UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015
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 001-15409
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
| Maryland | 39-6594066 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
10011 Valley Forge Drive
Houston, Texas 77042
(Address of principal executive offices)
(440) 283-6319
(Registrant’s telephone number, including area code)
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 has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| Yes [ ] | No [X] |
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes [X] | No [ ] |
The number of the registrant’s Common Shares outstanding as of April 23, 2015, was 405,096.
FORM 10-Q
INDEX
| 2 |
Paragon Real Estate Equity and Investment Trust
Condensed Consolidated Balance Sheets
| March 31, 2015 | December 31, 2014 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash | $ | 3,462 | $ | 10,726 | ||||
| Marketable securities | 9,379 | 19,378 | ||||||
| Other assets | 6,774 | 9,953 | ||||||
| Total Assets | $ | 19,615 | $ | 40,057 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 2,117 | $ | 2,517 | ||||
| Total liabilities | 2,117 | 2,517 | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred A Shares – $0.01 par value, 10,000,000 authorized: 258,236 Class A cumulative convertible shares issued and outstanding, $10.00 per share liquidation preference | 2,583 | 2,583 | ||||||
| Preferred C Shares – $0.01 par value, 300,000 authorized: 244,444 Class C cumulative convertible shares issued and outstanding, $10.00 per share liquidation preference | 2,444 | 2,444 | ||||||
| Common Shares - $0.01 par value, 100,000,000 authorized: 443,226 shares issued and 405,096 outstanding. | 4,051 | 4,051 | ||||||
| Additional paid-in capital | 28,146,971 | 28,146,971 | ||||||
| Accumulated deficit | (27,337,816 | ) | (27,317,774 | ) | ||||
| Treasury stock, at cost, 38,130 shares | (800,735 | ) | (800,735 | ) | ||||
| Total shareholders’ equity | 17,498 | 37,540 | ||||||
| Total Liabilities and Shareholders’ Equity | $ | 19,615 | $ | 40,057 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| F-1 |
Paragon Real Estate Equity and Investment Trust
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(unaudited)
| For the three months ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenues | ||||||||
| Interest/dividend income | $ | 0 | $ | 2 | ||||
| Total revenues | 0 | 2 | ||||||
| Expenses | ||||||||
| General and administrative | 20,043 | 22,142 | ||||||
| Total expenses | 20,043 | 22,142 | ||||||
| Income (loss) from operations | (20,043 | ) | (22,140 | ) | ||||
| Net income (loss) attributable to Common Shareholders | (20,043 | ) | (22,140 | ) | ||||
| Net income (loss) attributable to Common Shareholders per Common Share: Basic and Diluted | $ | (.05 | ) | $ | (.05 | ) | ||
| Weighted average number of Common Shares outstanding: Basic and Diluted | 405,096 | 405,096 | ||||||
| Comprehensive income (loss): | ||||||||
| Net income (loss) | $ | (20,043 | ) | $ | (22,140 | ) | ||
| Net comprehensive income (loss) | $ | (20,043 | ) | $ | (22,140 | ) | ||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| F-2 |
Paragon Real Estate Equity and Investment Trust
Condensed Consolidated Statements of Cash Flows
(unaudited)
| For the three months ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (20,043 | ) | $ | (22,140 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in continuing operations | ||||||||
| Net change in operating assets and liabilities: | ||||||||
| Other assets | 3,179 | 2,330 | ||||||
| Accounts payable and accrued expenses | (400 | ) | 1,500 | |||||
| Net cash from (used for) continuing operations | (17,264 | ) | (18,310 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash used for the purchase of marketable securities | (0 | ) | (2 | ) | ||||
| Proceeds from the sale of marketable securities | 10,000 | 20,000 | ||||||
| Net cash from (used for) investing activities | 10,000 | 19,998 | ||||||
| Cash flows from financing activities: | ||||||||
| Net cash from (used for) financing activities Net cash provided by investing activities | -- | -- | ||||||
| Net increase (decrease) in cash | (7,264 | ) | 1,688 | |||||
| Cash | ||||||||
| Beginning of period | 10,726 | 9,643 | ||||||
| End of period | $ | 3,462 | $ | 11,331 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| F-3 |
Paragon Real Estate Equity and Investment Trust
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 – Organization
Paragon Real Estate Equity and Investment Trust (the “Company,” “Paragon,” “we,” “our,” or “us”) is a Maryland shell corporation primarily focused on maintaining its corporate existence and SEC reporting history to enable it, in the future, to raise additional capital and make real estate investments. Future real estate investments may include acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel, other commercial properties, acquisition of or merger with a REIT or real estate operating company and joint venture investments. Excess funds are invested in an insured deposit account at a securities brokerage firm.
