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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2002
Commission File No. 1-15729
PARAGON TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 22-1643428
- --------------------------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
600 Kuebler Road, Easton, PA 18040
- --------------------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 610-252-3205
---------------------
Indicate by checkmark 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
--- ---
Number of shares of common stock, par value $1.00 per share, outstanding as of
August 9, 2002: 4,235,887.
---------
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(In Thousands, Except Share Data)
(UNAUDITED)
June 30, December 31,
2002 2001
------------------- ------------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 6,854 6,114
Receivables:
Trade (net of allowance for doubtful
accounts of $248 as of June 30,
2002 and $54 as of December 31,
2001) 7,457 7,093
Notes and other receivables 266 630
------ ------
Total receivables 7,723 7,723
------ ------
Costs and estimated earnings in excess
of billings 145 244
Inventories:
Raw materials 1,312 1,731
Work-in-process 167 254
Finished goods 566 408
------ ------
Total inventories 2,045 2,393
------ ------
Deferred income tax benefits 2,077 2,077
Prepaid expenses and other current assets 433 649
------ ------
Total current assets 19,277 19,200
------ ------
Property, plant and equipment, at cost:
Land 27 27
Buildings and improvements 3,727 3,727
Machinery and equipment 4,255 5,059
------ ------
8,009 8,813
Less: accumulated depreciation (5,544) (6,112)
------ ------
Net property, plant and equipment 2,465 2,701
------ ------
Investment in joint venture 1,709 1,667
Excess of cost over fair value of net assets
acquired, less amortization of $1,053 as of
June 30, 2002 and December 31, 2001 17,657 17,657
Other assets, at cost less accumulated
amortization of $114 as of June 30,
2002 and $94 as of December 31, 2001 98 118
------ ------
Total assets $ 41,206 41,343
====== ======
See accompanying notes to consolidated financial statements.
2
Item 1. Financial Statements (Continued)
- ------- --------------------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(In Thousands, Except Share Data)
(UNAUDITED)
June 30, December 31,
2002 2001
------------------- ------------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ 2,300 2,305
Accounts payable 2,847 3,319
Customers' deposits and billings in excess
of costs and estimated earnings for
completed and uncompleted contracts 4,327 3,345
Accrued salaries, wages, and commissions 640 676
Income taxes payable 55 46
Accrued royalties payable 97 92
Accrued product warranties 1,154 863
Accrued pension and retirement
savings plan liabilities 1,138 1,122
Accrued restructuring expenses 268 494
Accrued other liabilities 1,195 1,126
------ ------
Total current liabilities 14,021 13,388
------ ------
Long-term liabilities:
Long-term debt, excluding current
installments:
Term loan 5,750 6,900
Subordinated notes payable 3,000 3,000
------ ------
Total long-term debt 8,750 9,900
Other long-term liability 349 412
Deferred income taxes payable 647 628
Deferred compensation 15 134
------ ------
Total long-term liabilities 9,761 11,074
------ ------
Stockholders' equity:
Common stock, $1 par value; authorized
20,000,000 shares; issued and
outstanding 4,226,635 shares as
of June 30, 2002 and 4,221,635
shares as of December 31, 2001 4,227 4,222
Additional paid-in capital 7,099 7,071
Retained earnings 6,307 5,841
Accumulated other comprehensive loss (209) (253)
------ ------
Total stockholders' equity 17,424 16,881
------ ------
Total liabilities and stockholders' equity $ 41,206 41,343
====== ======
See accompanying notes to consolidated financial statements.
3
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
For the Three and Six Months Ended June 30, 2002 and June 30, 2001
(In Thousands, Except Share And Per Share Data)
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------------- ----------------- ----------------- -----------------
Net sales $ 9,908 12,221 20,660 26,151
Cost of sales 7,422 9,158 15,285 19,495
--------- --------- --------- ---------
Gross profit on sales 2,486 3,063 5,375 6,656
--------- --------- --------- ---------
Selling, general and
administrative
expenses 2,182 2,745 4,523 5,686
Product development
costs 93 117 159 316
Amortization of
goodwill - 117 - 234
Restructuring
expenses - 1,538 - 1,538
Interest expense 266 327 538 691
Interest income (17) (66) (53) (180)
Equity in income of
joint ventures (36) (196) (42) (225)
Other income, net (203) (113) (524) (202)
--------- --------- --------- ---------
2,285 4,469 4,601 7,858
--------- --------- --------- ---------
Earnings (loss) before
income taxes 201 (1,406) 774 (1,202)
Income tax expense
(benefit) 78 (598) 308 (520)
--------- --------- --------- ---------
Net earnings (loss) $ 123 (808) 466 (682)
========= ========= ========= =========
Basic earnings
(loss) per share $ .03 (.19) .11 (.16)
========= ========= ========= =========
Diluted earnings
(loss) per share $ .03 (.19) .11 (.16)
========= ========= ========= =========
Weighted average
shares outstanding 4,226,635 4,211,522 4,224,492 4,204,385
Dilutive effect of
stock options 52,695 14,328 70,194 32,750
Dilutive effect of
phantom stock units - 19,728 6,703 18,928
--------- --------- --------- ---------
Weighted average
shares outstanding
assuming dilution 4,279,330 4,245,578 4,301,389 4,256,063
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
4
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Six Months Ended June 30, 2002 and June 30, 2001
(In Thousands)
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------------- ----------------- ----------------- -----------------
Net earnings (loss) $ 123 (808) 466 (682)
Other comprehensive
income (loss), net of tax:
Cash flow hedge:
Cumulative effect of
adoption of FAS 133 - - - (96)
Change in fair value
during the period 3 17 44 (50)
----- ----- ----- -----
Total other
comprehensive
income (loss) 3 17 44 (146)
----- ----- ----- -----
Comprehensive
income (loss) $ 126 (791) 510 (828)
===== ===== ===== =====
See accompanying notes to consolidated financial statements.
