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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

OR

For the transition period from              to             

Commission File Number 000-27437

PARAGON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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 $1,490,850 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 March 23, 2005, the Registrant had 85,860,249 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

PART III incorporates information by reference from the Registrant’s definitive Proxy Statement for its 2005 Annual Meeting of Stockholders to be filed with the Commission within 120 days of December 31, 2004.

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PART I

FORWARD LOOKING STATEMENTS

We believe that it is important to communicate our expectations to our investors. Accordingly, this report contains discussions of events or results that have not yet occurred or been realized. You can identify this type of discussion, which is often termed “forward-looking statements”, by such words and phrases as “will”, “explore”, “consider”, “continue”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” and “could be”. You should read forward-looking statements carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other expectations of future performance. There may be events in the future that we are not able accurately to predict or control. Any cautionary language in this report provides examples of risks, uncertainties and events that may cause our actual results to differ from the expectations we express in our forward-looking statements. You should be aware that the occurrence of certain of the events described in this report could adversely affect our business, results of operations and financial position.

These forward looking statements are based on information available to us on the date hereof, and we assume no obligation to update any such forward looking statement. It is important to note that our actual results and timing of certain events could differ materially from those in such forward looking statements due to a number of factors, including but not limited to, the ability to raise capital necessary to sustain operations and implement the business plan, the ability to obtain additional regulatory permits and approvals to operate in the financial services area, the ability to identify and complete acquisitions and successfully integrate acquired businesses, if any, the ability to implement our business plan, changes in the real estate market, interest rates or the general economy of the markets in which we operate, the ability to employ and retain qualified management and employees, changes in government regulations that are applicable to our businesses, the general volatility of the capital markets and the establishment of a market for our shares, changes in the demand for our services, our ability to meet our projections, the degree and nature of competitors, the ability to generate sufficient cash to pay creditors, and disruption in the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future attacks, police and military activities overseas and other disruptive worldwide political events. Other risk factors that could cause actual results to differ materially are set forth in this item under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations — Overview” on page 15.

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ITEM 1. BUSINESS.

General

We are a financial services company focused on acquiring mortgage origination companies that broker mortgage products in the one-to-four family residential mortgage market. We focus primarily on offering mortgage products to borrowers who generally satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as Fannie Mae and Freddie Mac (referred to as conforming loans). We originate these loans in accordance with the underwriting guidelines of those lenders. We currently conduct business in 2 states. Our executive offices are located in Ponte Vedra Beach, Florida. We were incorporated in Delaware in August 1999 under the name PRX Holdings, Inc. Our mortgage operations were acquired by us in January 2003.

Our mortgage loan origination business is comprised of 19 loan officers. We broker the loans we originate to third party lenders. In 2003, we placed 85% of the mortgages we brokered with 2 particular lenders to receive the highest level of execution. Until January 2005, our loan officers were based in Florida, and 100% of our brokered loan volume relates to real property located in Florida.

In 2004, 82.7% of the loans that we originated were for the purchase of residential property and 17.3% were refinances of existing mortgages. In 2003, 84.6% of the loans that we originated were for the purchase of residential property and 15.4% were refinances of existing mortgages. In 2004 and 2003, all of the loans we originated were secured by owner-occupied properties.

Company History

We originally operated as an online healthcare destination under the name PlanetRX.com. In mid-2001 we began the process of liquidating our online health store and seeking a merger partner as an alternative to complete liquidation.

On May 31, 2002, the Company merged with Paragon Homefunding, Inc. (“Paragon Delaware”), a privately held development stage company based in Ponte Vedra Beach, Florida, formed for the purpose of entering the financial services market through acquisitions. Paragon Delaware was incorporated in Delaware on August 3, 2001. For financial reporting purposes, the merger has been accounted for as a recapitalization of Paragon Delaware with Paragon Delaware viewed as the accounting acquiror in what is commonly called a reverse acquisition. Accordingly, the financial statements presented before the merger are those of Paragon Delaware.

As a result of the merger, a new board of directors was elected and new officers were appointed. On December 26, 2002, we changed our name to Paragon Financial Corporation (“PFC”).

On January 31, 2003, we completed our acquisition of Mortgage Express, Inc. (now known as PGNF Home Lending Corp.) (“PGNF”). PGNF was a mortgage bank focused on the wholesale sub-prime credit market. On May 31, 2004, we divested PGNF and exited the mortgage banking business. PGNF is shown as discontinued operations in the “Management Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 15, our financial statements beginning on page F-1, and elsewhere in this Form 10-K.

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On February 4, 2003, we completed the acquisition of Paragon Homefunding, Inc. (“PHF”), a Florida corporation focused primarily on the brokering of conforming loans. PHF represents our continuing operations in the “Management Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 15, our financial statements beginning on page F-1, and elsewhere in this Form 10-K.

On January 19, 2005, we completed the acquisition of First Charleston Mortgage LLC (“FCM”), a South Carolina limited liability company focused primarily on the brokering of conforming loans.

