Add l.a.-based Live Entertainment to the mix as the fate of Paragon Entertainment gets decided behind brokers’ doors.

Amidst weeks of rumors circulating on the particulars of a Paragon sale, sources say Live is casing the books, as are acquisition and finance types at Alliance Communications. Paragon chairman and ceo Jon Slan will say only that the company has received two formal offers from interested parties. He adds that a total of three parties have expressed interest in acquiring the entire company while five would-be buyers are interested in various parts of the public prodco. According to Slan, Paragon has been in discussions with one party on a potential merger.

In the meantime, at least 15 employees were pink-slipped mid-February in what company president Richard Borchiver calls a necessary downsizing in order to be efficient and attractive to buyers. Chief financial officer Stewart Davidson left the company in late January.

Paragon has been in search of a ‘strategic partner’ for some months, with analysts suggesting the company’s debt load may be dissuading buyers. Added to the deterrents could be a breach of contract lawsuit currently in progress brought against the company by Ottawa’s Lacewood Animation founder Sheldon Wiseman. (Wiseman claims that Paragon failed to provide promised working capital to Lacewood by March 31 of last year.)

But Slan, sitting on assets including the HandMade Films library, pending delivery of 50 episodes of Grand Illusions: The Story of Magic (Discovery Channel) and 40 episodes of the preschool series Zoboomafoo, says the debt is not as large as it may appear on the balance sheet.

Total debt – including the term loan to buy HandMade (purchased in 1994 for a reported us$8.5 million), operating line and production finance – is about $32 million.

‘But we have firmly collectible receivables against that of $20 million,’ says Slan. ‘Of the $12-million shortfall, we have Zoboomafu and four movies for which we have worldwide rights to recover the debt and to make a profit.’

Zoboomafu, the high-profile Kratts brothers series, is slated for a primo slot on pbs this October. Paragon owns 25% of the North American merchandising rights to Zoboomafu, along with all the foreign sale rights and 75% of the foreign merchandising.

Slan also pegs the sale of three feature films produced through HandMade at the upcoming American Film Market as revenue downstream. Since its acquisition of HandMade, Paragon has produced nine films under the banner including Intimate Relations, The James Gang, The Assistant and The Wrong Guy, which is currently in release. Destined for the afm are Lock Stock and Two Smoking Barrels, The Secret Laughter of Women and The Man With Rain in His Shoes. All three films were HandMade coproductions with foreign partners. (Paragon owns the worldwide rights to all of the pre-existing HandMade library except for the North American rights to Nuns On The Run and Shanghai Surprise).

Also in hand is the production potentially coming through Paragon Animation, the former Lacewood Animation Group Paragon acquired last July when the animator failed to pay off $2.5 million it owed to Paragon.

Although no proprietary product has emerged from the facility as yet, Slan says it is in advanced development with u.s. network Fox Kids on the series Dog’s Dog and is hoping for a production order any day now. Paragon Animation is currently doing service work for u.s.-based Dic and Rich Animation. They are also, says Slan, close to being greenlit on another 26 episodes of the former Lacewood property Katie and Orbie for pbs, bringing the series total to 65.

With animation company stock tending to trade at a higher multiples to earnings ratio than live-action company stock, part of Slan’s strategy in acquiring Lacewood was the hope that it would raise Paragon stocks earning multiple.

‘We were all thrown for a bit of a loop when it didn’t work out as we’d anticipated, says Slan.

Of Paragon’s 17 million shares, Slan says over 90% are held by Paragon board members or major institutions, creating little retail stock trading and float. ‘The stock isn’t that liquid,’ says Slan, ‘so that’s always a disincentive to investors.’