5
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2002 and June 30, 2001
(In Thousands, Except Share Data)
Six Months Ended
----------------------------------------
June 30, June 30,
2002 2001
------------------- -------------------
Cash flows from operating activities:
Net earnings (loss) $ 466 (682)
Adjustments to reconcile net earnings
to net cash provided (used) by
operating activities:
Depreciation of plant and equipment 320 343
Amortization of intangibles 20 254
Gain on disposition of equipment (108) -
Equity in income of joint ventures (42) (225)
Issuance of 12,390 common shares
as payment of employee's bonus - 111
Change in operating assets and liabilities:
Receivables (125) (1,561)
Costs and estimated earnings in
excess of billings 99 121
Inventories 348 277
Prepaid expenses and other current
assets 216 96
Accounts payable (472) (577)
Customers' deposits and billings in
excess of costs and estimated
earnings for completed and
uncompleted contracts 982 (539)
Accrued salaries, wages, and
commissions (36) (1,080)
Income taxes payable 9 (369)
Accrued royalties payable 5 (172)
Accrued product warranties 291 (44)
Accrued pension and retirement
savings plan liabilities 16 492
Accrued restructuring expenses (226) 976
Accrued other liabilities 69 198
Deferred income taxes payable - 10
Deferred compensation (119) 16
----- -----
Net cash provided (used) by
operating activities 1,713 (2,355)
----- -----
Cash flows from investing activities:
Proceeds from the disposition of equipment 198 -
Proceeds from the divestment of a
joint venture 125 -
Additions to property, plant and equipment (174) (193)
----- -----
Net cash provided (used) by investing activities 149 (193)
----- -----
See accompanying notes to consolidated financial statements.
6
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the Six Months Ended June 30, 2002 and June 30, 2001
(In Thousands, Except Share Data)
Six Months Ended
----------------------------------------
June 30, June 30,
2002 2001
------------------- -------------------
Cash flows from financing activities:
Sale of common shares in connection with
employee incentive stock option plan 33 30
Repayment of long-term debt (1,155) (1,204)
----- -----
Net cash used by financing activities (1,122) (1,174)
----- -----
Increase (decrease) in cash and
cash equivalents 740 (3,722)
Cash and cash equivalents,
beginning of period 6,114 7,925
----- -----
Cash and cash equivalents,
end of period $ 6,854 4,203
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 417 643
===== =====
Income taxes $ 45 464
===== =====
See accompanying notes to consolidated financial statements.
7
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
(1) The information contained in this Form 10-Q report is unaudited. In the
opinion of the management of Paragon Technologies, Inc. ("Paragon" or the
"Company"), the interim financial statements furnished reflect all
adjustments and accruals that are necessary to present a fair statement of
results for the interim periods. The financial statements include the
accounts of the Company and Ermanco Incorporated ("Ermanco"), a wholly
owned subsidiary company, after elimination of intercompany balances and
transactions. Results for interim periods are not necessarily indicative of
results expected for the fiscal year. This quarterly report should be read
in conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements of the Company and the related Notes
thereto appearing in our annual report on Form 10-K, as amended, for the
year ended December 31, 2001, as filed with the Securities and Exchange
Commission. Refer to the Company's Form 10-K, as amended, for the year
ended December 31, 2001 for more complete financial information.
(2) Restructuring
-------------
During the second quarter of 2001, the Company restructured its business
operations and recorded a charge of $1,538,000 for restructuring costs. In
conjunction with the restructuring plan, the Company reduced the number of
office associates by 14 and discontinued production operations at its
Easton, Pennsylvania facility. All production employees working in the
Easton, Pennsylvania manufacturing plant were laid off by the end of
November 2001. Prior to the restructuring, the Company employed
approximately 20 production employees, with an additional 27 individuals on
an extended layoff. The restructuring charges included costs of $678,000
for severance and other personnel costs, $562,000 for pension expense
associated with the curtailment of the Company's defined benefit plan for
the Company's Easton, Pennsylvania production employees, and $298,000 for
plant closure and professional service fees related to the restructuring.
The restructuring charges were determined based on formal plans approved by
the Company's management and the Board of Directors.
The liability related to the curtailment of the defined benefit plan is
recorded as accrued pension and retirement savings plan liabilities on the
consolidated balance sheets.
The major components of the restructuring charge and remaining accruals are
as follows:
Balance at Cash Balance at
December 31, 2001 Payments June 30, 2002
---------------------- -------------- -------------------------
Severances $ 274,000 (150,000) 124,000
Other 220,000 (76,000) 144,000
------- ------- -------
$ 494,000 (226,000) 268,000
======= ======= =======
(3) Major Segments of Business
--------------------------
Operating segments are defined as components of an enterprise in which
separate financial information is available and evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company identified such segments based on both
management responsibility and types and products offered for sale. The
Company operates in two major market segments.