Growth and Operating Strategies

We plan to pursue several strategies to increase revenue and profitability. These strategies include: (i) increasing loan origination volume, (ii) streamlining business processes through the deployment of technology, (iii) diversifying product offerings, and (iv) pursuing acquisitions.

The key tactics for pursuing these strategies include:

Product Types

We broker a broad range of mortgage products that include both fixed-rate loans and adjustable-rate loans, or ARMs. In addition, these products are available at different interest rates and with different origination and application points and fees depending on the particular borrower’s risk classification. Borrowers may choose to increase or decrease their interest rate through the payment of different levels of origination fees. The maximum loan amount is generally $500 with a loan-to-value ratio of up to 80%. We do, however, broker larger loans with higher loan-to-value ratios through special jumbo programs offered by lenders. During 2004, the average loan amount was approximately $167 compared to $145 in 2003.

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Loan Originations

We originate loans directly to consumers through our loan officers located in our offices in Florida and South Carolina. Leads are generated through radio, direct mail, referrals and the internet. We originated a total of $86.4 million in mortgage loans for the twelve months ended December 31, 2004 compared to $79.9 million for the eleven month period that we owned PHF in 2003.

Geographic Distribution

In 2004 and 2003, all of our mortgage loans originated by our continuing operations were originated by PHF in Florida.

Competition

We continue to face intense competition in the business of originating mortgage loans. Our competitors include other mortgage brokering companies, mortgage banking companies, consumer finance companies, commercial banks, credit unions, thrift institutions, credit card issuers and insurance finance companies. Federally chartered banks and thrifts can preempt some of the state and local lending laws to which we are subject, thereby giving them a competitive advantage. In addition, many of these competitors have considerably greater technical and marketing resources than we have. Competition among industry participants can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and term of the loan, loan origination fees and interest rates. Additional competition may lower the rates we can charge borrowers, thereby potentially lowering gain on future loan sales.

Regulation

Our business is regulated by federal, state, and local government authorities and is subject to extensive federal, state and local laws, rules and regulations. We are also subject to judicial and administrative decisions that impose requirements and restrictions on our business. At the federal level, these laws and regulations include the: Equal Credit Opportunity Act; Federal Truth and Lending Act and Regulation Z; Home Ownership and Equity Protection Act; Real Estate Settlement Procedures Act; Fair Credit Reporting Act; Fair Debt Collection Practices Act; Home Mortgage Disclosure Act; Fair Housing Act; Telephone Consumer Protection Act; Gramm-Leach-Bliley Act; Fair and Accurate Credit Transactions Act; CAN-SPAM Act; Sarbanes-Oxley Act; and USA PATRIOT Act.

These laws, rules and regulations, among other things: impose licensing obligations and financial requirements on us; limit the interest rates, finance charges, and other fees that we may charge; prohibit discrimination; impose underwriting requirements; mandate disclosures and notices to consumers; mandate the collection and reporting of statistical data regarding our customers; regulate our marketing techniques and practices; require us to safeguard non-public information about our customers; regulate our collection practices; require us to prevent money-laundering or doing business with suspected terrorists; and impose corporate governance, internal control and financial reporting obligations and standards.

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Our failure to comply with these laws can lead to: civil and criminal liability; loss of approved status; demands for indemnification or loan repurchases from buyers of our loans; class action lawsuits; and administrative enforcement actions.

Compliance, Quality Control and Quality Assurance

We regularly monitor the laws, rules and regulations that apply to our business and analyze any changes to them. We also maintain policies and procedures to help our origination personnel comply with these laws.

Our training programs are designed to teach our personnel about the significant laws, rules and regulations that affect their job responsibilities. We also maintain a variety of pre-funding quality control procedures designed to detect compliance errors prior to brokering a loan.

Licensing

As of March 31, 2005, we were licensed to originate mortgages in the states of Florida and South Carolina.

Environmental

In the course of our business, we may acquire properties securing loans that are in default. There is a risk that hazardous or toxic waste could be found on such properties. If this occurs, we could be held responsible under applicable law for the cost of cleaning up or removing the hazardous waste. This cost could exceed the value of the underlying properties.

Employees

The table below presents our employees at March 15, 2005:

Available Information

Through our website (www.pgnf.com), we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports and any amendments to those reports as soon as reasonably practicable after such reports or amendments are electronically filed with or furnished to the Securities and Exchange Commission.

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Risk Factors

Stockholders and prospective purchasers of our common stock should carefully consider the risks described below before making a decision to buy our common stock. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. When determining whether to buy our common stock, stockholders and prospective purchasers should also refer to the other information in this Form 10-K, including our financial statements and the related notes.

We have incurred losses since our inception.

As shown in the accompanying consolidated financial statements beginning on page F-1, we incurred a net loss of $4,661 for the year ended December 31, 2004 and cumulative losses of $8,625 since our inception (August 3, 2001). At December 31, 2004, our liabilities exceeded our assets by $1,712. These factors raise substantial doubt about our ability to continue as a going concern. Our continued existence depends on a number of factors, including but not limited to our ability to originate loans profitably, to secure adequate sources of capital and to locate and fund acquisitions of suitable companies. However, there can be no assurance that we will be successful in our endeavors and be able to continue as a going concern.