Note 2 – Basis of Presentation
Condensed Consolidated Financial Statement Presentation
We have prepared the condensed consolidated financial statements without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, we believe that the included disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring items) necessary for a fair presentation of our financial position as of March 31, 2015, the results of our operations for the three month periods ended March 31, 2015 and 2014, and of our cash flows for the three month periods ended March 31, 2015 and 2014 have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year. For further information, please see our consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2014.
The Company presents its financial statements on a consolidated basis because it combines its accounts with a wholly-owned subsidiary that ceased operations in 2002. All significant intercompany transactions are eliminated in consolidation.
Going Concern
The financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the continued operations as a public company and paying liabilities in the normal course of business. The Company is being maintained as a corporate shell that is current in its SEC filings. Operations consist only of investment of cash in an insured deposit account at a securities brokerage firm at the present time, and previously, on a temporary basis, in publicly traded real estate companies, while management and the board evaluate real estate opportunities to put into the Company or decide to sell the entity to a party that needs a public shell.
At March 31, 2015, our cash in the operating account was $3,462. The decrease in cash during the first three months of 2015 was $7,264. In the first three months of 2015, we transferred $10,000 to the operating account from the insured deposit account at the securities brokerage firm. The cash in both the operating account and the insured deposit account is available to pay expenses to keep the Company currently filed as a public company. Expenses, such as salaries and rent, have been eliminated so that the only expenses being incurred are to keep the Company current in its SEC filings, such as accounting and audit fees. Our ability to continue as a going concern will be dependent upon acquiring assets to generate cash flow because our investment of cash in an insured deposit account is our only revenue generating asset and will not generate enough cash flow to allow us to continue as a going concern.
| F-4 |
There can be no assurance that the Company will be able to acquire an operating company, be acquired by or merge with another company, raise capital or otherwise continue to exist as a going concern. Even if our management is successful in closing a transaction, investors may not value the transaction in the same manner as we did, and investors may not value the transaction as they would value other transactions or alternatives. Failure to obtain external sources of capital and complete a transaction will materially and adversely affect the Company’s ability to continue operations and meet its obligations through 2015.
Note 3 – Marketable Securities
As of March 31, 2015, our marketable securities had a fair market value of $9,379 and was in the form of cash in an insured deposit account at the brokerage firm. During the three month period ended March 31, 2015, the Company transferred $10,000 to the operating account, which is shown as proceeds from the sale of marketable securities on the cash flow statement, and interest income of less than $1 was deposited into the account at the brokerage firm.
During the three month period ended March 31, 2014, the Company transferred $20,000 to the operating account, which is shown as proceeds from the sale of marketable securities, and interest income of $2 is shown as cash used for the purchase of marketable securities on the cash flow statement.
Note 4 – Loss Per Share
Net loss per weighted average common share outstanding—basic and diluted are computed based on the weighted average number of common shares outstanding for the period. The weighted average number of common shares outstanding for the three month periods ended March 31, 2015 and March 31, 2014 were 405,096. Common share equivalents of 2,448,892 as of March 31, 2015 and March 31, 2014 include outstanding Class A Convertible Preferred Shares and Class C Convertible Preferred Shares and are not included in net loss per weighted average common share outstanding—diluted as they would be anti-dilutive.
Note 5 – Fair Value Measurements
Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our Condensed Consolidated Balance Sheets, we have elected not to record any other assets or liabilities at fair value. No events occurred during the first three months of 2015 which would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.
