PERIOD ENDED June 30, 2005

                                       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 of            (I.R.S. Employer
              incorporation or organization)             Identification No.)

            2207 Sawgrass Village Drive, Ponte Vedra Beach, FL 32082
            --------------------------------------------------------
              (Address of principal executive offices and zip code)

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


(Former  name,  former  address and former  fiscal year,  if changed  since last
report)

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| The total number of
shares of the  registrant's  common  stock  outstanding  as of August 12,  2005:
86,706,250


<PAGE>

                                EXPLANATORY NOTE

This Form 10-Q/A (the  "Amendment")  amends our Form 10-Q for the quarter  ended
June 30, 2005,  which was filed with the Securities  and Exchange  Commission on
August 16, 2005 (the "Original Filing"). We are filing this Form 10-Q/A to amend
the Financial Statements.

In  connection  with the  filing  of this  Form  10-Q/A  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-Q/A 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-Q/A  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.

Table of Contents
<TABLE>
<CAPTION>
<S>     <C>

                                      INDEX

                         PART I - FINANCIAL INFORMATION


Item 1. Financial Statements
        --------------------
        Unaudited Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004                 3
        -----------------------------------------------------------------------------------------

        Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30,
        -----------------------------------------------------------------------------------------------------
        2005 and 2004                                                                                             4
        -------------

        Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and
        ----------------------------------------------------------------------------------------------------
        2004                                                                                                      5
        ----

        Notes to the Unaudited Condensed Consolidated Financial Statements                                        6
        ------------------------------------------------------------------

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations                     17
        -------------------------------------------------------------------------------------

Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                23
        ----------------------------------------------------------

Item 4. Controls and Procedures                                                                                   24
        -----------------------

                                         PART II - OTHER INFORMATION

Item 1. Legal Proceedings                                                                                         24
        -----------------

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                               24
        -----------------------------------------------------------

Item 3. Defaults Upon Senior Securities                                                                           24
        -------------------------------

Item 4. Submission of Matters to a Vote of Security Holders                                                       24
        ---------------------------------------------------

Item 5. Other Information                                                                                         24
        -----------------

Item 6. Exhibits and Reports on Form 8-K                                                                          25
        --------------------------------

SIGNATURE                                                                                                         26
</TABLE>


<PAGE>




                         PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements.







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

                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
               UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2005 AND DECEMBER 31, 2004
                   (Dollars in thousands, except share data)

                                                                                   2005              2004*
                                                                              ---------------   ----------------
                                                                                                (As Restated, Note 11)
Assets
        Current Assets:
               Cash and cash equivalents                                               $ 100              $ 135
               Fees receivable                                                            66                 46
               Prepaid and other current assets                                            1                  9
                                                                              ---------------   ----------------
        Total Current Assets                                                             167                190
                                                                              ---------------   ----------------

               Office property and equipment, net of accumulated
                  depreciation of $56 and $43                                             83                 64
               Goodwill                                                                  170                  -
               Other assets                                                                5                  3
                                                                              ---------------   ----------------
Total Assets                                                                           $ 425              $ 257
                                                                              ===============   ================

Liabilities and Stockholders' Deficit
        Current liabilities
               Current portion of long-term debt                                       $ 580              $ 100
               Short-term debt                                                           205                221
               Notes payable                                                              25                528
               Notes payable - related parties                                            25                 25
               Convertible debentures payable                                            349                379
               Accounts payable                                                          399                371
               Stock subscription proceeds received                                        -                178
               Income taxes payable                                                       10                 10
               Accrued expenses - related parties                                         59                 59
               Accrued expenses - other                                                  464                383
                                                                              ---------------   ----------------
        Total Current Liabilities                                                      2,116              2,254

Long-term debt:
               Liabilities to formerly related parties, less current portion             951                951
                                                                              ---------------   ----------------
        Total Liabilities                                                              3,067              3,205
                                                                              ---------------   ----------------
Stockholders' deficit:
        Preferred stock:  Issuable in series, $0.0001 par value; 5,000,000
          shares authorized: Series E, $1,000 stated value;
          659 shares issued and outstanding, respectively                                  -                  -
        Common stock, $0.0001 par value; 400,000,000 shares
          authorized, 86,706,250 and 65,212,744 shares issued and outstanding
          at June 30, 2005 and December 31, 2004, respectively                             8                  6
        Additional paid-in capital                                                     7,614              6,914
        Retained deficit                                                             (10,264)            (9,861)
        Cumulative comprehensive income:
           Unearned stock-based compensation                                               -                 (7)
                                                                              ---------------   ----------------
               Total Stockholders' deficit                                            (2,642)            (2,948)
                                                                              ---------------   ----------------
Total liabilities and stockholders' deficit                                            $ 425              $ 257
                                                                              ===============   ================

* Derived from audited consolidated  financial statements filed in the Company's
2004 Annual Report on Form 10-K

            See Notes to Unaudited Condensed Consolidated Financial Statements.