Risks Related to Our Business

An increase in interest rates could result in a reduction in our loan brokerage volumes, an increase in first payment defaults on loans we brokered, and a reduction in the revenue per loan brokered.

The following are some of the risks we face related to an increase in interest rates:

Our business may be significantly harmed by a slowdown in the economy of Florida, where we conduct a significant amount of business.

Since the acquisition of PHF, most of the mortgage loans we have brokered have been secured by property in the state of Florida. A decline in the economy or the residential real estate market in Florida could restrict our ability to broker loans, and significantly harm our business, financial condition, liquidity and results of operations.

Our business may be significantly harmed by the weather in markets where we conduct a significant amount of business.

In 2004, our PHF subsidiary saw a significant reduction in mortgage loans due to the hurricanes that affected the state of Florida. Hurricanes and other natural phenomena could hurt the real estate markets in which we operate and restrict our ability to originate loans. This would significantly harm our business, financial condition, liquidity and results of operations.

We face intense competition that could adversely impact our market share and our revenue.

We face intense competition from other financial and mortgage companies, internet-based lending companies where entry barriers are relatively low, and from traditional bank and thrift lenders to the mortgage industry. As we seek to expand our business further, we will face a significant number of additional competitors, many of whom will be well-established in the markets we seek to penetrate. Some of our competitors are much larger, have better name recognition, and have far greater financial and other resources than us.

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The government-sponsored entities Fannie Mae and Freddie Mac are also expanding their participation in the mortgage industry. These government-sponsored entities have a size and cost-of-funds advantage that allows them to purchase loans with lower rates or fees than we are willing to offer. While the government-sponsored entities presently do not have the legal authority to originate mortgage loans, they do have the authority to buy loans. A material expansion of their involvement in the market to purchase loans could change the dynamics of the industry by virtue of their sheer size, pricing power and the inherent advantages of a government charter. In addition, if as a result of their purchasing practices, these government-sponsored entities experience significantly higher-than-expected losses, such experience could adversely affect the overall investor perception of the mortgage industry.

The intense competition in the mortgage industry has also led to rapid technological developments, evolving industry standards and frequent releases of new products and enhancements. As mortgage products are offered more widely through alternative distribution channels, such as the internet, we may be required to make significant changes to our current retail operations and information systems to compete effectively. Our inability to continue enhancing our current capabilities, or to adapt to other technological changes in the industry, could significantly harm our business, financial condition, liquidity and results of operations.

Competition in the industry can take many forms, including interest rates and costs of a loan, less stringent underwriting standards, convenience in obtaining a loan, customer service, amount and term of a loan and marketing and distribution channels. The need to maintain mortgage loan volume in this competitive environment creates a risk of price competition in the mortgage industry. Price competition could cause us to lower the interest rates that we offer borrowers, which could lower the value of our loans. If our competitors adopt less stringent underwriting standards we will be pressured to do so as well, which would result in greater loan risk without compensating pricing. If we do not relax underwriting standards in response to our competitors, we may lose market share. Any increase in these pricing and underwriting pressures could reduce the volume of our loan originations and sales and significantly harm our business, financial condition, liquidity and results of operations.

Defective loans may harm our business.

In connection with the origination of loans, we are required to make a variety of customary representations and warranties regarding the loans we originate, primarily related to fraud on the application and first payment defaults. These representations and warranties relate to, among other things, compliance with laws; regulations and underwriting standards; the accuracy of information in the loan documents and loan file; and the characteristics and enforceability of the loan.

We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, mortgage brokers, other vendors and our employees.

When we originate mortgage loans, we rely heavily upon information supplied by third parties including the information contained in the loan application regarding employment and income

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history, property appraisal and title information. Whether a misrepresentation is made by the loan applicant, the mortgage broker, another third party or one of our own employees, we often bear the risk of loss associated with the misrepresentation. Even though we may have rights against persons and entities who made or knew about the misrepresentation, such persons and entities are often difficult to locate and it is often difficult to collect any monetary losses that we have suffered from them.

Although we have controls and processes in place that are designed to identify misrepresented information in our loan origination operations, we cannot assure you that we have detected or will detect all misrepresented information in our loan originations. If we experience a significant number of such fraudulent or negligent acts, our business, financial condition, liquidity and results of operations could be significantly harmed.

The inability to attract and retain qualified employees could significantly harm our business.

We depend upon our loan officers to attract borrowers, by, among other things, developing relationships with financial institutions, other mortgage companies, real estate agents, borrowers and others. We believe that these relationships lead to repeat and referral business. The market for skilled executive officers and loan officers is highly competitive and historically has experienced a high rate of turnover. In addition, if a manager leaves our company there is a likelihood that other members of his or her team will follow. Competition for qualified loan officers may lead to increased hiring and retention costs. Our inability to attract or retain a sufficient number of skilled loan officers and other key employees at manageable costs could harm our business.

If we do not manage our growth effectively, our financial performance could be harmed.

