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 March 31, 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 May 20, 2005: 86,706,250


<PAGE>





                                EXPLANATORY NOTE

This Form 10-Q/A (the  "Amendment")  amends our Form 10-Q for the quarter  ended
March 31, 2005,  which was filed with the Securities and Exchange  Commission on
May 23, 2005 (the  "Original  Filing").  We are filing this Form 10-Q/A to amend
the Financial Statements and Part I, Item 2.

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


                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1. Financial Statements
        --------------------

        Unaudited Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004              3
        ------------------------------------------------------------------------------------------

        Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2005
        ---------------------------------------------------------------------------------------------------
        and 2004                                                                                                4
        --------

        Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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                                              21
        ----------------------------------------------------------

Item 4. Controls and Procedures                                                                                 22
        -----------------------

                                         PART II - OTHER INFORMATION

Item 1. Legal Proceedings                                                                                       22
        -----------------

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                             22
        -----------------------------------------------------------

Item 3. Defaults Upon Senior Securities                                                                         22
        -------------------------------

Item 4. Submission of Matters to a Vote of Security Holders                                                     23
        ---------------------------------------------------

Item 5. Other Information                                                                                       23
        -----------------

Item 6. Exhibits and Reports on Form 8-K                                                                        23
        --------------------------------

SIGNATURE                                                                                                       24

</TABLE>


<PAGE>




                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
<PAGE>
<TABLE>
<CAPTION>


             PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
                    UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
          AS OF MARCH 31,  2005 AND  DECEMBER  31, 2004
                    (Dollars in thousands, except share data)
<S>                                                                       <C>               <C>

                                                                               2005             2004*
                                                                          ---------------   ---------------
                                                                                            (As Restated, Note 11)
Assets
        Current Assets:
               Cash and cash equivalents                                           $ 193             $ 135
               Fees receivable                                                        78                46
               Prepaid and other current assets                                       18                 9
                                                                          ---------------   ---------------
        Total Current Assets                                                         289               190
                                                                          ---------------   ---------------

               Office property and equipment, net of accumulated
                  depreciation of $49 and $43                                         81                64
               Goodwill                                                              180                 -
               Other assets                                                            4                 3
                                                                          ---------------   ---------------
Total Assets                                                                       $ 554             $ 257
                                                                          ===============   ===============

Liabilities and Stockholders' Deficit
        Current liabilities
               Current portion of long-term debt                                   $ 580             $ 100
               Short-term debt                                                       216               221
               Notes payable                                                          43               528
               Notes payable - related parties                                        25                25
               Convertible debentures payable                                        349               379
               Accounts payable                                                      336               371
               Stock subscription proceeds received                                    -               178
               Accrued expenses - related parties                                     62                59
               Accrued expenses - other                                              467               393
                                                                          ---------------   ---------------
        Total Current Liabilities                                                  2,078             2,254

Long-term debt:
               Liabilities to formerly related parties,
                less current portion                                                 963               951
                                                                          ---------------   ---------------
        Total Liabilities                                                          3,041             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 March 31, 2005 and December 31, 2004, respectively                        8                 6
        Additional paid-in capital                                                 7,614             6,914
        Retained deficit                                                         (10,105)           (9,861)
        Cumulative comprehensive income:
           Unearned stock-based compensation                                          (4)               (7)
                                                                          ---------------   ---------------
               Total Stockholders' deficit                                        (2,487)           (2,948)
                                                                          ---------------   ---------------
Total liabilities and stockholders' deficit                                        $ 554             $ 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.


</TABLE>

                                      3

<PAGE>
<TABLE>
<CAPTION>



                 PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                    (Dollars in thousands, except share data)

<S>                                                                             <C>                  <C>


                                                                                      2005                 2004
                                                                                -----------------    -----------------
Revenue:
         Loan origination fees                                                             $ 298                $ 582
                                                                                -----------------    -----------------
Expenses:
         Salaries, commissions, benefits, and stock-based compensation                       291                  798
         Loan production costs                                                                13                    9
         General and administrative expenses                                                 190                  236
                                                                                -----------------    -----------------
                          Total expenses                                                     494                1,043
                                                                                -----------------    -----------------
Operating loss                                                                              (196)                (461)

Other income (expense)
         Interest (expense)                                                                  (48)                 (18)
                                                                                -----------------    -----------------
Loss from continuing operations                                                             (244)                (479)

Discontinued operations (Note 2):
         (Loss) income from discontinued operations before provision
             for income taxes                                                                  -               (2,873)
                                                                                -----------------    -----------------
Net Loss                                                                                  $ (244)            $ (3,352)
                                                                                =================    =================
Net Loss Per Common Share - Basic and Diluted:
         Loss from continuing operations                                                     $ -                  $ -
         (Loss) income from discontinued operations                                          $ -               $ 0.03
                                                                                -----------------    -----------------
         Basic loss per share                                                                $ -               $ 0.03
                                                                                =================    =================
Weighted average shares outstanding - basic and diluted                                   86,679              116,247
                                                                                =================    =================

              See Notes to Unaudited Condensed Consolidated Financial Statements.