The following table provides information on those assets and liabilities measured at fair value on a recurring basis.
| Fair Value Measurement Using | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Marketable Securities | ||||||||||||
| March 31, 2015: | ||||||||||||
| Cash Insured Deposits | $ | 9,379 | ||||||||||
| December 31, 2014: | ||||||||||||
| Cash Insured Deposits | $ | 19,378 | ||||||||||
The fair value of the marketable securities is based on the amount of cash in an insured deposit account at the brokerage firm.
| F-5 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Overview
Paragon Real Estate Equity and Investment Trust (the “Company,” “Paragon,” “we,” “our,” or “us”) is a Maryland shell corporation primarily focused on maintaining its corporate existence and SEC reporting history to enable it, in the future, to raise additional capital and make real estate investments. Future real estate investments may include acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel, other commercial properties, acquisition of or merger with a REIT or real estate operating company and joint venture investments.
Presently, the Company is a corporate shell, current in its SEC filings, that may be used in the future for real estate opportunities or sold to another company. Because our cash and other liquid assets are not sufficient to allow us to continue operations, we have been reviewing other alternatives, including seeking additional investors or pursuing a business combination that would result in additional capitalization of the Company. There can be no assurance that we will be able to close a transaction or keep the Company currently filed with the SEC. Even if our management is successful in closing a transaction, investors may not value the transaction or the current filing status with the SEC in the same manner as we did, and investors may not value the transaction as they would value other transactions or alternatives. Failure to obtain external sources of capital will materially and adversely affect the Company’s ability to continue operations, as well as its liquidity and financial results.
Brief History
Paragon was formed on March 15, 1994 as a Maryland real estate investment trust (“REIT”). We operated as a traditional REIT by buying, selling, owning and operating commercial and residential properties through December 31, 1999. In 2000, the Company purchased a software technology company, resulting in the Company not meeting the Internal Revenue Code qualifications to be a REIT for federal tax purposes. In 2002, the Company ceased operating the technology segment.
Forward-Looking Information
This report on Form 10-Q contains “forward-looking” statements for the purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934, and these statements and/or ownership of our securities may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, and achievements of the Company to be materially different from results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that these expectations will be realized. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Factors that could cause actual results to differ materially from management’s current expectations include, but are not limited to, our failure to obtain adequate financing to continue our operations, changes in general economic conditions, changes in real estate conditions, fluctuations in market prices if we invest, on a temporary basis, in publicly traded real estate companies, changes in prevailing interest rates, changes in our current filing status with the SEC, the cost or general availability of equity and debt financing, failure to acquire properties in accordance with our value added strategy, unanticipated costs associated with the acquisition and integration of our acquisitions, our ability to obtain adequate insurance for terrorist acts, and potential liability under environmental or other laws. For further information, refer to our consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2014.
| 3 |
The following is a discussion of our results of operations for the three month periods ended March 31, 2015 and 2014 and financial condition, including:
| ● | Explanation of changes in the results of operations in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three month period ended March 31, 2015 compared to the three month period ended March 31, 2014. | |
| ● | Our critical accounting policies and estimates that require our subjective judgment and are important to the presentation of our financial condition and results of operations. | |
| ● | Our primary sources and uses of cash for the three month periods ended March 31, 2015 and March 31, 2014, and how we intend to generate cash for long-term capital needs. | |
| ● | Our current income tax status. |
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere herein.
Results of Operations
Comparison of the Three Month Periods Ended March 31, 2015 and 2014
Revenues from Operations
Total revenues decreased $2 from $2 for the three month period ended March 31, 2014 to $0 for the three month period ended March 31, 2015. This decrease was the result of decreased amounts invested in an insured deposit account at a securities brokerage firm. The Company sold its investments in marketable securities during the first quarter of 2013 and is investing its funds in the insured deposit account.