We have experienced substantial changes and rapid growth that place certain pressures on our management, administrative, operational and financial infrastructure. We expect to continue to experience this rapid growth both organically and through acquisitions. The increase in the size of our operations may make it more difficult for us to ensure that we originate quality loans. We will need to attract and hire additional sales and management personnel in an intensely competitive hiring environment in order to preserve and increase our market share. We will also need to effectively integrate our acquisitions. At the same time, we will need to continue to upgrade and expand our financial, operational and managerial systems and controls, which could require capital and human resources beyond what we currently have. We cannot assure you that we will be able to meet our capital needs; expand our systems effectively; allocate our human resources optimally; identify and hire qualified employees; or effectively integrate acquired businesses to achieve growth.

The failure to manage growth or integrate acquisitions effectively would significantly harm our business, financial condition, liquidity and results of operations.

An interruption in or breach of our information systems may result in lost business.

We rely heavily upon communications and information systems to conduct our business. As we implement our growth strategy and increase our volume of loan production, that reliance will

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increase. Any failure or interruption or breach in security of our information systems or the third-party information systems on which we rely could cause underwriting or other delays and could result in fewer loan applications being received, slower processing of applications and reduced efficiency in loan servicing. We cannot assure you that such failures or interruptions will not occur or if they do occur that they will be adequately addressed by us or the third parties on which we rely. The occurrence of any failures or interruptions could significantly harm our business.

The success and growth of our business will depend upon our ability to adapt to and implement technological changes.

Our mortgage loan origination business is currently dependent upon our ability to effectively interface with our brokers, borrowers and other third parties and to efficiently process loan applications and closings. The origination process is becoming more dependent upon technological advancement, such as the ability to process applications over the Internet, accept electronic signatures, provide process status updates instantly and other customer-expected conveniences that are cost-efficient to our process. Implementing this new technology and becoming proficient with it may also require significant capital expenditures. As these requirements increase in the future, we will have to fully develop these technological capabilities to remain competitive or our business will be significantly harmed.

Our financial results fluctuate as a result of seasonality and other timing factors, which makes it difficult to predict our future performance.

Our business is generally subject to seasonal trends. These trends reflect the general pattern of housing sales, which typically peak during the spring and summer seasons. Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future, reflecting the seasonality of the industry.

In the future, our hedging strategies may not be successful in mitigating our risks associated with interest rates.

Although we do not currently use various derivative financial instruments to provide a level of protection against interest rate risks, we may elect to do so in the future. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses.

Risks Associated with Our Acquisition Strategy

There are risks associated with our acquisition strategy.

We intend to continue to grow through internal expansion and by making selective acquisitions of small- to medium-sized mortgage brokers. We cannot predict whether we will be successful in pursuing these acquisitions or whether these acquisitions will provide us with positive operating results. Consummation of each acquisition is subject to various conditions, such as securing the approval of state licensing bodies. Acquisitions may involve a number of specific risks including adverse short-term effects on our results of operations, dilution from issuances of our common stock and strain on our financial and administrative infrastructure.

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Our acquisition strategy involves numerous other risks, including risks associated with:

We cannot be certain that we will be able to successfully integrate our acquisitions or manage the resulting business effectively, or that any acquisition will achieve the benefits that we anticipate. In addition, we are not certain that we will be able to acquire companies at attractive valuations. Depending upon the nature, size and timing of potential future acquisitions, we may be required to raise additional financing in order to consummate additional acquisitions. We cannot assure you that our existing or future financing agreements will permit the necessary additional financing or that additional financing will be available to us or, if available, that financing would be on terms acceptable to our management.

There are risks associated with our plan to use our common stock as acquisition consideration.

We expect to finance future acquisitions primarily through issuing shares of our common stock for all or a portion of the consideration to be paid. In the event that our common stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept our common stock as part of the consideration for the sale of their businesses, our ability to issue common stock as acquisition consideration may be limited. In addition, currently our stock is thinly traded on the NASDAQ OTC Bulletin Board. This lack of liquidity may discourage some acquisition candidates from accepting our common stock as acquisition consideration.

Statutory and Regulatory Risks

The multi-state scope of our operations exposes us to risks of noncompliance with an increasing and inconsistent body of complex laws and regulations at the federal, state and local levels.

We are currently licensed, or exempt from licensing, in 2 states and must comply with the laws and regulations, as well as judicial and administrative decisions, of these jurisdictions, as well as an extensive body of federal laws and regulations. The volume of new or modified laws and regulations has increased in recent years. The laws and regulations of each of these jurisdictions are different, complex and, in some cases, in direct conflict with each other. As our operations continue to grow to include other states, it may be more difficult to comprehensively identify, to accurately interpret and to properly program our technology systems and effectively train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance with these laws and regulations. Increased regulation would result in increased compliance costs.

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Our failure to comply with these laws can lead to civil and criminal liability; loss of our licenses and right to do business in the various states; class action lawsuits; and administrative enforcement actions.