                                      3
</TABLE>



<PAGE>
<TABLE>
<CAPTION>




                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                    (Dollars in thousands, except share data)

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

                                                               Three Months Ended                       Six Months Ended
                                                            2005                2004                2005                2004
                                                       ----------------    ----------------    ----------------   -----------------
Revenue:
      Loan origination fees                                      $ 482               $ 637               $ 780             $ 1,219
                                                       ----------------    ----------------    ----------------   -----------------
Expenses:
      Salaries, commissions, benefits,
      and stock-based compensation                                 341                 571                 632               1,369
      Loan production costs                                          4                  38                  17                  47
      General and administrative expenses                          250                 207                 440                 443
                                                       ----------------    ----------------    ----------------   -----------------
           Total expenses                                          595                 816               1,089               1,859
                                                       ----------------    ----------------    ----------------   -----------------
Operating loss                                                    (113)               (179)               (309)               (640)

Other income (expense)
      Interest (expense)                                           (46)                (25)                (94)                (43)
      Loss on disposal of segment                                    -                (102)                  -                (102)
                                                       ----------------    ----------------    ----------------   -----------------
Loss from continuing operations                                   (159)               (306)               (403)               (785)

Discontinued operations (Note 2):
      (Loss) income from discontinued operations
           before provision for income taxes                         -                (666)                  -              (3,538)
                                                       ----------------    ----------------    ----------------   -----------------
Net Loss                                                        $ (159)             $ (972)             $ (403)           $ (4,323)
                                                       ================    ================    ================   =================
Net Loss Per Common Share - Basic and Diluted:
      Loss from continuing operations                              $ -                 $ -                 $ -             $ (0.01)
      (Loss) income from discontinued operations                   $ -             $ (0.01)                $ -             $ (0.03)
                                                       ----------------    ----------------    ----------------   -----------------
      Basic loss per share                                         $ -             $ (0.01)                $ -             $ (0.04)
                                                       ================    ================    ================   =================
Weighted average shares outstanding
      - basic and diluted                                       86,706              99,037              80,613             107,642
                                                       ================    ================    ================   =================


      See Notes to Unaudited Condensed Consolidated Financial Statements.

                                      4
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                             (Dollars in thousands)
<S>                                                                              <C>                  <C>


                                                                                       2005                2004
                                                                                 -----------------    ----------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
         Net loss from continuing operations                                               $ (403)             $ (785)

Adjustments to reconcile  net loss to cash  provided by operating  activities of
         continuing operations:
         Depreciation                                                                          13                  22
         Loss on disposal of segment                                                            -                 102
         Stock-based compensation                                                               7                  52
         Changes in assets and liabilities:
           Increase in fees receivable                                                        (20)                 (4)
           Decrease in prepaids and other assets                                                6                  16
           Increase in accounts payable
             accrued expenses and other current liabilities                                    92                  45
                                                                                 -----------------    ----------------
                 Cash used in continuing operating activities                               (305)               (552)

CASH FLOWS USED IN INVESTING ACTIVITIES:
         Purchases of property and equipment                                                   (5)                 (2)
         Cash acquired in purchase of business                                                  6                   -
         Proceeds from the sale of websites                                                     -                  30
                                                                                 -----------------    ----------------
                 Cash provided by investing activities of
                         continuing operations                                                  1                  28

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of common stock                                               338                   -
         Repayments of convertible debentures                                                 (30)                  -
         Repayments of promissory notes                                                       (39)                (20)
                                                                                 -----------------     ---------------
                 Cash provided (used) by financing activities of
                         continuing operations                                                269                 (20)

Net cash provided by discontinued operations                                                    -                 626

(Decrease) increase in cash and cash equivalents                                              (35)                 82

Cash and Cash Equivalents - Beginning of Period                                               135                  70
                                                                                 -----------------    ----------------

Cash and Cash Equivalents - End of Period                                                   $ 100               $ 152
                                                                                 =================    ================


           See Notes to Unaudited Condensed Consolidated Financial Statements.


</TABLE>

                                   5
<PAGE>

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

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

BASIS OF  PRESENTATION  - Paragon  Financial  Corporation  (the  "Company")  was
incorporated   in  Delaware  on  August  27,  1999.   The  unaudited   condensed
consolidated  financial  statements  include the  accounts of Paragon  Financial
Corporation and its wholly owned  subsidiaries,  Paragon  Homefunding,  Inc. and
First Charleston Mortgage,  L.L.C.  (collectively  referred to as the "Company",
"we", or "us").  The accompanying  unaudited  condensed  consolidated  financial
statements have been prepared in accordance with accounting principles generally
accepted  in the United  States of America for  interim  financial  information.
Accordingly,  they do not include all of the information and footnotes  required
by accounting  principles generally accepted in the United States of America for
complete financial  statements.  In the opinion of management,  all adjustments,
consisting  of  normal  recurring  accruals,  considered  necessary  for a  fair
presentation have been included.  Operating results for the three and six months
ended June 30, 2005 are not  necessarily  indicative  of the results that may be
expected for the year ending  December 31, 2005. All  intercompany  balances and
transactions  are  eliminated  in  consolidation.   The  unaudited  consolidated
financial  statements  presented  herein should be read in conjunction  with the
audited consolidated  financial statements and related notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

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  goodwill  and loss on
disposal of our  discontinued  segment.  Actual  results could differ from those
estimates.

FINANCIAL  STATEMENT   PRESENTATION  -  The  condensed   consolidated  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.