Expenses from Operations
Total expenses, comprised of general and administrative expenses, decreased $2,099 from $22,142 for the three month period ended March 31, 2014 to $20,043 for the three month period ended March 31, 2015. This net decrease is the result of decreased accounting and legal expenses of $3,852 partially offset by increased SEC filing charges, transfer agent fees and directors and officers liability insurance expenses of $1,753.
Loss from Operations and Net Loss Attributable to Common Shareholders
As a result of the above, the loss from operations and net loss attributable to common shareholders decreased $2,097 from $22,140 for the three month period ended March 31, 2014 to $20,043 for the three month period ended March 31, 2015.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles, which require us to make certain estimates and assumptions. A summary of our significant accounting policies is provided in Note 3 included in our Annual Report on Form 10-K for the year ended December 31, 2014. The following section is a summary of certain aspects of those accounting policies that both require our most subjective judgment and are most important to the presentation of our financial condition and results of operations. It is possible that the use of different estimates or assumptions in making these judgments could result in materially different amounts being reported in our Condensed Consolidated Financial Statements.
| 4 |
Valuation Allowance of Deferred Tax Asset
We account for income taxes using the liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable income. At March 31, 2015, we have a net operating loss and at December 31, 2014, we had net operating loss carryforwards totaling approximately $2,507,000. While these losses created a deferred tax asset, a full valuation allowance was applied against this asset because of the uncertainty of whether we will be able to use these loss carryforwards, which will expire in varying amounts through the year 2034.
We and our subsidiary are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in general and administrative expense in the consolidated statements of operations and has not been separately stated due to its insignificance.
Liquidity and Capital Resources
Cash provided by operations, equity transactions, and borrowings from affiliates and lending institutions have generally provided the primary sources of liquidity to the Company. Historically, the Company has used these sources to fund operating expenses, satisfy its debt service obligations and fund distributions to shareholders. Presently, we are dependent on our existing cash, which was provided by three independent trustees contributing $500,000 in exchange for Class C Convertible Preferred Shares to maintain the Company as a corporate shell current in its SEC filings so that it may be used in the future for real estate transactions or sold to another company. We have kept the public entity available for value-added real estate opportunities, including acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel, other commercial properties, acquisition of or merger with a REIT or real estate operating company, and joint venture investments. Excess funds are invested in an insured deposit account at a securities brokerage firm.
To further conserve cash, in 2006 each trustee signed a restricted share agreement with the Company to receive a total of 12,500 restricted Class C Convertible Preferred Shares in lieu of receiving fees in cash for service as a trustee for the two years ending September 29, 2008. The service period ending date and vesting period date for those agreements have been extended to September 30, 2015. Additionally, in 2006, James C. Mastandrea, our President, Chief Executive Officer, and Chairman of the Board of Trustees of the Company, signed a subscription agreement to purchase 44,444 restricted Class C Convertible Preferred Shares. The consideration for the purchase was Mr. Mastandrea’s services as an officer of Paragon until September 29, 2008. The service period ending date and vesting period date for this agreement have been extended to September 30, 2015, though the shares were fully amortized by the original date in 2008. Based on our current rate of operating expenses, we believe we can continue to maintain the Company as a corporate shell current in its SEC filings for only one quarter without raising additional capital.
Cash Flows
At March 31, 2015, our cash was $3,462 and an insured deposit account at a securities brokerage firm was $9,379. We are dependent on our existing cash, contributed by three independent trustees in exchange for Class C Convertible Preferred Shares, to meet our liquidity needs because we do not have cash from operations to meet our operating requirements. The cash in both the operating account and the insured deposit account is available to pay expenses to keep the Company current in its SEC filings.
During the three months ended March 31, 2015, we transferred $10,000 to the operating account. During the twelve months ended December 31, 2014, we transferred $58,000 to the operating account.