Several federal, state and local laws and regulations have been adopted or are under consideration intended to eliminate so-called “predatory” lending practices. Many of these laws and regulations impose broad restrictions on certain commonly accepted lending practices, including some of our practices. There can be no assurance that these proposed laws, rules and regulations, or other similar laws, rules or regulations, will not be adopted in the future. Adoption of these laws and regulations could have a material adverse impact on our business by substantially increasing the costs of compliance with a variety of inconsistent federal, state and local rules, or by restricting our ability to charge rates and fees adequate to compensate us for the risk associated with certain loans.

The increased governmental scrutiny of Fannie Mae and Freddie Mac may also result in regulatory changes and oversight which may have an adverse impact on the industry generally, and in turn have a negative effect on our business.

Stockholder refusal to comply with regulatory requirements may interfere with our ability to do business in certain states.

Some states in which we operate may impose regulatory requirements on our officers and directors and persons holding certain amounts of our common stock, usually 10% holders. If any of these persons fails to meet or refuses to comply with a state’s applicable regulatory requirements for licensing, we could lose our authority to conduct business in that state.

We may be unable to compete effectively with financial institutions that are exempt from certain state restrictions.

Certain federally chartered financial institutions are exempt from the state laws to which we are subject and may operate more effectively under the federal laws that govern their operations. The increasing number of federal, state and local “anti-predatory lending” laws may restrict our ability to originate or increase our risk of liability with respect to certain mortgage loans and could increase our cost of doing business.

The continued enactment of these laws, rules and regulations may prevent us from making certain loans and may cause us to reduce the APR or the points and fees on loans that we do make. If nothing else, the growing number of these laws, rules and regulations will increase our cost of doing business as we are required to develop systems and procedures to ensure that we do not violate any aspect of these new requirements. Any of the foregoing could significantly harm our business, financial condition, liquidity and results of operations.

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ITEM 2. PROPERTIES

Our executive office is located at 2207 Sawgrass Village Drive, Ponte Vedra Beach, Florida. We presently occupy approximately 348 square feet of space at this location and pay no annual rent on our executive office.

Our PHF subsidiary occupies approximately 2,500 square feet in Maitland, Florida under a lease expiring March 31, 2006. The annual rent on our office in Maitland, Florida is $52, with an escalator clause based on CPI.

ITEM 3. LEGAL PROCEEDINGS

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 commenced legal action against us and other guarantors of the indebtedness for repayment. On December 13, 2004, we entered into a standstill agreement with BoA whereby, for a principal reduction payment of $25 and the payment of an extension fee and BoA’s legal fees, the maturity date of the note was extended to December 1, 2005, the interest rate was increased to the bank’s prime rate plus 4%, and requires principal reduction payments of $5 per month through November 1, 2005.

On October 15, 2004, we were served with a summons on an eviction action of our executive offices by our landlord seeking unpaid rent and other damages of $268. We agreed to vacate the office space we occupied in forgiveness of unpaid rents under the lease and forfeiture of our deposit of $25. Based upon this agreement, the action was dismissed with prejudice.

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.

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. We cannot opine as to whether or when a settlement will occur or be finalized. Whether or not the settlement is ultimately approved, we believe the resolution of this matter will not have a material adverse effect on the Company.

We are also party to various legal proceedings arising out of the ordinary course of our 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 our consolidated financial position and results of operations.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades in the over-the-counter market and is quoted on the OTC Bulletin Board under the symbol PGNF. As of March 23, 2005, we had 85,860,249 shares of common stock issued and outstanding, respectively.

The following table sets forth, for the periods indicated, the high and low bid prices per share of our common stock as quoted on the OTC Bulletin Board.

Holders

As of March 23, 2005, we had approximately 326 stockholders of record. Only record holders of shares held in “nominee” or street names are included in this number.

Dividends

We have never declared or paid cash dividends on our common stock. We intend to retain future earnings, if any, for use in the operations of our business including working capital, repayment of indebtedness, capital expenditures and general corporate purposes. We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

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Equity Compensation Plan Information

Information regarding our equity compensation plans, including both stockholder approved plans and non-stockholder approved plans, is included in Item 12.

Recent Sales of Unregistered Securities

During the fourth quarter of 2004, we issued 300,000 restricted shares valued at $17 (or $0.06 per share) under our 2002 Equity Participation Plan to consultants for services during the fourth quarter of 2004, 221,000 shares valued at $11 (or $0.05 per share) to vendors in settlement of certain outstanding obligations, and 625,000 shares valued at $25 (or $0.04 per share) to a director for director fees.

ITEM 6. SELECTED FINANCIAL DATA

The table below sets forth a summary of our results of operations and financial condition as of and for the periods then ended for our continuing operations. This information has been derived from our audited consolidated financial statements contained elsewhere in this report. Such selected financial data should be read in conjunction with those financial statements and the notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” also included elsewhere herein.

As mentioned elsewhere, prior to our acquisitions of PGNF and PHF, we were a development stage enterprise and had no revenues.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes contained elsewhere herein.

General

We are headquartered in Ponte Vedra Beach, Florida and were incorporated in Delaware in August 1999. We are a financial services company focused on the acquisition of mortgage brokers in the one-to-four family residential mortgage market. We conduct business in 3 states.