8
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
The Company's Easton, Pennsylvania operations (hereafter referred to as "SI
Systems") is a specialized systems integrator supplying SI Systems' branded
automated material handling systems to manufacturing, order selection, and
distribution operations. The systems are marketed, designed, sold,
installed, and serviced by its own staff or agents, generally as
labor-saving devices to improve productivity, quality, and reduce costs. SI
Systems also operates as a project manager in connection with the
installation, integration, and service of its products, generally utilizing
subcontractors. SI Systems' branded products are utilized to automate the
movement or selection of products and are often integrated with other
automated equipment such as conveyors and robots. SI Systems' branded
integrated material handling solutions involve both standard and specially
designed components and include integration of non-proprietary automated
handling technologies so as to provide turnkey solutions for its customers'
unique material handling needs. SI Systems' staff develops and designs
computer control programs required for the efficient operation of the
systems. SI Systems' branded products are sold to customers located in
North America, including the U.S. government.
The Company's Spring Lake, Michigan operations (hereafter referred to as
"Ermanco") is a manufacturer of Ermanco branded light to medium duty unit
handling conveyor products, serving the material handling industry through
a worldwide network of approximately 100 experienced material handling
equipment distributors and licensees. Ermanco also provides complete
conveyor systems for a variety of applications, including distribution and
manufacture of computers and electronic products, utilizing primarily its
own manufactured conveyor products, engineering services by its own staff
or subcontractors, and subcontracted installation services. Ermanco
supplies material handling systems and equipment to both national and
international markets. Ermanco offers services ranging from the delivery of
basic transportation conveyors to turnkey installations of complex, fully
automated work-in-process production lines and distribution centers,
utilizing sophisticated, custom-designed controls software. Many of
Ermanco's sales are to distributors who have non-exclusive agreements with
the Company.
The Company's systems vary in configuration and capacity. Historically,
system prices across the Company's product lines have ranged from $100,000
to several million dollars per system. Systems and aftermarket sales by
brand during the three and six months ended June 30, 2002 and June 30, 2001
are as follows (in thousands):
For the three months ended June 30, 2002:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Systems sales $ 2,665 5,808 8,473 85.5%
Aftermarket sales 856 579 1,435 14.5%
----- ----- ------ -----
Total sales $ 3,521 6,387 9,908 100.0%
===== ===== ====== =====
As a % of total sales 35.5% 64.5% 100.0%
For the three months ended June 30, 2001:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Systems sales $ 3,402 7,232 10,634 87.0%
Aftermarket sales 1,168 419 1,587 13.0%
----- ----- ------ -----
Total sales $ 4,570 7,651 12,221 100.0%
===== ===== ====== =====
As a % of total sales 37.4% 62.6% 100.0%
9
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
For the six months ended June 30, 2002:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Systems sales $ 5,705 12,197 17,902 86.7%
Aftermarket sales 1,715 1,043 2,758 13.3%
------ ------ ------ -----
Total sales $ 7,420 13,240 20,660 100.0%
====== ====== ====== =====
As a % of total sales 35.9% 64.1% 100.0%
For the six months ended June 30, 2001:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Systems sales $ 8,421 14,353 22,774 87.1%
Aftermarket sales 2,373 1,004 3,377 12.9%
------ ------ ------ -----
Total sales $ 10,794 15,357 26,151 100.0%
====== ====== ====== =====
As a % of total sales 41.3% 58.7% 100.0%
The Company's products are sold through its own sales personnel, along with
a network of distributors and licensees. Domestic and international sales
by brand during the three and six months ended June 30, 2002 and June 30,
2001 are as follows (in thousands):
For the three months ended June 30, 2002:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Domestic sales $ 3,459 5,689 9,148 92.3%
International sales 62 698 760 7.7%
------ ------ ------ -----
Total sales $ 3,521 6,387 9,908 100.0%
====== ====== ====== =====
For the three months ended June 30, 2001:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Domestic sales $ 4,306 6,938 11,244 92.0%
International sales 264 713 977 8.0%
------ ------ ------ -----
Total sales $ 4,570 7,651 12,221 100.0%
====== ====== ====== =====
For the six months ended June 30, 2002:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Domestic sales $ 7,268 12,176 19,444 94.1%
International sales 152 1,064 1,216 5.9%
------ ------ ------ -----
Total sales $ 7,420 13,240 20,660 100.0%
====== ====== ====== =====
For the six months ended June 30, 2001:
% of Total
SI Systems Ermanco Total Sales
--------------- -------------- -------------- --------------
Domestic sales $ 10,172 12,772 22,944 87.7%
International sales 622 2,585 3,207 12.3%
------ ------ ------ -----
Total sales $ 10,794 15,357 26,151 100.0%
====== ====== ====== =====
10
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
The Company also engages in sales with the U.S. government, which is one
of the Company's major customers. Sales to the U.S. government during
the three and six months ended June 30, 2002 and June 30, 2001 are as
follows (in thousands):
As a %
of Total Sales
-----------------
For the three months ended June 30, 2002 $ 1,207 12.2%
For the three months ended June 30, 2001 2,019 16.5%
As a %
of Total Sales
-----------------
For the six months ended June 30, 2002 $ 2,726 13.2%
For the six months ended June 30, 2001 4,394 16.8%
The Company identifies operating segments based on the types of products
offered for sale as follows:
For the Three Months Ended
June 30, 2002 (In Thousands): SI Systems Ermanco Total
- ------------------------------------------- ------------ ------------ ------------
Sales $ 3,521 6,387 9,908
Earnings (loss) before interest