Future Obligations
Because the Company is a corporate shell that may be used in the future for real estate transactions or sold to another company, we have no cash from operations and have reduced our day-to-day overhead expenses and material future obligations. We have reduced overhead expenses by issuing stock for our CEO’s salary and trustee fees, placed our other employee on a part-time unpaid basis, and have not replaced employees who have left. We have eliminated our office space and rent, and reduced the use of outside consultants, negotiating discounts on prices wherever possible, and foregoing other expenses.
| 5 |
Long Term Liquidity and Operating Strategies
Our cash of $3,462 and our insured deposit account at a securities brokerage firm of $9,379 is sufficient to meet the Company’s anticipated short-term obligations for only one quarter. We historically have financed our long term capital needs, including acquisitions, from borrowings from new loans; additional equity issuances of our common and preferred shares; and proceeds from the sales of our real estate, a technology segment, and marketable securities.
Because our unrestricted cash is not sufficient to allow us to continue operations, we have been reviewing other alternatives, including selling the corporate entity and seeking additional investors. In 2006 and 2007, the Company received total payments of $500,000 from three independent trustees for payment of Class C Convertible Preferred Shares. These funds have been and continue to be used to maintain Paragon as a corporate shell current in its SEC filings while it searches for and reviews other value added real estate opportunities. Excess funds are invested in cash in an insured deposit account at a securities brokerage firm. There can be no assurances that the Company will be able to maintain its current filing status or successfully close a future transaction.
Current Tax Status
At March 31, 2015, we have a net operating loss, and at December 31, 2014, we had net operating loss carryforwards totaling approximately $2,507,000. While the losses created a deferred tax asset, a full valuation allowance was applied against the asset because of the uncertainty of whether we will be able to use these loss carryforwards, which will expire in varying amounts through the year 2034. In the event of a change of ownership of the Company, our ability (or the ability of any company that acquires or merges with us) to use our net operating loss carryover will be limited by federal tax regulations.
We and our subsidiary are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in general and administrative expense in the consolidated statements of operations and has not been separately stated due to its insignificance.
Interest Rates and Inflation
We were not significantly affected by inflation during the periods presented in this report due primarily to the relative low nationwide inflation rates and the Company being a corporate shell with minimal expenses.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
| 6 |
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2015, the date of this report, James C. Mastandrea, our Chairman of the Board, Chief Executive Officer and President, and John J. Dee, our Chief Financial Officer and Senior Vice President, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, Mr. Mastandrea and Mr. Dee each concluded that, as of March 31, 2015, our disclosure controls and procedures are effective.
Further, there was no change during the three months ended March 31, 2015 in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 7 |
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
None
Exhibits
| Exhibit Number | Exhibit Description | |
| 31.1 | Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 – Chief Executive Officer | |
| 31.2 | Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 – Chief Financial Officer | |
| 32.1 | CEO/CFO Certification under Section 906 of Sarbanes-Oxley Act of 2002. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
* The following financial information of the Registrant for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited), (iii) Condensed Consolidated Statements of Cash Flows (unaudited), and (iv) Notes to Condensed Consolidated Financial Statements (unaudited).
| 8 |
In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Paragon real estate equity and investment trust | ||
| By: | /s/ James C. Mastandrea | |
| Date: April 23, 2015 | James C. Mastandrea | |
| Chief Executive Officer | ||
| (Principal executive officer) | ||
| Paragon real estate equity and investment trust | ||
| By: | /s/ John J. Dee | |
| Date: April 23, 2015 | John J. Dee | |
| Chief Financial Officer | ||
| (Principal financial and accounting officer) | ||
| 9 |
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Mastandrea, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Paragon Real Estate Equity and Investment Trust (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of trustees (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: April 23, 2015 | By: | /s/ James C. Mastandrea |