Overview

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.

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 critical accounting policies require the most significant estimates and assumptions that are subject to significant change in the preparation of our consolidated financial statements:

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 Origination 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.

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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.

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

Until our acquisitions of PGNF and PHF, we were a development stage enterprise and had no revenues. The following table sets forth our results of operations as a percentage of total revenues for our continuing operations for the years ended December 31, 2004 and 2003:

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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Loan Originations: We originated $86.4 million in mortgage loans for the year ended December 31, 2004 compared to $79.9 million for the year ended December 31, 2003. This increase in loan originations was due primarily to the loan originations in 2003 representing only the eleven months we owned our PHF subsidiary.

Revenues

Revenue from loan closings. Revenue from loan closings increased $70, or 3.6%, to $2,034 for the year ended December 31, 2004 compared to $1,964 for the year ended December 31, 2003. These fees represent points and other fees charged on mortgage loans originated by our loan officers. This increase in revenue from loan closings is due primarily to the revenue from loan closings in 2003 representing only the eleven months we owned our PHF subsidiary. Expressed in terms as revenue per loan, our revenues per loan increased $0.3, or 9.4%, to $3.9 per loan for the year ended December 31, 2004 compared to $3.6 per loan for the year ended December 31, 2003.

Operating Expenses

Salaries, commissions and benefits. Salaries, commissions and benefits decreased $601, or 23.9%, to $1,916 for the year ended December 31, 2004 compared to $2,517 for the year ended December 31, 2003. This decrease was primarily due to a reduction in salaries at our corporate offices in the year ended December 31, 2004 compared to the year ended December 31, 2003.

Loan production costs. Loan production costs decreased $12, or 11.7%, to $91 for the year ended December 31, 2004 compared to $103 for the year ended December 31, 2003. This decrease was due primarily to the higher pull through rate at our PHF subsidiary and reductions in costs associated with originating loans in the year ended December 31, 2004 compared to December 31, 2003.

General and administrative expenses. General and administrative expenses decreased $255, or 22.9%, to $858 for the year ended December 31, 2004 compared to $1,113 for the year ended December 31, 2003. This decrease was primarily due to reduced operating expenses resulting at our corporate headquarters in the year ended December 31, 2004 compared to the year ended December 31, 2003.

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Non-recurring expenses. Non-recurring expenses decreased by $308, or 92.5%, to $25 for the year ended December 31, 2004 compared to $333 for the year ended December 31, 2003. For the year ended December 31, 2004, the non-recurring expenses relate to payments made for investment banking fees related to an unsuccessful financing effort. For the year ended December 31, 2003, the non-recurring expenses relate to severance for our former CEO and for investment banking fees and travel related to an unsuccessful financing effort.

Operating loss. The operating loss decreased by $1,246, or 59.3%, to $856 for the year ended December 31, 2004 compared to $2,102 for the year ended December 31, 2003. This decrease was due primarily to factors discussed above.

Interest expense. Interest expense decreased $308, or 74.2%, to $107 for the year ended December 31, 2004 compared to $415 for the year ended December 31, 2003. This decrease was due primarily to the beneficial conversion feature of our convertible debentures being amortized into interest expense in the year ended December 31, 2003.

Loss on sale of assets. Loss on the sale of assets was $15 for the year ended December 31, 2004. This loss related to the sale of office furniture and fixtures at our former corporate office location as part of a settlement of our lease obligation with the landlord.

Loss on disposal of segment. Loss on the disposal of PGNF was $102 for the year ended December 31, 2004. This represents the non-cash loss we incurred in disposing of PGNF.

Provision (benefit) for income taxes. The provision (benefit) for income taxes increased $879 to an expense of $42 for the year ended December 31, 2004 compared to a benefit of $(837) for the year ended December 31, 2003. This increase was primarily due to state income taxes applicable to our PHF subsidiary in 2004 which were not offset by our loss at our corporate office.

Net loss from continuing operations. The net loss from continuing operations decreased $558, or 33.2%, to $1,122 for the year ended December 31, 2004 compared to $1,680 for the year ended December 31, 2003. This decrease was primarily due to the factors discussed above.

Loss from discontinued operations. The loss from discontinued operations increased $3,822, or 1,350.5%, to $3,539 for the year ended December 31, 2004 compared to income from discontinued operations of $283 for the year ended December 31, 2003. This decrease relates primarily to an impairment charge of $2,582 on the goodwill associated with the acquisition of PGNF incurred in the year ended December 31, 2004.

Net loss. The net loss increased $3,264, or 233.6%, to $4,661 for the year ended December 31, 2004 compared to $1,397 for the year ended December 31, 2003. This increase was due to the factors discussed above.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Loan Originations: During the eleven months we owned PHF in 2003, it originated $79.9 million in mortgage loans.

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Revenues

Revenue from loan closings. Revenue from loan closings were $1,964 for the year ended December 31, 2003. These fees represent points and other fees charged on mortgage loans originated by our loan officers. The revenue from loan closings represents only the eleven months we owned our PHF subsidiary. For the year ended December 31, 2002, we were a development stage company and had no revenues.