expense, interest income, equity
in income of joint ventures, and
income taxes 422 (8) 414
Total assets 10,524 30,682 41,206
Capital expenditures 6 96 102
Depreciation and amortization
expense 70 100 170
For the Three Months Ended
June 30, 2001 (In Thousands): SI Systems Ermanco Total
- ------------------------------------------- ------------ ------------ ------------
Sales $ 4,570 7,651 12,221
Earnings (loss) before interest
expense, interest income, equity
in income of joint ventures, and
income taxes (before restructuring
expense) (150) 347 197
Restructuring expenses 1,538 - 1,538
Total assets 12,366 30,717 43,083
Capital expenditures 15 36 51
Depreciation and amortization
expense 104 196 300
11
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
For the Six Months Ended
June 30, 2002 (In Thousands): SI Systems Ermanco Total
- ------------------------------------------- ------------ ------------ ------------
Sales $ 7,420 13,240 20,660
Earnings before interest expense,
interest income, equity in income
of joint ventures, and income taxes 1,119 98 1,217
Total assets 10,524 30,682 41,206
Capital expenditures 21 153 174
Depreciation and amortization
expense 140 200 340
For the Six Months Ended
June 30, 2001 (In Thousands): SI Systems Ermanco Total
- ------------------------------------------- ------------ ------------ ------------
Sales $ 10,794 15,357 26,151
Earnings before interest expense,
interest income, equity in income
of joint ventures, and income
taxes (before restructuring
expenses) 182 440 622
Restructuring expenses 1,538 - 1,538
Total assets 12,366 30,717 43,083
Capital expenditures 64 129 193
Depreciation and amortization
expense 207 390 597
(4) New Accounting Pronouncements
-----------------------------
Effective January 1, 2002, the Company adopted Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"), which
requires that goodwill and intangible assets with indefinite useful lives
no longer be amortized, but instead be tested for impairment at least
annually. Impairment losses, if any, will be measured as of January 1, 2002
and recognized as the cumulative effect of a change in accounting principle
in 2002. FAS 142 also requires that intangible assets with determinable
useful lives be amortized over their respective estimated useful lives to
their estimated residual values and reviewed for impairment in accordance
with Statement No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-Lived Assets to Be Disposed Of."
As of January 1, 2002, the Company had unamortized goodwill of $17,657,000,
all of which was attributable to Ermanco. FAS 142 requires that the Company
completes a first phase of the impairment review for goodwill by June 30,
2002. That required review was completed during the second quarter of 2002
and did not indicate any impairment.
12
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
(4) New Accounting Pronouncements (Continued)
-----------------------------
Comparison to Prior Year "As Adjusted"
-------------------------------------
The following table presents prior year reported amounts adjusted to
eliminate the effect of goodwill amortization in accordance with FAS 142.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------ ------------- ------------
Reported net earnings (loss) $ 123,000 (808,000) 466,000 (682,000)
Add back: goodwill amortization,
net of tax - 67,000 - 133,000
------- ------- ------- -------
Adjusted net earnings (loss) $ 123,000 (741,000) 466,000 (549,000)
======= ======= ======= =======
Basic net earnings (loss) per share:
Reported net earnings (loss)
per share $ .03 (.19) .11 (.16)
Add back: goodwill amortization,
net of tax - .01 - .03
------- ------- ------- ------
Adjusted net earnings
(loss) per share $ .03 (.18) .11 (.13)
------- ======= ======= ======
Diluted net earnings (loss) per share:
Reported net earnings (loss)
per share $ .03 (.19) .11 (.16)
Add back: goodwill amortization,
net of tax - .01 - .03
------- ------- ------- ------
Adjusted net earnings
(loss) per share $ .03 (.18) .11 (.13)
======= ======= ======= ======
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Statement also supersedes APB No.
30 provisions related to the accounting and reporting for the disposal of a
segment of a business. This Statement establishes a single accounting
model, based on the framework established in SFAS No. 121, for long-lived
assets to be disposed of by sale. The Statement retains most of the
requirements in SFAS No. 121 related to the recognition of impairment of
long-lived assets to be held and used. This Statement was adopted by the
Company on January 1, 2002 and did not have any impact on the Company's
financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146) which addresses financial accounting and reporting for costs
associated with exit or disposal activities. This statement nullifies
Emerging Issues Task Force Issue 94-3. "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred and establishes that fair value
is the objective for initial measurement of the liability. The Statement is
effective for exit or disposal activities that are initiated after December
31, 2002, with early adoption encouraged.
13
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Six Months Ended June 30, 2002 and June 30, 2001
(5) Other Comprehensive Loss
------------------------
The Company is exposed to market risk from changes in interest rates, and
uses an interest rate swap to hedge this risk. The seven-year interest rate
swap has a notional amount of $4,887,500 and is classified as a cash flow
hedge of forecasted variable rate interest payments on a portion of the
Company's term loan. Gains and losses on the interest rate swap are
deferred in accumulated other comprehensive income (loss). The fair value
of the interest rate swap at June 30, 2002 was a liability of approximately
$349,000. The separate components of other comprehensive loss (income) are
as follows (in thousands):
Gross Tax Effect Net
----- ---------- -----
Accumulated other comprehensive
loss at December 31, 2001 $ 412 159 253
Other comprehensive loss (income) (63) (19) (44)
--- --- ---
Accumulated other comprehensive
loss at June 30, 2002 $ 349 140 209
=== === ===
The Company uses derivative financial instruments as risk management tools
and not for speculative purposes.