ACQUISITIONS  - On January 19, 2005,  the Company  completed its  acquisition of
First Charleston Mortgage, L.L.C. ("FCM"). As consideration for the acquisition,
the Company issued 4,285,714 shares of its $0.0001 par value common stock valued
at $185 (or $0.043  per  share).  FCM has been in the  business  of  originating
residential  mortgage loans since 2002. The acquisition is effective February 1,
2005  and  was  accounted  for as an  acquisition  pursuant  to  SFAS  No.  141,
Accounting for Business  Combinations ("SFAS 141").  Accordingly,  the Company's
results of operations  include the  operating  results of FCM from the effective
date of the acquisition.

The Company's  unaudited condensed  consolidated  results of operations on a pro
forma  basis  for the six  months  ended  June  30,  2005  and 2004 as if it had
consummated the acquisition of FCM and disposed of

                                       6


<PAGE>






                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED 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)

PGNF Home Lending Corp. (see Note 2) on January 1, 2004 are as follows:
<TABLE>
<CAPTION>
<S>                                                                               <C>         <C>


                                                                                    2005        2004
                                                                                  -------     -------

Revenue                                                                           $    791    $  1,290

Net loss                                                                          $   (414)   $   (806)

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

Weighted  average shares  outstanding - basic and diluted                           81,518      68,203

</TABLE>

CASH AND CASH  EQUIVALENTS  - For purposes of the  statement of cash flows,  the
Company  considers  all  highly  liquid  investments   purchased  with  original
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.

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

DERIVATIVE  FINANCIAL  INSTRUMENTS  - 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.

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.

                                       7


<PAGE>








                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED 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)

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.

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.

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.


                                       8


<PAGE>





                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED 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)

As of June 30, 2005,  there were stock options  outstanding  for the purchase of
36,961,750  shares of the  Company's  common  stock.  There were  1,750,000  and
2,550,000  stock options  granted during the three and six months ended June 30,
2005, respectively.

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 six months ended June 30, 2005 and 2004  (dollars in  thousands,  except per
share amounts):

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

                                             2005                                 2004
                                       -------------                         ------------

Net loss                      $                              (403) $                              (785)

Stock-based employee
   compensation expense
   determined under fair
   value method for all
   awards, net of related
   tax effects                                                249                                  797
                              -----------------------------------  -----------------------------------

Pro forma net loss            $                              (652) $                            (1,582)
                              ===================================  ====================================
Net loss per share:

      Basic and diluted, as
         reported             $                             (0.00) $                             (0.03)
                              ==================================== ====================================

      Pro forma basic and
         diluted              $                             (0.01) $                             (0.03)
                              ==================================== ====================================
</TABLE>

RECENT  ACCOUNTING  DEVELOPMENTS - In December  2004,  the Financial  Accounting
Standards  Board issued a revision of SFAS No. 123,  Accounting for  Stock-Based
Compensation,  which also  supersedes  APB 25,  Accounting  for Stock  Issued to
Employees.  The revised standard  eliminates the alternative to use Opinion 25's
intrinsic  value  method  of  accounting  and  eliminates  the  disclosure  only
provisions  of SFAS No. 123. The  compliance  date for the revised  standard was
extended by the  Securities and Exchange  Commission  (the "SEC") in April 2005.
The  revision,  as  extended  by the SEC,  applies to all awards  granted  after
December 31, 2005 and requires the recognition of the cost of employee  services
received in exchange for awards of equity  instruments  based on the  grant-date
fair value of those awards and applies to all stock  options and awards  granted
after December 31, 2005 and requires the recognition of compensation  expense in
the financial statements for all share-based payment transactions  subsequent to
that  date.   The  revision  also  requires  the   prospective   recognition  of
compensation  expense in the financial statements for all unvested options as of
January  1,  2006.  Adoption  of this  standard  on  January 1, 2006 will have a
slightly  negative  impact on our  earnings  based on the pro forma  data in the
table above.

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections,
which  replaces APB Opinion No. 20,  Accounting  Changes,  and SFAS 3, Reporting
Accounting Changes in Interim Financial  Statements- An Amendment of APB Opinion
No. 28 . SFAS 154 changes the requirements for the accounting and reporting of a
change  in  accounting  principle.  It  applies  to  all  voluntary  changes  in
accounting   principle  as  well  as  to  changes   required  by  an  accounting
pronouncement  that does not include specific  transition  provisions.  SFAS 154
eliminates the requirement in APB Opinion No. 20 to

                                      9


<PAGE>





                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED 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)

include the  cumulative  effect  changes in  accounting  principle in the income
statement in the period of change.  Instead,  to enhance  comparability of prior
period  financial  statements,  SFAS 154  requires  that  changes in  accounting
principle be retrospectively applied. Under retrospective  application,  the new
accounting  principle  is  applied  as of  the  beginning  of the  first  period
presented as if that principle had always been used.  The  cumulative  effect of
the change is reflected in the carrying  value of assets and  liabilities  as of
the first  period  presented  and the  offsetting  adjustments  are  recorded to
opening  retained  earnings.  Each period  presented  is adjusted to reflect the
period  specific  effects  of  applying  the  change.   Although   retrospective
application is similar to restating prior periods,  SFAS 154 gives the treatment
a new name to differentiate it from restatement for correction of an error. Only
direct effects of the change will be included in the retrospective  application;
all  indirect  effects  will be  recognized  in the period of  change.  If it is
impracticable  to  determine  the  cumulative  effect for all  periods,  the new
accounting principle should be applied as if it were adopted  prospectively from
the earliest date practicable.  SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after the date SFAS 154 was
issued.  The changes  required  by SFAS 154 are not  expected to have a material
impact on the financial  condition,  results of operations,  or liquidity of the
Company.

