10-K/A 1 d10ka.htm FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 For The Fiscal Year Ended December 31, 2004

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K/A-1

 

 

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

 

For the fiscal year ended December 31, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number 000-27437

 

 

PARAGON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware   94-3227733

(State or other jurisdiction

of incorporation)

  

(I.R.S. Employer

Identification No.)

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

 

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

 

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

 

 

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

 

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

 

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

 

The aggregate market value of common stock held by non-affiliates of the Registrant on June 30, 2004 was approximately $1,491 based upon the closing sales price for our common stock on such date of $0.05 per share as reported on such date by the Nasdaq Over-The-Counter Bulletin Board. In making this calculation, the Registrant has assumed, without admitting for any other purpose, that all executive officers and directors of the Registrant are affiliates.

 

As of April 29, 2005, the Registrant had 86,706,250 shares of common stock outstanding.

 

EXPLANATORY NOTE:

 

This Annual Report on Form 10-K/A has been filed by the Registrant to amend the Annual Report on Form 10-K filed by the Registrant on April, 2005 to include the information required to be disclosed by Items 10-14 of Part III of Form 10-K. “Paragon”, “we”, “us”, or “our” means Paragon Financial Corporation.

PART III

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

 

(a) Identification of Directors.

 

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

 

Name

   

Age

        

Position

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

 

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

 

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

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

 

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

 

(b) Identification of Executive Officers.

 

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

 

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

 

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

 

(c) Identification of Certain Significant Employees.

 

Not applicable.

 

(d) Family Relationships.

 

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

 

(e) Business Experience.

 

The business experience of each of our directors and executive officers is set forth in Item 10(a)—Identification of Directors of this Annual Report on Form 10-K/A and the business experience of those executive officers who are not also our directors is set forth in Item 10(b)—Identification of Executive Officers of this Annual Report on Form 10-K/A.

The directorships held by each of our directors in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, are set forth in Item 10(a)—Identification of Directors of this Annual Report on Form 10-K/A.

 

(f) Involvement in Certain Legal Proceedings.

 

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

 

(g) Promoters and Control Persons.

 

Not applicable.

 

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

 

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

 

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

 

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

 

Code of Conduct and Ethics

 

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

 

Section 16(a) Beneficial Ownership Reporting Compliance.

 

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

 

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

 

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

 

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

 

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

 

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

ITEM 11. EXECUTIVE COMPENSATION.

 

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

 

          Annual Compensation
     Long-term Compensation

Name and Principal Position

   

Fiscal

Year

   

Salary

($)

     Bonus
($)
   

Other Annual
Comp

($)

    

Securities

Underlying

Options (#)

    All Other
Compensation

Paul K. Danner
Current Chairman of the Board
and CEO

    2004    $ —       $ —      $ —       —      —  

George O. Deehan
Former Chairman of the Board
and Former CEO

    2004
2003		    $
$		 100,000
51,846		  
 		   $
$		 —  
—  		    $
$		 —  
—  		  
 		   3,000,000
12,500,000		    70,000
—  

Steven A. Burleson
Former CEO, Former Interim
Chief Financial Officer and
Former Director

    2003
2002		    $
$		 150,000
66,667		  
(1)		    
 		 —  
30,000		     
 		 —  
14,281		  
(2)		   —  
16,000,000		    —  
—  

Scott L. Vining
Chief Financial Officer and
Treasurer

    2004
2003		    $
$		 45,000
100,000		  
 		    
 		 —  
—  		     
 		 —  
—  		  
 		   3,000,000
—  		    —  
—  

 

Stock Option Grants in 2004

 

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

 

Individual Grants

     

Name

    Number of
Securities
Underlying
Option
Grants (#)
    Percent of
Total Options
Granted to
Employees in
Fiscal Year
     Exercise
Price
    Expiration
Date
    Potential Realizable Value
At Assumed Annual
Rate
of Stock Price Appreciation
for Option Term
              5%
    10%

Paul K. Danner

    —      —         —      —        —        —  

George O. Deehan

    3,000,000    13.1 %   $ 0.04    7/29/2014    $ 75,467    $ 191,249

Scott L. Vining

    3,000,000    13.1 %   $ 0.04    7/29/2014    $ 75,467    $ 191,249

Stock Option Exercises and Option Values for 2004

 

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

 

     Number of Securities
Underlying Unexercised
Options at 12/31/04 (#)
   

Value of Underlying

In-The-Money Options

at 12/31/04 (1) (2)

Name

    Exercisable
    Non-Exercisable
    Exercisable
    Non-Exercisable

Paul K. Danner

                        

George O. Deehan

    2,000,000    3,000,000    $ —      $ —  

Scot L. Vining

    666,667    3,333,333    $ —      $ —  
(1) Calculated on the basis of $0.04 per share, the closing sales price of the common stock on the OTC Bulletin Board December 31, 2004, less the exercise price payable for such shares.
(2) The exercise prices of shares underlying unexercised options were at or above the market value of the common stock at December 31, 2004. Therefore, there is no value ascribed to the underlying options.