(6) Long-Term Debt
--------------
As of June 30, 2002, the Company was in violation of the covenant related
to its Funds Flow Covenant Ratio. Effective June 30, 2002, the Company
received a waiver of the covenant violation and subsequently entered into
an amendment to the term loan relative to future covenant requirements and
the maintenance of a minimum cash balance covenant of $5,000,000. The line
of credit agreement was amended to extend the expiration date of the
facility to June 30, 2003 and decrease the amount available under the
facility to $2,000,000. The Company remains prohibited from making any cash
payments of subordinated debt and interest until the Company is in full
compliance with all the financial covenants as originally set forth in the
Loan Agreement with the Company's principal bank. The Company intends to
satisfy its quarterly interest obligations on subordinated debt with the
issuance of the Company's common stock in the event the Company's principal
bank does not grant waivers regarding the making of cash payments of
interest on subordinated debt.
----------------------------------
14
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources
- -------------------------------
The Company's cash and cash equivalents increased to $6,854,000 at June 30,
2002 from $6,114,000 at December 31, 2001. The increase resulted from cash
provided by operating activities totaling $1,713,000, proceeds of $198,000 from
the disposition of equipment, and proceeds of $125,000 from the divestment of a
joint venture. Partially offsetting the increase in cash and cash equivalents
from these sources was the repayment of long-term debt of $1,155,000 and
purchases of capital equipment of $174,000. Funds used by operating activities
during the six months ended June 30, 2001 were $2,355,000.
Acquisition of Ermanco Incorporated
- -----------------------------------
On September 30, 1999, the Company acquired of all of the outstanding
common stock of Ermanco. Under the terms of the Stock Purchase Agreement, the
Company acquired all of the outstanding common stock of Ermanco for a purchase
price of $22,801,000 consisting of $15,301,000 in cash, $3,000,000 in promissory
notes payable to the fourteen stockholders of Ermanco, and 481,284 shares of the
Company's common stock with a value of $4,500,000 based on the average closing
price of $9.35 of the Company's common stock for the five trading days
immediately preceding the date of the Stock Purchase Agreement, August 6, 1999.
In order to complete the Ermanco acquisition, the Company obtained
financing from its principal bank. The Company entered into a three-year line of
credit facility which may not exceed the lesser of $2,000,000, as recently
amended, or an amount based on a borrowing base formula tied principally to
accounts receivable, inventory, fair market value of the Company's property and
plant, and liquidation value of equipment. This amount will be reduced by the
unpaid principal balance of the term loan described below. The line of credit
facility is to be used primarily for working capital purposes. As of June 30,
2002, the Company did not have any borrowings under the line of credit facility,
and the facility expires effective June 30, 2003.
The Company financed $14,000,000 of the acquisition through a seven-year
term loan from its bank. During the first two years of the term loan, the
Company was obligated to repay equal quarterly payments of $312,500 plus accrued
interest. After September 30, 2001, the Company commenced making equal quarterly
payments of $575,000 plus interest, continuing until the loan is fully repaid.
The interest rate on the term loan is variable at a rate equal to the
three-month LIBOR Market Index Rate plus three percent, which was 4.86% as of
June 30, 2002. The Company also entered into an interest rate swap agreement for
a portion of the term loan to hedge the floating interest rate. At June 30,
2002, the notional amount of the seven-year interest rate swap is $4,887,500 and
it fixes interest at a rate of 9.38%. As of June 30, 2002, the liability
associated with the fair value of the cash flow hedge was approximately
$349,000. Since the inception of the term loan, the Company prepaid, without
penalty, $1,725,000 of the term loan.
To obtain the line of credit and term loan, the Company granted the bank a
security interest in all personal property, including, without limitation, all
accounts, deposits, documents, equipment, fixtures, general intangibles, goods,
instruments, inventory, letters of credit, money, securities, and a first
mortgage on all real estate. The line of credit facility and term loan contain
various restrictive covenants relating to additional indebtedness, asset
acquisitions or dispositions, investments, guarantees, payment of dividends,
maintenance of certain financial ratios, and as recently amended, maintenance of
a minimum cash balance covenant of $5,000,000. The Company was in compliance
with all covenants or obtained appropriate waivers as of June 30, 2002 (See Note
6).
On September 30, 1999, the Company also issued promissory notes to fourteen
stockholders of Ermanco, two of which are directors of the Company (Messrs.
Shulman and Kirschner), in the aggregate principal amount of $3,000,000. The
notes have a term of seven years and bear interest at an annual rate of ten
percent through September 30, 2002, twelve percent from October 1, 2002 through
September 30, 2004, and fourteen percent from October 1, 2004 through September
30, 2006. The weighted average interest rate on the promissory notes is 11.714%
over the term of the notes. Interest
15
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Acquisition of Ermanco Incorporated (Continued)
- -----------------------------------
shall be payable quarterly, in cash or under certain conditions, in the
Company's common stock upon approval of the Company's Board of Directors. The
promissory notes may be prepaid prior to the end of the seven-year term provided
that there is no debt outstanding under the Company's line of credit facility
and term loan. Since July 1, 2001, the Company has been and will be prohibited
from making any cash payments on subordinated debt and interest until the
Company is in full compliance with all the financial covenants as originally set
forth in the term loan agreement with the Company's principal bank. However, the
bank waived the restriction from paying interest on the subordinated debt in the
form of cash for the quarter ended December 31, 2001 and the quarter ended March
31, 2002.