NOTE 2. DISCONTINUED OPERATIONS

On June 30,  2004,  we sold 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 $1,813.

                                       10


<PAGE>





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

NOTE 2. DISCONTINUED OPERATIONS - (continued)

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 three and six-month periods ended June 30, 2004. A summary of
the  operating  results  of the  discontinued  operations  for the three and six
months ended June 30, 2004 is as follows:

<TABLE>
<CAPTION>

<S>                                      <C>                                   <C>

                                                                       Period ended
                                                                       June 30, 2004
                                                                     ----------------
                                                        Three                                  Six
                                                        Months                               Months
                                                  ------------------                  ------------------
Revenue:

      Gain on sale of loans              $                                508  $                             1,949

      Loan origination fees                                               245                                  551

      Interest, dividends, and other
         income                                                           200                                  546
                                         ------------------------------------  -----------------------------------
            Total revenue                                                 953                                3,046
                                         ------------------------------------  -----------------------------------
Expenses:

      Salaries, commissions, benefits,
         and stock-based compensation                                     801                                2,151

      Loan production costs                                               110                                  309


      General and administrative
         expenses                                                         561                                1,306

      Impairment of goodwill                                             --                                  2,582

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

      Interest expense                                                    162                                  436

      Other (income) expense                                              (15)                                  (2)
                                         ------------------------------------  -----------------------------------
            Total expenses                                              1,619                                6,584
                                         ------------------------------------  -----------------------------------
Loss from continuing operations          $                              (666)  $                            (3,538)
                                         ------------------------------------  -----------------------------------

</TABLE>

NOTE 3. GOING CONCERN

As  shown  in  the  accompanying   unaudited  condensed  consolidated  financial
statements,  we incurred a net loss of $159 and $403 in the three and six months
ended  June 30,  2005,  respectively,  and has  incurred  cumulative  losses  of
$10,264.  At June 30,  2005,  we had a working  capital  deficit of $1,949 and a
stockholders' deficit of $2,642. These factors raise substantial doubt about the
Company's  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.  The  Company's  continued  existence  depends on a number of
factors,  including  but not  limited  to, the  ability to  originate  loans and
improve the operating results of our existing  subsidiaries,  to secure adequate
sources of capital and to locate and fund  acquisitions  of suitable  companies.
However,  there can be no assurance that the Company will be successful in these
endeavors or able to continue as a going concern.

                                      11


<PAGE>






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

NOTE 4. OFFICE PROPERTY AND EQUIPMENT

Office property and equipment from continuing operations as of June 30, 2005 and
December 31, 2004 are summarized as follows:
<TABLE>
<CAPTION>
<S>                <C>                                  <C>

                                  2005                                 2004
                            ----------------                     --------------
Furniture and
   fixtures        $                                25  $                                20

Leasehold
   improvements                                     13                                   --

Office equipment                                   101                                   87
                   -----------------------------------  -----------------------------------
                                                   139                                  107

Accumulated
   depreciation                                    (56)                                 (43)
                   -----------------------------------  ------------------------------------
                   $                                83  $                                64
                   ===================================  ====================================
</TABLE>

Depreciation expense for the six months ended June 30, 2005 and 2004 was $13 and
$22, respectively.

NOTE 5. GOODWILL

Goodwill  represents the excess of the merger  consideration over the fair value
of the net assets of FCM on the date they were  acquired.  A summary of goodwill
follows:

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


FCM -  Consideration  for the  merger was $185  consisting  of $185 in shares of
theCompany's common stock (4,285,714 shares at approximately  $0.043 per share).
At the time of the  acquisition,  the estimated  fair value of the net assets of
FCM was $15.                                                                     $   170
                                                                                 =======
</TABLE>

NOTE 6. SEGMENT DATA

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

                                      12


<PAGE>



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

NOTE 7. DEBT

The Company's debt from  continuing  operations as of June 30, 2005 and December
31, 2004 was as follows:

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

                                               2005                                2004
                                         --------------                        ------------
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
   and interest payments of
   $5, due November 1, 2005          $                          200         $                      221
Insurance premium finance note
   bearing an interest rate of
   8% with monthly principal and
   interest payments of $6, due
   May 1, 2005                                                   --                                  24
Promissory note to vendor
   bearing interest of 8% with
   monthly principal and
   interest payments of $4                                       25                                  24
Promissory note to
   shareholders of PHF bearing
   interest at 4.92%, due
   December 31, 2005                                             25                                  25

Promissory note to former
   members of FCM                                                 5                                  --
Convertible debentures bearing
   interest at 10% due
   December 31, 2006,
   currently in default                                         349                                 379
Subordinated note payable to
   former stockholder bearing
   interest at 5%, due
   November 30, 2005,
   currently in default for
   payments due at
    December 31, 2004                                           480                                 480
Subordinated note payable to
   former stockholder bearing
   interest at 5%, due
   May  31, 2008, currently
   in default                                                 1,051                               1,051
                                ----------------------------------- -----------------------------------
                                  $                           2,135    $                          2,204
                                =================================== ===================================
</TABLE>

                                      13
<PAGE>






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

NOTE 8. 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 June 30, 2005.