Operating Expenses

Salaries, commissions and benefits. Salaries, commissions and benefits increased $749, or 42.4%, to $2,517 for the year ended December 31, 2003 compared to $1,768 for the year ended December 31, 2002. This increase was due to the inclusion of the salaries, commission and benefits paid by our PHF subsidiary acquired on February 4, 2003 for the year ended December 31, 2003.

Loan production costs. Loan production costs were $103 for the year ended December 31, 2003. These costs relate to costs incurred to originate mortgage loans by our PHF subsidiary acquired February 4, 2003.

General and administrative expenses. General and administrative expenses increased $544, or 95.6%, to $1,113 for the year ended December 31, 2003 compared to $569 for the year ended December 31, 2002. This increase was due to a $330 increase in our operating expenses at our corporate headquarters and $214 in operating expenses for our PHF subsidiary acquired on February 4, 2003.

Non-recurring expenses. Non-recurring expenses were $333 for the year ended December 31, 2003 and consist of $240 in severance for our former CEO and $93 related to investment banking fees and travel related to an unsuccessful financing effort.

Operating loss. The operating loss decreased by $235, or 10.1%, to $2,102 for the year ended December 31, 2003 compared to $2,337 for the year ended December 31, 2002. This decrease was due primarily to factors discussed above.

Interest expense. Interest expense increased $410, or 8200.0%, to $415 for the year ended December 31, 2003 compared to $5 for the year ended December 31, 2002. This increase was due primarily to the beneficial conversion feature of our convertible debentures being amortized into interest expense in the year ended December 31, 2003.

Benefit for income taxes. Benefit for income taxes was $837 for the year ended December 31, 2003 compared to $0 for the year ended December 31, 2002. This increase was due to our not providing a tax benefit related to net operating losses suffered in 2002 since we were a development stage company.

Net loss from continuing operations. The net loss from continuing operations decreased $662, or 28.3%, to $1,680 for the year ended December 31, 2003 compared to $2,342 for the year ended December 31, 2002. This decrease was primarily due to the factors discussed above.

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Income from discontinued operations. The income from discontinued operations was $283 for the year ended December 31, 2003 and relates to our former PGNF subsidiary disposed of on May 31, 2004. PGNF was acquired on January 31, 2003 and was included in the results of our operations from that date.

Net loss. The net loss decreased $945, or 40.4%, to $1,397 for the year ended December 31, 2003 compared to $2,342 for the year ended December 31, 2002. This decrease was due to the factors discussed above.

Quarterly Results

Set forth below is certain unaudited quarterly financial data for each of our last eight quarters. The information has been derived from unaudited financial statements that, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to fairly present such quarterly information in accordance with generally accepted accounting principles. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period.

In connection with the audit of our financial statements as of and for the year ended December 31, 2003, we recognized an income tax benefit on our net operating loss. We had not recognized such a benefit in our previously reported quarterly information. In the table below, we have allocated this tax benefit to our previously reported quarterly information.

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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 December 31, 2004, we had cash and cash equivalents of approximately $135 and fees receivable of $46 with which to satisfy our on-going mortgage and corporate operation’s current liabilities of $2.253. We deemed this liquidity level as insufficient to accomplish our goals and meet our liquidity needs for 2005, and we continued the implementation of our liquidity improvement plan. This plan includes:

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 this reduction in corporate operating expenses will help us obtain profitability with fewer acquisitions needed and will reduce the dilution that would otherwise be required by 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.

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 $40 to certain holders of our 15% convertible notes and 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.

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Recent Accounting Pronouncements

In January 2003, the FASB issued FIN 46(R), “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51” (“FIN 46(R)”). The objective of this Interpretation is not to restrict the use of variable interest entities but to improve financial reporting by enterprises involved with variable interest entities. FIN 46(R) states that a business enterprise with a controlling financial interest in a variable interest entity should include the assets, liabilities, and results of the activities of the variable interest entity in consolidated financial statements with those of the business enterprise. FIN 46(R) applied immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of this interpretation has had no effect on the Company’s financial statements.

On December 12, 2003, the American Institute of Certified Public Accountants issued Statement of Position No. 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (SOP 03-3). SOP 03-3 requires acquired impaired loans for which it is probable that the investor will be unable to collect all contractually required payments receivable to be recorded at the present value of amounts expected to be received and prohibits carrying over or creation of valuation allowances in the initial accounting for these loans. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. SOP 03-3 does not have an impact on the Company’s results of operations or financial condition.

In March 2004, Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 105 was issued, which provides guidance regarding loan commitments that are accounted for as derivative instruments under FASB No. 133 (as amended), “Accounting for Derivative Instruments and Hedging Activities”. In this Bulletin, the SEC ruled that the amount of the expected servicing rights should not be included when determining the fair value of derivative interest rate lock commitments. This guidance must be applied to rate locks initiated after March 31, 2004. SAB No. 105 has had no impact on our financial condition or results of operations.