As of June 30, 2002, the Company was in violation of the covenant related
to its Funds Flow Covenant Ratio. Effective June 30, 2002, the Company received
a waiver of the covenant violation and subsequently entered into an amendment to
the term loan relative to future covenant requirements and the maintenance of a
minimum cash balance covenant of $5,000,000. The line of credit agreement was
amended to extend the expiration date of the facility to June 30, 2003 and
decrease the amount available under the facility to $2,000,000. The Company
remains prohibited from making any cash payments of subordinated debt and
interest until the Company is in full compliance with all the financial
covenants as originally set forth in the Loan Agreement with the Company's
principal bank. The Company intends to satisfy its quarterly interest
obligations with the issuance of the Company's common stock in the event the
Company's principal bank does not grant waivers regarding the making of cash
payments of interest on subordinated debt.
Commitments and Contingencies
- -----------------------------
Ermanco's operations are located in an 113,000 square foot steel building
in Spring Lake, Michigan. The building is leased from an organization that is
affiliated with the Company through a common director and officer of the
Company, Messrs. Shulman and Kirschner. The leasing agreement requires fixed
monthly rentals of $32,858 (with annual increases of 2.5%), which includes a
variable portion based on the lessor's borrowing rate and the unpaid mortgage
balance. The terms of the lease require the payment of all taxes, insurance, and
other ownership related costs of the property. The lease expires on September
30, 2004.
The Company also leases certain automobiles and office equipment, office
space, computer equipment, and software under various operating leases with
terms extending through July 2005.
On March 4, 1996, SI/BAKER established a $3,000,000 line of credit facility
(the "Facility") with its principal bank (the "bank"). Under the terms of the
Facility, SI/BAKER's parent companies, Paragon Technologies, Inc. and McKesson
Automation Systems Inc., have each provided a limited guarantee and surety in an
amount not to exceed $1,000,000 for a combined guarantee of $2,000,000 to the
bank for the payment and performance of the related note, including any further
renewals or modifications of the facility. As of June 30, 2002, SI/BAKER did not
have any borrowings under the Facility, and the Facility expires effective
August 31, 2002.
Other Liquidity and Capital Resource Matters
- --------------------------------------------
The Company anticipates that its financial resources, consisting of cash
generated from operations and borrowings available under its credit facility
will be adequate to satisfy its future cash requirements through the next year.
If the Company is unable to meet the terms of its financial covenants relating
to its outstanding indebtedness and is unable to receive a waiver from its
lender, a default could result under the Company's borrowing agreements. A
default may result in the acceleration of the Company's indebtedness and cause
the Company's debt to become immediately due and payable. If acceleration
occurs, the Company may not be able to repay its debt, and the Company may not
be able to borrow sufficient additional funds to refinance such debt. Sales
volume, as well as cash liquidity, may experience fluctuations due to the
unpredictability
16
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Other Liquidity and Capital Resource Matters (Continued)
- --------------------------------------------
of future contract sales and the dependence upon a limited number of large
contracts with a limited number of customers. For these reasons, cash liquidity
beyond a twelve-month period is difficult for the Company to forecast with
reasonable accuracy.
The Company plans to consider all strategic alternatives to increase
stockholder value, including expansion opportunities as they arise, although the
ongoing operating results of the Company, the restrictive covenants associated
with the financing obtained from the Company's principal bank, the economics of
the expansion, and the circumstances justifying the expansion will be key
factors in determining the amount of resources the Company will devote to
further expansion.
Results Of Operations
- ---------------------
(a) Six Months Ended June 30, 2002 Versus Six Months Ended June 30, 2001
--------------------------------------------------------------------
The Company's net earnings for the six months ended June 30, 2002 was
$466,000 compared to a net loss of $682,000 for the six months ended June 30,
2001. Contributing to the net earnings for the six months ended June 30, 2002
was other income from the short-term licensing of certain real property of
$300,000, a gain on the sale of excess fixed assets of $108,000, and the
application of the non-amortization provision of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," whereby
goodwill is no longer amortized thereby resulting in an increase to pre-tax
income of $234,000. Contributing to the net loss for the six months ended June
30, 2001 were restructuring charges of $1,538,000.
Net Sales and Gross Profit on Sales
- -----------------------------------
Net sales of $20,660,000 for the six months ended June 30, 2002 decreased
21.0% compared to net sales of $26,151,000 for the six months ended June 30,
2001. The sales decrease of $5,491,000 was primarily attributable to a lower
volume of orders associated with the current economic slowdown and competitive
pricing pressures. The net sales decrease was comprised of a decrease in SI
Systems branded sales of approximately $3,374,000 and a decrease in Ermanco
branded sales of approximately $2,117,000 for the six months ended June 30, 2002
when compared to the six months ended June 30, 2001. The decline in SI Systems
branded sales was primarily due to the prior year comparable period containing a
greater amount of sales related to the Lo-Tow(R) product line. Contributing to
the reduction of approximately $2,600,000 in Lo-Tow(R) sales for the six months
ended June 30, 2002 was a decrease of approximately $1,800,000 in sales related
to the U.S. Postal Service. The decline in Ermanco branded sales was primarily
due to the prior year comparable period containing a greater amount of sales
related to a manufacturer of computer equipment. The Company's business is
dependent upon a limited number of large contracts with a limited number of
customers. This dependence can cause unexpected fluctuations in sales volume.
Various external factors affect the customers' decision-making process on
expanding and upgrading their current production or distribution sites. The
customers' timing and placement of new orders is often affected by factors such
as the current economy, current interest rates, and future expectations. The
Company believes that its business is not subject to seasonality, although the
rate of new orders can vary substantially from month to month. Fluctuations in
the Company's sales and earnings occur with increases or decreases in major
installations, since the Company recognizes sales on a percentage of completion
basis for its systems contracts.