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 each,  plus $25 for each
branch  office.  As  of  June  30,  2005,  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 real estate leases
for its  mortgage  offices in Florida  and South  Carolina as well as leases for
certain office equipment.

The  Company  pays  taxes,  insurance,  other  operating  expenses,  and general
maintenance for all lease arrangements.

Litigation - 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.

On November 23, 2004, we entered into an agreement with our former corporate law
firm whereby we would make monthly  payments of $17 until we had  liquidated the
$231 due them.  In addition,  we executed an affidavit of confession of judgment
waiving notice upon default or breach of the agreement  related to this debt. On
May 15, 2005, we defaulted on this agreement due to non-payment.

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.

                                      14


<PAGE>







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

NOTE 8. COMMITMENTS AND CONTINGENCIES - (continued)

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 a 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.

NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION

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

                                                                 2005                 2004
                                                               -------             --------

SUPPLEMENTAL CASH FLOW DATA:
---------------------------

Cash interest paid                                             $  31            $             29

Income taxes paid                                              $  --            $             --

                                                                                     2005
                                                                                   ---------

ACQUISITIONS OF BUSINESSES, NET OF CASH ACQUIRED:
------------------------------------------------


Fair value of assets acquired                                                   $            203

Liabilities assumed                                                                          (18)
                                                                                ----------------
Fair value of assets acquired                                                                185
                                                                                ----------------
Stock issued                                                                                 185

Fair value of assets acquired (other than goodwill)                                          (15)
                                                                                ----------------
Goodwill                                                                        $            170
                                                                                ----------------
Cash acquired in purchase of business                                           $              6
                                                                                ----------------
</TABLE>


                                      15


<PAGE>



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

NOTE 10. STOCKHOLDERS' DEFICIT

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.

At June 30, 2005 and December  31, 2004,  the Company had 659 shares of Series E
Preferred Stock issued and  outstanding.  The cumulative  dividend payable under
this Series E Preferred  Stock was $60 and $47 at June 30, 2005 and December 31,
2004, respectively.

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.

As part of its private placement  transaction  (discussed more fully below), the
Company issued warrants to purchase up to 17,207,791  shares of its common stock
for $0.04 per share. These warrants expire on December 31, 2007.

COMMON STOCK - 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
$530,000.  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.

NOTE 11. 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  income tax assets  through an
increase in the deferred income tax valuation  allowance of an additional  $414,
leaving the carrying value of deferred income tax assets at $0.

As a result, we restated 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.  Accordingly,  the balance sheet as of
December 31, 2004, as shown on Page 3 of this  Quarterly  Report on Form 10-Q/A,
was derived  from the  restated  consolidated  balance  sheet as of December 31,
2004.



                                      16


<PAGE>



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

The following discussion should be reviewed in conjunction with our consolidated
financial  statements  and the  related  notes and other  financial  information
appearing elsewhere in this report. In addition to historical  information,  the
following  discussion and other parts of this document  contain  forward-looking
information that involves risks and  uncertainties.  Please refer to the section
entitled  "Forward-Looking  Statements"  on page 3 of this Form 10-Q. Our actual
results could differ materially from those  anticipated by such  forward-looking
information due to factors  discussed  under the section  entitled "Risk Factors
That May Affect Future Results" and elsewhere in this report.

Forward-Looking Statements

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,"  "annualized,"  "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:

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

     o    our ability to obtain  regulatory  permits and  approvals  to continue
          operating in the financial services

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

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

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

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

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

     o    changes in the demand for our services,

     o    the degree and nature of our competition,

     o    our ability to generate sufficient cash to pay our creditors, and

     o    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.

Overview

We are  headquartered  in Ponte Vedra Beach,  Florida and were  incorporated  in
Delaware in August  1999.  We are a retail  mortgage  broker in the  one-to-four
family residential mortgage market. We conduct business in the states of Florida
and South Carolina from our 7 offices.

                                      17
<PAGE>





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.

Loan Originations
-----------------

As of June 30,  2005,  we  originated  loans  through our offices in Florida and
South Carolina.

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 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:

Loan 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 Production Costs
---------------------

We also measure and monitor the cost to originate our loans.  Such costs include
the  costs of  credit,  appraisals,  and  other  direct  costs  associated  with
originating a mortgage loan, net of fees we receive from borrowers.  Commissions
paid to our loan officers are included in the salaries, commissions and benefits
caption on our statement of operations.

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  income  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.

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.

Goodwill and Impairment
-----------------------

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.

                                       18
<PAGE>





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.

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  Three  Months  Ended June 30, 2005  Compared  with Three
--------------------------------------------------------------------------------
Months Ended June 30, 2004
--------------------------

Loan Originations.

Loan  originations  decreased  $2,523,  or 8.8%, to $26,011 for the three months
ended June 30,  2005  compared to $28,534  for the three  months  ended June 30,
2004. The decrease in loan originations  resulted  primarily from a reduction of
origination volume at our Orlando,  Florida location of $10,388 due to a loss of
three loan  officers at that  location as well as the general  reduction  in the
refinance market.  The reduction in loan originations was offset by the addition
of offices in Jacksonville, Florida and our acquisition of FCM in 2005 that were
not included in the loan originations for the three months ended June 30, 2004.