| James C. Mastandrea | ||
| Chairman of the Board, Chief Executive Officer and President | ||
| (Principal executive officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John J. Dee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Paragon Real Estate Equity and Investment Trust (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of trustees (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: April 23, 2015 | By: | /s/ John J. Dee |
| John J. Dee | ||
| Chief Financial Officer and Senior Vice President | ||
| (Principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report of Paragon Real Estate Equity and Investment Trust (the “Company”) on Form 10-Q for the period ending March 31, 2015 (the “Report”) with the Securities and Exchange Commission, I, James C. Mastandrea, Chairman of the Board, Chief Executive Officer and President and I, John J. Dee, Chief Financial Officer and Senior Vice President, of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST | ||
| By: | /s/ James C. Mastandrea | |
| Date: April 23, 2015 | James C. Mastandrea | |
| Chairman of the Board, Chief Executive Officer and President | ||
| PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST | ||
| By: | /s/ John J. Dee | |
| Date: April 23, 2015 | John J. Dee | |
| Chief Financial Officer and Senior Vice President | ||
|
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (USD $)
|
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2015
|
Mar. 31, 2014
|
|
| Revenues | ||
| Interest/dividend income | $ 0 | $ 2 |
| Total revenues | 0 | 2 |
| Expenses | ||
| General and administrative | 20,043 | 22,142 |
| Total expenses | 20,043 | 22,142 |
| Income (loss) from operations | (20,043) | (22,140) |
| Net income (loss) attributable to Common Shareholders | (20,043) | (22,140) |
| Net income (loss) attributable to Common Shareholders per Common Share: Basic and Diluted | $ (0.05) | $ (0.05) |
| Weighted average number of Common Shares outstanding: Basic and Diluted | 405,096 | 405,096 |
| Comprehensive income (loss): | ||
| Net income (loss) | (20,043) | (22,140) |
| Net comprehensive income (loss) | $ (20,043) | $ (22,140) |
|
Fair Value Measurements
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2015
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements |
Note 5 – Fair Value Measurements
Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our Condensed Consolidated Balance Sheets, we have elected not to record any other assets or liabilities at fair value. No events occurred during the first three months of 2015 which would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.
The following table provides information on those assets and liabilities measured at fair value on a recurring basis.
The fair value of the marketable securities is based on the amount of cash in an insured deposit account at the brokerage firm. |
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|
Organization
|
3 Months Ended |
|---|---|
|
Mar. 31, 2015
|
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization |
Note 1 – Organization
Paragon Real Estate Equity and Investment Trust (the “Company,” “Paragon,” “we,” “our,” or “us”) is a Maryland shell corporation primarily focused on maintaining its corporate existence and SEC reporting history to enable it, in the future, to raise additional capital and make real estate investments. Future real estate investments may include acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel, other commercial properties, acquisition of or merger with a REIT or real estate operating company and joint venture investments. Excess funds are invested in an insured deposit account at a securities brokerage firm. |
|
Marketable Securities
|
3 Months Ended |
|---|---|
|
Mar. 31, 2015
|
|
| Marketable Securities [Abstract] | |
| Marketable Securities |
Note 3 – Marketable Securities
As of March 31, 2015, our marketable securities had a fair market value of $9,379 and was in the form of cash in an insured deposit account at the brokerage firm. During the three month period ended March 31, 2015, the Company transferred $10,000 to the operating account, which is shown as proceeds from the sale of marketable securities on the cash flow statement, and interest income of less than $1 was deposited into the account at the brokerage firm.
During the three month period ended March 31, 2014, the Company transferred $20,000 to the operating account, which is shown as proceeds from the sale of marketable securities, and interest income of $2 is shown as cash used for the purchase of marketable securities on the cash flow statement. |
|
Fair Value Measurements (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2015
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis |
The following table provides information on those assets and liabilities measured at fair value on a recurring basis.