Gross profit, as a percentage of sales, was 26.0% for the six months ended
June 30, 2002 compared to 25.5% for the six months ended June 30, 2001. Gross
profit, as a percentage of sales, for the six months ended June 30, 2002 was
favorably impacted by approximately 2.8% as a result of the reversal of
previously established contract accruals due to changes in cost estimates.
Partially offsetting the favorable impact of the reversal of previously
established contract accruals was the underabsorption of overhead costs due to a
decline in sales volume.
17
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
(a) Six Months Ended June 30, 2002 Versus Six Months Ended June 30, 2001
--------------------------------------------------------------------
(Continued)
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses of $4,523,000 were lower by
$1,163,000 for the six months ended June 30, 2002 than in the six months ended
June 30, 2001. The decrease of $1,163,000 was comprised of cost savings of
approximately $500,000 attributable to the Company's restructuring of its
business operations in the prior fiscal year and continued emphasis on cost
reduction. Also contributing to the reduction in selling, general and
administrative expenses was a decrease of $172,000 in marketing expenses
associated with the Company's participation in a biannual industry trade show in
the first quarter of the prior fiscal year, $175,000 of expenses pertaining to a
reduction of associates during the first quarter of the prior fiscal year, and
$330,000 of charges during the second quarter of the prior fiscal year related
to a strategic transaction that was not completed.
Product Development Costs
- -------------------------
Product development costs, including patent expense, of $159,000 were lower
by $157,000 for the six months ended June 30, 2002 than in the six months ended
June 30, 2001. Development programs in the six months ended June 30, 2002 were
aimed at improvements to the Company's sortation and accumulation conveyor
technologies and the Order Picking, Fulfillment, and Replenishment product line.
Development programs in the six months ended June 30, 2001 included enhancements
to the Company's Order Picking, Fulfillment, and Replenishment product line and
development efforts related to the NBS 30(TM) and NBS 90(TM), narrow belt
sorters, that were introduced in the material handling marketplace during the
first quarter of 2001.
Amortization of Goodwill
- ------------------------
Amortization of goodwill represented costs associated with the acquisition
of Ermanco. Due to the application of the non-amortization provision of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," goodwill is no longer amortized after December 31, 2001 as
compared to amortization expense of $234,000 for the six months ended June 30,
2001.
Restructuring Expenses
- ----------------------
During the second quarter of 2001, the Company restructured its business
operations and recorded a charge of $1,538,000 for restructuring costs. In
conjunction with the restructuring plan, the Company reduced the number of
office associates by 14 and discontinued production operations at its Easton,
Pennsylvania facility. All production employees working in the Easton,
Pennsylvania manufacturing plant were laid off by the end of November 2001.
Prior to the restructuring, the Company employed approximately 20 production
employees, with an additional 27 individuals on an extended layoff. The
restructuring charges included costs of $678,000 for severance and other
personnel costs, $562,000 for pension expense associated with the curtailment of
the defined benefit plan for the Company's Easton, Pennsylvania production
employees, and $298,000 for plant closure and professional service fees relating
to the restructuring. The restructuring charges were determined based on formal
plans approved by the Company's management and the Board of Directors.
Interest Expense and Interest Income
- ------------------------------------
Interest expense of $538,000 was lower by $153,000 for the six months ended
June 30, 2002 than in the six months ended June 30, 2001. The decrease in
interest expense was attributable to the reduced level of term debt due to
principal payments and lower interest rates.
18
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
(a) Six Months Ended June 30, 2002 Versus Six Months Ended June 30, 2001
--------------------------------------------------------------------
Interest Expense and Interest Income (Continued)
- ------------------------------------
Interest income of $53,000 for the six months ended June 30, 2002 decreased
by $127,000, when compared to the six months ended June 30, 2001. The decrease
in interest income was attributable to a reduction in the level of funds and
interest rates pertaining to short-term investments.
Equity in Income of Joint Ventures
- ----------------------------------
Equity in income of joint ventures represents the Company's proportionate
share of its investment in the SI/BAKER joint venture and prior to January 1,
2002 its investment in the SI-Egemin joint venture, that are accounted for under
the equity method. The net unfavorable variance of $183,000 in the equity in
income of joint ventures for the six months ended June 30, 2002 as compared to
the six months ended June 30, 2001 was comprised of decreased earnings of
approximately $232,000 attributable to the SI/BAKER joint venture and decreased
losses of approximately $49,000 attributable to the SI-Egemin joint venture.
The unfavorable variance of $232,000 for the six months ended June 30, 2002
in the equity in income of the SI/BAKER joint venture was attributable to a
decline in sales of approximately $1,713,000, an increase of $134,000 in product
development expenses, an increase of $103,000 in selling, general and
administrative expenses, and a reduction of $81,000 in interest income as
compared to the six months ended June 30, 2001. The sales decrease was primarily
attributable to a larger backlog of orders at the beginning of the prior fiscal
year. SI/BAKER increased product development expenses aimed at enhancing the
Company's product offerings, while selling, general and administrative expenses
primarily rose due to the addition of resources aimed at expanding the customer
base. The unfavorable variance in interest income was primarily attributable to
a reduction in the level of funds and interest rates pertaining to short-term
investments. Partially offsetting the aforementioned unfavorable variances was a
reduction of $69,000 in revenue-based royalty costs due to the parent companies.
The Company divested of its investment in the SI-Egemin joint venture at
the end of calendar year 2001. The favorable variance of $49,000 for the six
months ended June 30, 2002 in the equity in income of the SI-Egemin joint
venture was attributable to the prior fiscal year containing operating expenses
of the joint venture.