Revenues
--------

Loan  origination  fees.

Loan  origination  fees decreased  $155, or 24.3%,  to $482 for the three months
ended June 30, 2005  compared to $637 for the three  months ended June 30, 2004.
This decrease was due primarily to the 11.2%  decrease in the number of mortgage
loans  originated  in the three months ended June 30, 2005 compared to the three
months  ended June 30, 2004 as well as a  reduction  of 14.7% in the average fee
per loan  originated  between the  periods.  The decrease in the number of loans
originated  in the three  months  ended June 30,  2005 as  compared to the three
months  ended June 30,  2004 was due to the loss of three loan  officers  at our
Orlando,  Florida  locations.  Expressed  as a  percentage  of loan  origination
volume,  origination  fees were 1.86% and 2.23% for the three  months ended June
30, 2005 and 2004, respectively.

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

Salaries, commissions and benefits.

Salaries,  commissions  and benefits  decreased  $230, or 40.3%, to $341 for the
three  months  ended June 30, 2005  compared to $571 for the three  months ended
June 30, 2004. This decrease was due primarily to reductions in commissions paid
to our loan officers due to the fewer number of mortgage loans originated in the
three  months  ended June 30, 2005  compared to the three  months ended June 30,
2004 as well as a reduction in salaries  paid to our  corporate  officers in the
three  months  ended June 30, 2005  compared to the three  months ended June 30,
2004.

Loan production  costs.

Loan production  costs decreased $34, or 89.5%, to $4 for the three months ended
June 30, 2005  compared to $38 for the three months  ended June 30,  2004.  This
decrease  was due  primarily to the fewer  number of mortgage  loans  originated
between the periods.

                                       19

<PAGE>




General  and  administrative  expenses.   General  and  administrative  expenses
increased  $43,  or 20.8%,  to $250 for the three  months  ended  June 30,  2005
compared to $207 for the three  months ended June 30,  2004.  This  increase was
primarily  due to the  operating  expenses  incurred  at our  recently  acquired
subsidiary,  FCM, and the  additional  operating  expenses  associated  with the
opening of three new offices in the three months ended June 30, 2005.

Operating  loss. The operating loss decreased by $66, or 36.9%,  to $113 for the
three  months  ended June 30, 2005  compared to $179 for the three  months ended
June 30, 2004. This decrease was due primarily to factors discussed above.

Interest expense. Interest expense increased $21, or 84.0%, to $46 for the three
months  ended June 30, 2005  compared to $25 for the three months ended June 30,
2004.  This  increase was due  primarily to interest on the  subordinated  notes
issued to PGNF on May 31, 2004.  These  subordinated  notes were outstanding for
only one month during the three months ended June 30, 2004.

Loss on disposal of segment.  We incurred a loss of $102 on the disposal of PGNF
in the three months  ended June 30,  2004.  This  represents  the non-cash  loss
incurred in disposing of PGNF.

Net loss from continuing  operations.  The net loss from  continuing  operations
decreased  $147,  or 48.0%,  to $159 for the three  months  ended June 30,  2005
compared to $306 for the three  months ended June 30,  2004.  This  decrease was
primarily due to the factors discussed above.

Loss from discontinued operations. The net loss from discontinued operations was
$666 in the three  months ended June 30, 2004 and relates to the  operations  of
PGNF which were disposed of June 1, 2004.  Revenues of  discontinued  operations
were  $953  for the  three  months  ended  June  30,  2004.  Total  expenses  of
discontinued operations were $1,619 for the three months ended June 30, 2004.

Net loss.  The net loss decreased  $813, or 83.6%,  to $159 for the three months
ended June 30, 2005  compared to $972 for the three  months ended June 30, 2004.
This decrease was primarily due to the factors discussed above.

Six Months Ended June 30, 2005 Compared with Six Months Ended June 30, 2004

Loan Originations.  Loan originations decreased $7,258, or 14.1%, to $44,102 for
the six months ended June 30, 2005  compared to $51,359 for the six months ended
June 30,  2004.  The decrease in loan  originations  resulted  primarily  from a
reduction of origination volume at our Orlando,  Florida location of $19,221 due
to a loss of  three  loan  officers  at  that  location  as well as the  general
reduction in the refinance market. The reduction in loan originations was offset
by the addition of offices in  Jacksonville,  Florida and our acquisition of FCM
in 2005 that were not included in the loan originations for the six months ended
June 30, 2004.

Revenues

Loan  origination  fees. Loan origination fees decreased $439, or 36.0%, to $780
for the six months  ended June 30,  2005  compared  to $1,219 for the six months
ended June 30, 2004.  This decrease was due  primarily to the 16.7%  decrease in
the number of mortgage  loans  originated  in the six months ended June 30, 2005
compared to the six months  ended June 30, 2004 as well as a reduction  of 23.2%
in the average fee per loan originated between the periods.  The decrease in the
number of loans  originated in the six months ended June 30, 2005 as compared to
the six months ended June 30, 2004 was due to the loss of three loan officers at
our Orlando,  Florida  locations.  Expressed as a percentage of loan origination
volume,  origination fees were 1.77% and 2.37% for the six months ended June 30,
2005 and 2004, respectively.