</TABLE>


                                      4

<PAGE>
<TABLE>
<CAPTION>


                  PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                             (Dollars in thousands)
<S>                                                                                 <C>                 <C>


                                                                                         2005                2004
                                                                                    ----------------    ----------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
         Net loss from continuing operations                                                 $ (244)             $ (479)

Adjustments to reconcile net loss to cash provided by operating activities:
         Depreciation                                                                             6                  11
         Stock-based compensation                                                                 4                  31
         Changes in assets and liabilities:
           Increase in fees receivable                                                          (32)                (48)
           Increase in prepaids and other assets                                                 (9)                 (9)
           Increase (decrease) in accounts payable
             accrued expenses and other current liabilities                                      30                 (23)
                                                                                    ----------------    ----------------
                Cash used in operating activities of continuing operations                     (245)               (517)

CASH FLOWS USED IN INVESTING ACTIVITIES:
         Cash acquired in purchase of business                                                    6                   -
                                                                                    ----------------    ----------------
                Cash provided by investing activities of continuing operations                    6                   -

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of common stock                                                 338                   -
         Repayments of convertible debentures                                                   (30)                  -
         Repayments of promissory notes                                                         (11)                  -
                                                                                    ----------------    ----------------
                Cash provided by financing activities of continuing operations                  297                   -

Net cash provided by discontinued operations                                                      -                 576

Increase in cash and cash equivalents                                                            58                  59

Cash and Cash Equivalents - Beginning of Period                                                 135                  70
                                                                                    ----------------    ----------------
Cash and Cash Equivalents - End of Period                                                     $ 193               $ 129
                                                                                    ================    ================


        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  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 months ended March 31, 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 the  allowance for loan
repurchases  and  premium  recapture,  goodwill,  and  loss on  disposal  of our
discontinued segment. Actual results could differ from those estimates.

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

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
of 100% interest in FCM, 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.

                                      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)

The Company's  unaudited condensed  consolidated  results of operations on a pro
forma  basis for the three  months  ended  March 31,  2005 and 2004 as if it had
consummated  the acquisition of FCM and disposed of PGNF Home Lending Corp. (see
Note 2) on January 1, 2004 are as follows (in thousands except per share data):

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

                                                                                    2005        2004
                                                                                    ----        ----
Revenue                                                                           $    309    $    653

Net income                                                                        $   (255)   $   (500)

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

Weighted  average shares  outstanding - basic and diluted                           87,584      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.

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

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

                                       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)

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

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

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.

GAIN ON SALES OF LOANS - Gains or losses  resulting from sales of mortgage loans
are recognized at the date of settlement and are based on the difference between
the  selling  price of the  mortgage  loans sold and the  carrying  value of the
related  loans sold.  Nonrefundable  fees and direct costs  associated  with the
origination  of mortgage  loans are deferred and  recognized  when the loans are
sold.  Loan  sales  are  accounted  for as sales  when  control  of the loans is
surrendered, to the extent that consideration other than beneficial interests in
the loans transferred is received in the exchange.

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


                                       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)

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.


                                       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)

As of March 31, 2005,  there were stock options  outstanding for the purchase of
35,211,750  shares of the  Company's  common  stock.  There were  800,000  stock
options granted during the three months ended March 31, 2005.

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 three months ended March 31, 2005 and 2004 (dollars in thousands, except per
share amounts):

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


                                                          2005                      2004
                                                          ----                      ----
Net Loss                                        $          (244)          $        (3,352)
Stock based employee compensation
   expense determined under the fair value
   method for all awards, net of related tax
   effects                                      $           242           $           697
                                                ------------------------- --------------------------

Proforma net loss                               $          (486)          $        (4,049)

                                                ========================= ==========================
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.


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)

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-month  period  ended March 31, 2004. A summary of the
operating  results of the  discontinued  operations  for the three  months ended
March 31, 2004 is as follows.