 

Equity Compensation Plan Information

 

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

 

Equity Compensation Plan Information(1)

 

Plan category

   

Number of

securities to be

issued upon

exercise of

outstanding options

and warrants

   

Weighted-average

exercise price of outstanding

options, warrants and rights

   

Number of securities

remaining available for

future issuance under

equity compensation plans

(excluding issued and

outstanding options,

warrants and rights)

Equity compensation plans approved by security holders:

    54,245,342    $ 0.15    45,754,658

Equity compensation plans approved by security holders:

    —        —      —  
    
  
  

TOTAL

    54,245,342    $ 0.15    45,754,658

 

Employment Contracts and Termination, Severance and Change of Control Arrangements

 

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

 

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

Compensation of Directors

 

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

 

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

 

Report on Executive Compensation

 

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

 

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

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

 

Paul K. Danner

George O. Deehan

Charles D. Van Sickle

Stephen Croskrey

 

Compensation Committee Interlocks and Insider Participation

 

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

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

 

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

 

Name and Address of Beneficial Owner*

    Beneficially
Owned
Shares
Number(1)
    Percent
of
Class
  

5% Stockholder

            

Christopher Liston

918 Ponte Vedra Blvd.

Ponte Vedra, FL 32082

    9,458,684    9.3 %

Abhijit Deshmukh (2)

830-13 A1A North, #414

Ponte Vedra Beach, FL 32082

    6,493,506    6.4 %

Steven A. Burleson (3)

1828 Lake Marshall Dr.

Gibsonia, PA 15044

    7,000,000    6.9 %

Named Executive Officers and Directors

            

Stephen Croskrey (4)

    22,103,896    21.8 %

Paul K. Danner (5)

    19,699,928    19.4 %

George O. Deehan (6)

    2,336,000    2.3 %

Charles Van Sickle (7)

    745,000    * %

Scott L. Vining (8)

    666,667    * %

All current directors and executive officers as a group (5 persons) (9)

    45,551,491    44.9 %

* - Less than 1%

 

(1) As used in this table, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise has or shares (a) the power to vote, or direct the voting of, such security or (b) investment power which includes the power to dispose, or to direct the disposition of, such security. In addition, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days.
(2) Includes warrants to purchase 3,246,753 shares of common stock.
(3) Includes options to purchase 7,000,000 shares of common stock.
(4) Includes warrants to purchase 11,551,948 shares of common stock. The address for Mr. Croskrey is 830-13 A1A North, #414, Ponte Vedra Beach, FL 32082.
(5) Includes 825,000 shares held in a custodial accounts for the benefit of Mr. Danner’s minor children of which Mr. Danner is a custodian. The address for Mr. Danner is 830-13 A1A North, #414, Ponte Vedra Beach, FL 32082.
(6) Includes options to purchase 2,000,000 shares of common stock, warrants to purchase 56,000 shares of common stock, and the conversion into 280,000 shares of common stock of the convertible note held by Mr. Deehan. The address for Mr. Deehan is is 830-13 A1A North, #414, Ponte Vedra Beach, FL 32082.
(7) Includes warrants to purchase 20,000 shares of common stock and the conversion into 100,000 shares of common stock of the convertible note held by Mr. Van Sickle. The address for Mr. Van Sickle is 830-13 A1A North, #414, Ponte Vedra Beach, FL 32082.
(8) Includes options to purchase 666,667 shares of common stock. The address for Mr. Vining is 830-13 A1A North, #414, Ponte Vedra Beach, FL 32082.
(9) See footnote (4 – 8).

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

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

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

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

 

     Year Ended December
     2004
    2003

Audit Fees (1)

    $ 68,623    $ 74,000

Tax Fees (2)

      11,215      —  
    
  

Total

    $ 79,838    $ 74,000
(1) Audit Fees consisted of fees billed for services rendered and expenses incurred for the audit of the Company’s annual financial statements, review of financial statements included in the Company’s quarterly reports on Form 10-Q, and other services normally provided in connection with statutory and regulatory filings.
(2) Tax Fees consisted of fees billed for preparation of required income tax returns.

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

 

Audit Committee Pre-Approval Policy

 

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

 

PART IV

 

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

 

  (c) Exhibits

 

The following Exhibits are filed herewith:

 

Exhibit
Number
   

Description

14.1    Code of Conduct and Ethics
31.1    Certification of Chief Executive Officer Under Section 302. Filed herewith.
31.2    Certification of Chief Financial Officer Under Section 302. Filed herewith

SIGNATURES

 

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

 

Paragon Financial Corporation

/s/ PAUL K. DANNER

Paul K. Danner

Chairman & Chief Executive Officer

Dated: May 2, 2005

 

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

 

Signature

   

Title

  

Date

/s/ PAUL K. DANNER

Paul K. Danner

   

Chairman of the Board of

Directors and Chief Executive Officer

   May 2, 2005

/s/ SCOTT L. VINING

Scott L. Vining

    Chief Financial Officer, Treasurer and Secretary   May 2, 2005

/s/ GEORGE O. DEEHAN

George O. Deehan

    Director   May 2, 2005

/s/ CHARLES VAN SICKLE

Charles Van Sickle

    Director   May 2, 2005

/s/ STEPHEN CROSKREY

Stephen Croskrey

    Director   May 2, 2005