|
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|
Loss Per Share
|
3 Months Ended |
|---|---|
|
Mar. 31, 2015
|
|
| Earnings Per Share [Abstract] | |
| Loss per Share |
Note 4 – Loss Per Share
Net loss per weighted average common share outstanding—basic and diluted are computed based on the weighted average number of common shares outstanding for the period. The weighted average number of common shares outstanding for the three month periods ended March 31, 2015 and March 31, 2014 were 405,096. Common share equivalents of 2,448,892 as of March 31, 2015 and March 31, 2014 include outstanding Class A Convertible Preferred Shares and Class C Convertible Preferred Shares and are not included in net loss per weighted average common share outstanding—diluted as they would be anti-dilutive. |
|
Loss Per Share (Details Narrative)
|
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2015
|
Mar. 31, 2014
|
|
| Earnings Per Share [Abstract] | ||
| Weighted average number of common shares outstanding | 405,096 | 405,096 |
| Common share equivalents excluded from EPS calculation due to anti-dilutive effect | 2,448,892 | 2,448,892 |
|
Marketable Securities (Details Narrative) (USD $)
|
3 Months Ended | ||
|---|---|---|---|
|
Mar. 31, 2015
|
Mar. 31, 2014
|
Dec. 31, 2014
|
|
| Fair value of marketable securities | $ 9,379 | $ 19,378 | |
| Proceeds from the sale of marketable securities | 10,000 | 20,000 | |
| Cash used for the purchase of marketable securities | 0 | 2 | |
| Cash Insured Deposits [Member] | |||
| Fair value of marketable securities | $ 9,379 | ||
|
Basis of Presentation (Details Narrative) (USD $)
|
3 Months Ended | |||
|---|---|---|---|---|
|
Mar. 31, 2015
|
Mar. 31, 2014
|
Dec. 31, 2014
|
Dec. 31, 2013
|
|
| Accounting Policies [Abstract] | ||||
| Cash | $ 3,462 | $ 11,331 | $ 10,726 | $ 9,643 |
| Net decrease in cash | (7,264) | 1,688 | ||
| Cash transferred to operating accounts from insured deposit accounts | $ 10,000 | |||
|
Basis of Presentation
|
3 Months Ended |
|---|---|
|
Mar. 31, 2015
|
|
| Accounting Policies [Abstract] | |
| Basis of Presentation |
Note 2 – Basis of Presentation
Condensed Consolidated Financial Statement Presentation
We have prepared the condensed consolidated financial statements without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, we believe that the included disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring items) necessary for a fair presentation of our financial position as of March 31, 2015, the results of our operations for the three month periods ended March 31, 2015 and 2014, and of our cash flows for the three month periods ended March 31, 2015 and 2014 have been included. The results of operations for interim periods are not necessarily indicative of the results for a full year. For further information, please see our consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2014.
The Company presents its financial statements on a consolidated basis because it combines its accounts with a wholly-owned subsidiary that ceased operations in 2002. All significant intercompany transactions are eliminated in consolidation.
Going Concern
The financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the continued operations as a public company and paying liabilities in the normal course of business. The Company is being maintained as a corporate shell that is current in its SEC filings. Operations consist only of investment of cash in an insured deposit account at a securities brokerage firm at the present time, and previously, on a temporary basis, in publicly traded real estate companies, while management and the board evaluate real estate opportunities to put into the Company or decide to sell the entity to a party that needs a public shell.
At March 31, 2015, our cash in the operating account was $3,462. The decrease in cash during the first three months of 2015 was $7,264. In the first three months of 2015, we transferred $10,000 to the operating account from the insured deposit account at the securities brokerage firm. The cash in both the operating account and the insured deposit account is available to pay expenses to keep the Company currently filed as a public company. Expenses, such as salaries and rent, have been eliminated so that the only expenses being incurred are to keep the Company current in its SEC filings, such as accounting and audit fees. Our ability to continue as a going concern will be dependent upon acquiring assets to generate cash flow because our investment of cash in an insured deposit account is our only revenue generating asset and will not generate enough cash flow to allow us to continue as a going concern.
There can be no assurance that the Company will be able to acquire an operating company, be acquired by or merge with another company, raise capital or otherwise continue to exist as a going concern. Even if our management is successful in closing a transaction, investors may not value the transaction in the same manner as we did, and investors may not value the transaction as they would value other transactions or alternatives. Failure to obtain external sources of capital and complete a transaction will materially and adversely affect the Company’s ability to continue operations and meet its obligations through 2015. |
|
Document and Entity Information
|
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2015
|
Apr. 23, 2015
|
|
| Document And Entity Information | ||
| Entity Registrant Name | PARAGON REAL ESTATE EQUITY & INVESTMENT TRUST | |
| Entity Central Index Key | 0000928953 | |
| Document Type | 10-Q | |
| Document Period End Date | Mar. 31, 2015 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 405,096 | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2015 |