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


Revenue:

      Gain on sale of loans                                        $                             1,441

      Loan origination fees                                                                        306

      Interest, dividends, and other income                                                        346
                                                                   -----------------------------------
            Total revenue                                                                        2,093
                                                                   -----------------------------------
Expenses:

      Salaries, commissions, benefits, and stock-based
         compensation                                                                            1,350

      Loan production costs                                                                        199

      General and administrative expenses                                                          746

      Impairment of goodwill                                                                     2,582

      Non-recurring expense (income)                                                              (198)

      Interest expense                                                                             275

      Other (income) expense                                                                        12
                                                                   -----------------------------------
            Total expenses                                                                       4,966
                                                                   -----------------------------------
Loss from discontinued operations                                  $                            (2,873)
                                                                   ===================================
</TABLE>

NOTE 3. GOING CONCERN

As  shown  in  the  accompanying   unaudited  condensed  consolidated  financial
statements,  the Company  incurred a net loss of $244 in the three  months ended
March 31, 2005,  and cumulative  losses of $10,105.  At March 31, 2005, we had a
working capital deficit of $1,789 and a stockholders'  deficit of $2,487.  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,  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 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 March 31, 2005
and December 31, 2004 are summarized as follows:
<TABLE>
<CAPTION>
<S>                <C>                                  <C>

                                  2005                                 2004
                                  ----                                 ----

Furniture and
   fixtures        $                                23  $                                20

Leasehold
   improvements                                     13                                   --

Office equipment                                    94                                   87
                   -----------------------------------  -----------------------------------
                                                   130                                  107

Accumulated
   depreciation                                    (49)                                 (43)
                   -----------------------------------  -----------------------------------
                   $                                81  $                                64
                   ===================================  ===================================
</TABLE>


Depreciation  expense for the three  months ended March 31, 2005 and 2004 was $6
and $11, 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 $186 consisting of $186 in shares of the
Company'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 $6.                                                                               $     180
                                                                                      =========
</TABLE>


                                      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 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.

NOTE 7. DEBT

The Company's debt from continuing  operations as of March 31, 2005 and December
31, 2004 was as follows:
<TABLE>
<CAPTION>
<S>                                                                                                             <C>


                                                             March 31,                           December 31,
                                                              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 per month, through November 1, 2005          $                       216       $                          221

Insurance  premium  finance  note  bearing an
   interest  rate of 8% with  monthly
   principal and interest payments of
   $6, due May 1, 2005                                                      18                                   24

Promissory  note to vendor  bearing  interest
   of 8% with monthly  principal  and
   interest payments of $4, currently past
   due since October 15, 2004                                               25                                   24

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

Convertible debentures bearing interest
   at 15%, due December 31, 2004;
   subsequently modified to mature
   December 31, 2005                                                       349                                  379

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

Subordinated note payable to former stockholder
   bearing interest at 5%, due May
   31, 2008, currently in default for current
   payments due at December 31, 2004                                     1,051                                1,051
                                                   ---------------------------       ------------------------------
                                                   $                     2,164       $                        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 March 31, 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. As of March 31, 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 corporate  headquarters  and its Orlando  location as well as leases for
certain office equipment.

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

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.

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  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                         $                                44  $                              17

Income taxes paid                          $                                --  $                              --


ACQUISITIONS OF BUSINESSES, NET OF CASH
 ACQUIRED

Fair value of assets acquired              $                               210  $                              --

Liabilities assumed                                                        (24)                                --
                                           -----------------------------------  ---------------------------------
Fair value of net assets acquired          $                               186  $                              --
                                           ===================================  =================================
Stock issued                               $                               186  $                              --

Fair value of net assets acquired (other
   than goodwill)                                                           (6)                                --
                                           -----------------------------------  ---------------------------------
Goodwill                                   $                               180  $                              --
                                           ===================================  =================================
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 March 31, 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 $53 and $47 at March 31, 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 below.

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,

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 upon the United State,  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.

                                       17


<PAGE>





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 the states of Florida
and South Carolina.

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 March 31, 2005, we  originated  loans through our locations 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 points and fees we may pay to our loan officers, net of fees we receive from
borrowers,  plus our operating  expenses  associated  with the loan  origination
business.

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

We file a consolidated  federal income and combined state franchise tax returns.
We utilize the asset and liability method of accounting for income taxes,  under
which  deferred  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.

                                       18


<PAGE>





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 March 31, 2005  Compared  with Three Months Ended March 31,
2004

Continuing Operations

Loan Originations.  Loan originations decreased $4,735, or 20.7%, to $18,091 for
the three months  ended March 31, 2005  compared to $22,825 for the three months
ended March 31, 2004.  This decrease was due to a general  decline in the volume
of refinance market and the loss of three loan officers in our Orlando,  Florida
location.