Operating Expenses

Salaries, commissions and benefits. Salaries, commissions and benefits decreased
$737,  or 53.8%,  to $632 for the six months  ended June 30,  2005  compared  to
$1,369 for the six months ended June 30, 2004.  This  decrease was due primarily
to a reduction of salaries,  benefits and non-cash stock based  compensation  of
$418 at our corporate  office as well as reductions in  commissions  paid to our
loan  officers due to the fewer number of mortgage  loans  originated in the six
months ended June 30, 2005 compared to the six months ended June 30, 2004.

                                       20
<PAGE>





Loan production costs. Loan production costs decreased $30, or 63.8%, to $17 for
the six months ended June 30, 2005 compared to $47 for the six months ended June
30, 2004.  This decrease was due primarily to the fewer number of mortgage loans
originated between the periods.

General  and  administrative  expenses.   General  and  administrative  expenses
decreased  $3, or 0.7%,  to $440 for the six months ended June 30, 2005 compared
to $443 for the six months ended June 30, 2004. Our corporate expenses decreased
$52 in the six months  ended June 30,  2005 as  compared  to the same  period in
2004.  The decrease in  corporate  expenses was offset by an increase in general
and  administrative  expenses at our  subsidiaries for the six months ended June
30,  2005 as  compared  to 2004.  The  increase  in general  and  administrative
expenses at our subsidiaries in the six month ended June 30, 2005 as compared to
2004 relates to our  acquisition  of FCM,  effective  February 1, 2005,  and the
additional  branches  opened by both FCM and PHF in the three  months ended June
30, 2005.

Operating  loss. The operating loss decreased by $331, or 51.7%, to $309 for the
six months  ended June 30, 2005  compared to $640 for the six months  ended June
30, 2004. This decrease was due primarily to factors discussed above.

Interest expense.  Interest expense increased $51, or 118.6%, to $94 for the six
months  ended June 30, 2005  compared  to $43 for the six months  ended June 30,
2004.  This  increase was due  primarily to interest on the  subordinated  notes
issued to PGNF on May 31, 2004 as part of our  disposal of that  company.  These
subordinated  notes were  outstanding  for only one month  during the six months
ended June 30, 2004.

Loss on disposal of segment. We incurred a non-cash loss of $102 on the disposal
of PGNF in the six  months  ended  June  30,  2004.

Net loss from continuing  operations.  The net loss from  continuing  operations
decreased  $382,  or  48.7%,  to $403 for the six  months  ended  June 30,  2005
compared  to $785 for the six months  ended June 30,  2004.  This  decrease  was
primarily due to the factors discussed above.

Loss from discontinued operations. The net loss from discontinued operations was
$3,538 in the six months  ended June 30, 2004 and relates to the  operations  of
PGNF which were  disposed of June 1, 2004.  Total  revenues of our  discontinued
operations were $3,046 for the six months ended June 30, 2004. Total expenses of
our discontinued  operations were $6,584 for the six months ended June 30, 2004.
Total expenses of our discontinued  operations  include an impairment  charge of
$2,582 in the six months ended June 30, 2004.

Net loss. The net loss decreased  $3,920,  or 90.7%,  to $403 for the six months
ended June 30, 2005  compared to $4,323 for the six months  ended June 30, 2004.
This decrease was primarily due to the factors discussed above.

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 June 30, 2005, we had cash and cash  equivalents  of  approximately  $100 and
fees receivable of $66 with which to satisfy our on-going mortgage and corporate
operations'  current  liabilities of $2,116. We continue seeking ways to improve
our  liquidity  to a level  sufficient  to  accomplish  our  goals  for 2005 and
continue as a going concern.


                                       21
<PAGE>




While the performance of our operating  subsidiaries improved in the three month
period ended June 30, 2005 as compared to the three month period ended March 31,
2005, their  performance was below expectation for the six months ended June 30,
2005. Due to this poor operating  performance,  as well as the costs  associated
with our being publicly traded,  we are  experiencing  difficulty in meeting the
liquidity  requirements  of our  corporate  operations  as well as servicing its
existing obligations.  Unless our subsidiaries'  operating performance improves,
or we are able to acquire other profitable  financial  services  operations,  we
will be required to raise additional  equity capital the terms of which might be
substantially dilutive to our existing  shareholders.  We continue reviewing our
corporate operating expenses,  seeking to acquire profitable  financial services
operations  producing  positive cash flow,  and  renegotiating  the terms of our
existing indebtedness with major creditors,  but there can be no assurances that
we will be able to secure the additional capital, reduce our corporate operating
expenses,  renegotiate  the  terms  of our  existing  indebtedness,  or  acquire
profitable  financial  services  operations  required  to  continue  funding our
corporate operations and continue as a going concern.

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 increased from the bank's prime
rate to its prime rate plus 4%, and required 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 $30 to  certain  holders  of our 15%
convertible  notes. 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.

Subordinated  promissory notes to PGNF (a formerly related party). In July 2005,
the owner of our former  subsidiary  PGNF did an  assignment  for the benefit of
creditors and closed the business. PGNF is the holder of subordinated promissory
notes with a face value of $1,531 and accrued  interest of $75. We are currently
in  default  under the terms of these  promissory  notes and are  attempting  to
contact  the  assignee  in  an  effort  to  discuss  the   repurchase  of  these
obligations.

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

Future Accounting Pronouncements

There  are   currently  no   pronouncements   issued  that  are   scheduled  for
implementation  during 2005 that are expected to have any significant  impact on
the accounting policies of the Company.