In March, 2004, the Emerging Issues Task Force (EITF) issued EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). EITF 03-1 provides recognition and measurement guidance regarding when impairments of equity and debt securities are considered other-than-temporary thereby requiring a charge to earnings. EITF 03-1 also requires additional annual disclosures for investments in unrealized loss positions. The additional annual disclosure requirements were previously issued by the EITF in November 2003 and were effective for the year ended December 31, 2003. In September 2004, the FASB issued FASB Staff Position (FSP) EITF 03-1-1, which delays the recognition and measurement provisions of EITF 03-1 pending the issuance of further implementation guidance. EITF 03-1 and EITF 03-1-1 do not have an impact on our results of operations or financial condition.

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In June 2004, the FASB released EITF 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128” (EITF 03-6). This pronouncement provides guidance on when to apply the two-class method for computing basic and diluted earnings per share for participating securities. A participating security is a security that participates in undistributed earnings with common stock regardless of whether the participation is dependent upon the occurrence of a specific event. EITF 03-6 did not impact the Company’s results of operations or financial condition.

In December, 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) “Share-based Payment” (SFAS 123R) which eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and generally requires that such transactions be accounted for using a fair value-based method with the resulting compensation cost recognized over the period that the employee is required to provide service in order to receive their compensation. SFAS 123R also amends SFAS No. 95, “Statement of Cash Flows,” requiring the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as currently required. The provisions of this statement are effective in the first fiscal beginning after June 15, 2005. The impact of the adoption of SFAS 123 is addressed above (see stock-based compensation) and the impact of adopting SFAS 123R is not expected to be materially different.

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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 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

The following table presents our contractual obligations as of December 31, 2004:

The fair value of our contractual obligations approximate the carrying value.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

We carry interest-sensitive assets on our balance sheet that are financed by interest-sensitive liabilities. Since these interest-sensitive assets and liabilities are not necessarily correlated, we are subject to interest-rate risk. A sudden and sustained increase or decrease in interest rates would impact the fair value of any interest-sensitive assets on our balance sheet. We do not hedge against this interest-rate risk.

The following table illustrates the timing of the re-pricing of our interest-sensitive assets and liabilities as of December 31, 2004 and 2003. We have made certain assumptions in determining the timing of re-pricing of such assets and liabilities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is incorporated by reference from our consolidated financial statements and notes thereto which are included in this report beginning on page F-1. Certain selected quarterly financial data is included under Item 7 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The information called for pursuant to this Item 9 is incorporated by reference from our definitive proxy statement, which we intend to file with the Securities and Exchange Commission no later than April 29, 2005.

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ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we must disclose in our reports filed under the Securities and Exchange Act is communicated and processed in a timely manner. Paul K. Danner, Chairman and Chief Executive Officer, and Scott Vining, Chief Financial Officer and Treasurer, participated in this evaluation.

Based on such evaluation, Mr. Danner and Mr. Vining concluded that, as of the date of such evaluation, our disclosure controls and procedures were effective. During the most recent fiscal quarter, there have not been any significant changes in our internal controls or in other factors that could significantly affect those controls.

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for pursuant to this Item 10 is incorporated by reference from our definitive proxy statement, which we intend to file with the Securities and Exchange Commission no later than April 29, 2005.

ITEM 11. EXECUTIVE COMPENSATION

The information called for pursuant to this Item 11 is incorporated by reference from our definitive proxy statement, which we intend to file with the Securities and Exchange Commission no later than April 29, 2005.

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

The information called for pursuant to this Item 12 is incorporated by reference from our definitive proxy statement, which we intend to file with the Securities and Exchange Commission no later than April 29, 2005.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for pursuant to this Item 13 is incorporated by reference from our definitive proxy statement, which we intend to file with the Securities and Exchange Commission no later than April 29, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for pursuant to this Item 14 is incorporated by reference from our definitive proxy statement, which we intend to file with the Securities and Exchange Commission no later than April 29, 2005.

PART IV

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

Reports of Independent Certified Public Accountants

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’ Deficiency

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

None.

The following Exhibits are hereby filed as part of this Annual Report on Form 10-K:

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PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS

PARAGON FINANCIAL CORPORATION

We have audited the accompanying consolidated balance sheets of Paragon Financial Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive loss, stockholders’ deficiency, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive loss, stockholders’ deficiency, and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the consolidated financial statements, the Company has suffered losses from operations and has a negative tangible net worth that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ STEVENS, POWELL & COMPANY, P.A.

Jacksonville, Florida

March 23, 2005, except as to Note 16 for which the date is April 7, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS

PARAGON FINANCIAL CORPORATION

We have audited the accompanying statements of operations, stockholders’ deficiency and cash flows of Paragon Financial Corporation (a development stage company) for the year ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Paragon Financial Corporation for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the financial statements, the Company has suffered losses from operations and has net working capital and stockholders’ deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements referred to above do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BP PROFESSIONAL GROUP LLP

Farmingdale, New York

March 6, 2003

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PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2004 AND DECEMBER 31, 2003

(Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

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PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

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PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2004, AND 2003

(Dollars in thousands)

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PARAGON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(Dollar in thousands)