Revenues

Loan  origination  fees. Loan origination fees decreased $284, or 48.8%, to $298
for the three months ended March 31, 2005  compared to $582 for the three months
ended March 31, 2004.  This  decrease  was due  primarily to the decrease in the
number of mortgage loans originated  during the period as well as a reduction in
the  average  fee  per  loan  originated.  Expressed  as a  percentage  of  loan
origination volume,  origination fees were 1.6% for the three months ended March
31, 2005 compared to 2.5% for the three months ended March 31, 2004.

Operating Expenses

Salaries, commissions and benefits. Salaries, commissions and benefits decreased
$507,  or 63.5%,  to $291 for the three months ended March 31, 2005  compared to
$798 for the three months ended March 31, 2004.  This decrease was due primarily
to the reduction in our corporate  officers'  salaries in the three months ended
March 31, 2005  compared to the three  months  ended March 31, 2004 as well as a
reduction in  commissions  paid to our loan  officers due to the fewer number of
mortgage  loans  originated in the three months ended March 31, 2005 compared to
the three months ended March 31, 2004.

Loan production  costs. Loan production costs increased $4, or 44.4%, to $13 for
the three months ended March 31, 2005  compared to $9 for the three months ended
March 31, 2004.  This increase was due  primarily to the higher loan  production
costs in our recently  acquired  subsidiary,  FCM, that has a lower pull through
rate than our PHF subsidiary.

General  and  administrative  expenses.   General  and  administrative  expenses
decreased  $46,  or 19.5%,  to $190 for the three  months  ended  March 31, 2005
compared to $236 for the three months ended March 31,  2004.  This  decrease was
primarily due to reductions of expenses at our corporate  headquarters partially
offset by the operating  expenses incurred at our recently acquired  subsidiary,
FCM.

Operating  loss. The operating loss decreased by $265, or 57.5%, to $196 for the
three  months  ended March 31, 2005  compared to $461 for the three months ended
March 31, 2004. This decrease was due primarily to factors discussed above.

                                       19

<PAGE>




Interest  expense.  Interest  expense  increased $30, or 166.7%,  to $48 for the
three  months  ended March 31, 2005  compared to $18 for the three  months ended
March 31, 2004. This increase was due primarily to interest on the  subordinated
notes issued to PGNF. These  subordinated  notes were not outstanding during the
three months ended March 31, 2004.

Net loss from continuing  operations.  The net loss from  continuing  operations
decreased  $235,  or 49.1%,  to $244 for the three  months  ended March 31, 2005
compared to $479 for the three months ended March 31,  2004.  This  decrease was
primarily due to the factors discussed above.

Loss from discontinued  operations.  The loss from  discontinued  operations was
$2,873 for the three  months  ended March 31, 2004 and relates to the results of
our former subsidiary PGNF. We disposed of PGNF on June 1, 2004.

Net loss. The net loss decreased  $3,108, or 92.7%, to $244 for the three months
ended March 31, 2005  compared  to $3,352 for the three  months  ended March 31,
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 March 31, 2005, we had cash and cash  equivalents of  approximately  $193 and
fees receivable of $78 with which to satisfy our on-going mortgage and corporate
operation's  current  liabilities of $2,078.  We continue seeking way to improve
our  liquidity  to a level  sufficient  to  accomplish  our goals  for 2005.  We
continue implementing our liquidity improvement plan that includes: reducing our
corporate  operating  expenses,  raising  additional equity capital,  seeking to
acquire profitable mortgage brokering  operations  producing positive cash flow,
renegotiating  the terms of our existing  indebtedness  with major  creditors to
defer material principal payments into the future.

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

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

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

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

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

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<PAGE>




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.

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

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

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

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.

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.

                                       21

<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 March 31, 2005.

Item 4. Controls 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.

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.

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.

Item 3. Defaults Upon Senior Securities.

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

                                       22
<PAGE>





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

None.

Item 5. Other Information.

None.

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

     (a)  Exhibits:  The  following  exhibits  are hereby  filed as part of this
          Quarterly Report on Form 10-Q.


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


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 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 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

            On January 26,  2005,  we filed a Current  Report on Form 8-K for an
event dated January 19, 2005 related to our acquisition of our First  Charleston
Mortgage, L.L.C. subsidiary.

            On March 4, 2005, we filed a Current Report on Form 8-K for an event
dated  February 28, 2005  related to the  completion  of a private  placement of
equity securities.

            On March 21, 2005, we filed a Current  Report on Form 8-K announcing
the addition of Stephen Croskrey to our Board of Directors.

                                       23
<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

BY:  /s/ Philip J. Rauch
     -------------------
     Philip J. Rauch
     Chief Financial Officer
Dated: October 10, 2008

                                       24