                                       22

<PAGE>




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.

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 June 30, 2005:
<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                    $ 349                   $ 349                 $-----                   $---
Short-term debentures                     $ 205                   $ 205                 $-----                   $---
Promissory notes                          $ 185                   $ 185                 $-----                   $---
Notes due related                         $  25                   $  25                 $-----                   $---
Operating leases                          $ 125                   $  52                   $ 73                   $---

                          ---------------------- ----------------------- ---------------------- ----------------------
The fair value of our
contractual obligations
approximate the
carrying value                           $2,420                  $1,396                $ 1,024                   $---
                          ====================== ======================= ====================== ======================

</TABLE>

Market Risk
-----------

Our market risk is the risk of economic loss resulting  from adverse  changes in
market prices of mortgage  loans and interest  rates.  When interest rates rise,
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 income in future periods.

                                       23

<PAGE>




When  interest  rates  decline,  customers  may  withdraw  their  mortgage  loan
applications.  In those  instances,  we may be required  to reduce our  interest
rates to meet the market  demands.  When interest rates rise,  fallout may occur
due to customers that are not locked into a rate withdrawing their applications,
and, as a result, we may suffer a reduction in the volume of loan  originations.
We may be  required  to reduce our fees to entice  these  customers  in order to
close their loans.

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 June 30, 2005.

Item 4. Control and Procedures.

We carried out an evaluation,  under the supervision and with the  participation
of  management,  including  our Chief  Executive  Officer  and  Chief  Financial
Officer,  of the  effectiveness  of our  disclosure  controls and procedures (as
defined in Rule  13a-15(e) of the Securities  Exchange Act of 1934).  Based upon
that  evaluation,  as of the end of the period covered by this Quarterly  Report
our Chief  Executive  Officer and Chief  Financial  Officer  concluded  that our
disclosure  controls and  procedures are effective in ensuring that all material
information  required to be  disclosed  in this  Quarterly  Report has been made
known to them in a timely fashion.

There were no changes in our internal  controls over financial  reporting during
the period covered by this Quarterly  Report that have materially  affected,  or
are reasonably likely to materially affect, these internal controls.

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Refer to Part I, Footnote 8 - Commitments and  Contingencies for a discussion of
our ongoing  litigation.  In addition to the specific items  discussed  therein,
from time to time, we become  involved in a variety of mortgage  lending related
claims and other  matters  incidental to its business in addition to the matters
described  above. In our opinion,  the resolution of any of these matters is not
expected  to  have a  material  adverse  effect  on our  consolidated  financial
position and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

As we disclosed in Part I, Footnote 8 - Commitments and Contingencies, we are in
default under certain of our promissory  notes with our creditors.  As explained
therein,  we are attempting to negotiate  extensions and other  forbearance with
these creditors.

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

We held our annual meeting of stockholders on June 21, 2005. At the meeting, the
stockholders  re-elected  of all  four of our  existing  directors  to  serve as
directors  until  the next  annual  meeting  of  stockholders  and  until  their
successors shall have been duly elected and qualified.  Of the 86,706,250 shares
of common  stock  entitled to vote at the meeting,  46,722,365  shares of common
stock were  present in person or by proxy and  entitled to vote.  Such number of
shares  represented  approximately  53.89% of our  outstanding  shares of common
stock.

                                       24

<PAGE>




In connection with such election, the stockholders voted as follows:
<TABLE>
<CAPTION>
<S>                                                               <C>           <C>

                                                                      FOR         WITHHELD
                                                                  -----------     ----------

Paul K. Danner                                                     46,718,406          3,959
George O. Deehan                                                   46,719,419          2,946
Charles D. Van Sickle                                              46,720,691          1,674
Stephen Croskrey                                                   46,718,397          3,968
</TABLE>

Item 5. Other Information.

On August 14, 2005,  George O. Deehan resigned from our Board of Directors.  Mr.
Deehan  had  recently  been  named as the  chief  operating  officer  of  Sunset
Financial  Resources  ("SFR"),  a publicly traded real estate  investment  trust
located in  Jacksonville,  Florida.  SFR's board  determined  that Mr.  Deehan's
capacity as director of Paragon was in conflict with his acting as an officer of
SFR.

There were no  disagreements  with Paragon,  executive  officers,  or members of
Paragon's  board of  directors on any matter  relating to Paragon's  operations,
policies or practices.

Mr. Deehan has been furnished with a copy of this statement.

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   Description
Number
------   ------------




31.1 Certification  of  Principal  Executive  Officer  pursuant  to Form of Rule
     13a-14(a),  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
     2002, dated October 10, 2008*

31.2 Certification  of  Principal  Financial  Officer  pursuant  to Form of Rule
     13a-14(a),  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
     2002, dated October 10, 2008*

32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C.  Section
     1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
     dated October 10, 2008*

32.2 Certification of Principal Executive Officer pursuant to 18 U.S.C.  Section
     1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
     dated October 10, 2008*


*     Filed herewith

(b) Reports of Forms 8-K

      None.

                                       25

<PAGE>



                                   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
(KNA NEW MARKET LATIN AMERICA, INC.)

BY: PHILIP J. RAUCH
-------------------
/s/ PHILIP J. RAUCH


Date: October 10, 2008

                                       26