Other Income, Net
- -----------------
The favorable variance of $322,000 in other income, net for the six months
ended June 30, 2002 as compared to the six months ended June 30, 2001 was
primarily attributable to the short-term licensing of certain real property of
the Company's Easton, Pennsylvania facility of approximately $300,000 during the
six months ended June 30, 2002. Also contributing to the favorable variance in
other income, net for the six months ended June 30, 2002 was a gain on the sale
of excess fixed assets associated with the Company's Easton, Pennsylvania
facility during the first quarter of 2002 of approximately $108,000. Partially
offsetting the favorable variance in other income, net was a reduction of
revenue-based royalty income from the Company's SI/BAKER joint venture and
license agreements related to international conveyor system sales.
Income Tax Expense
- ------------------
The Company recognized income tax expense of $308,000 during the six months
ended June 30, 2002, compared to the recognition of an income tax benefit of
$520,000 in the comparable prior year period. The income tax benefit recognized
for the six months ended June 30, 2001 represented the carryback of losses
experienced during the first half of 2001 against prior year income. Income tax
expense for the first six months of 2002 was generally recorded at statutory
federal and state tax rates.
19
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
(a) Six Months Ended June 30, 2002 Versus Six Months Ended June 30, 2001
--------------------------------------------------------------------
(Continued)
Backlog of Orders
- -----------------
The total backlog of orders at June 30, 2002 was approximately $11,560,000.
During the six months ended June 30, 2002, the Company received orders totaling
approximately $18,880,000.
(b) Three Months Ended June 30, 2002 Versus Three Months Ended June 30, 2001
------------------------------------------------------------------------
With the exception of the following Statement of Operations caption,
changes in the second quarter of calendar year 2002 compared to the prior year
were consistent with those previously noted above for the six-month period:
Other Income, Net
- -----------------
The favorable variance of $90,000 in other income, net for the three months
ended June 30, 2002 as compared to the three months ended June 30, 2001 was
primarily attributable to the short-term licensing of certain real property of
the Company's Easton, Pennsylvania facility of approximately $150,000 during the
three months ended June 30, 2002. Partially offsetting the favorable variance in
other income, net was a reduction of revenue-based royalty income from the
Company's SI/BAKER joint venture and license agreements related to international
conveyor system sales.
----------------------------------
Cautionary Statement
- --------------------
Certain statements contained herein are not based on historical fact and
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 or by the Securities and Exchange Commission
rules, regulations, and releases. The Company intends that such forward-looking
statements be subject to the safe harbors created thereby. Among other things,
they regard the Company's acquisition activities, earnings, liquidity, financial
condition, and certain operational matters. Words or phrases denoting the
anticipated results of future events, such as "anticipate," "believe,"
"estimate," "expect," "may," "will," "will likely," "are expected to," "will
continue," "should," "project," and similar expressions that denote uncertainty,
are intended to identify such forward-looking statements. The Company's actual
results, performance, or achievements could differ materially from the results
expressed in, or implied by, such "forward-looking statements": (1) as a result
of risks and uncertainties identified in connection with those forward-looking
statements, including those factors identified herein, and in the Company's
other publicly filed reports; (2) as a result of risks associated with the
Company's restructuring, including the failure to achieve anticipated operating
savings, and the possibility that the restructuring charges will be greater than
anticipated; (3) as a result of factors over which the Company has no control,
including the strength of domestic and foreign economies, sales growth,
competition, and certain costs increases; or (4) if the factors on which the
Company's conclusions are based do not conform to the Company's expectations.
20
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Quantitative and Qualitative Disclosures
- ----------------------------------------
The Company's primary interest rate market risk exposure is from changes in
interest rates. The Company's policy is to manage interest rate exposure through
the use of a combination of fixed and floating rate debt instruments, and since
September 30, 1999, an interest rate swap agreement. Generally, the Company
seeks to match the terms of its debt with its purpose. The Company uses a
variable rate line of credit facility to provide working capital for operations.
On September 30, 1999, the Company entered into an interest rate swap agreement
for 50% of its new term loan from its principal bank to effectively convert half
of the term loan from a variable rate note to a fixed rate note. A standard
interest rate swap agreement involves the payment of a fixed rate times a
notional amount by one party in exchange for a floating rate times the same
notional amount from another party. The counterpart to the swap agreement is the
Company's principal bank.
The Company does not believe that its exposures to interest rate risk or
foreign currency exchange risk, risks from commodity prices, equity prices and
other market changes that affect market risk sensitive instruments, including
the interest rate swap agreement, are material to its results of operations.
----------------------------------
21
PART II -- OTHER INFORMATION
----------------------------
Item 4. Submission of Matter To a Vote of Security Holders
- ------- --------------------------------------------------
The Company's Annual Meeting of Stockholders was held on June 20, 2002 with
the following item being submitted to a vote of stockholders:
1. The election of seven directors to the Board of Directors.
Details of the proposal noted above was provided to stockholders in the
form of a Notice of Annual Meeting and Proxy Statement mailed on May 10, 2002,
with such solicitation being in accordance with Regulation 14 of the Securities
and Exchange Act of 1934.
There was no solicitation in opposition to the management's nominees listed
in the Proxy Statement, and all the management's nominees were elected.
The voting results on the election of directors are set forth as follows:
1. Election of Directors:
Name of Nominee Votes For Votes Withheld Non-Voting
--------------- --------- -------------- ----------
L. Jack Bradt 3,856,288 69,405 300,942
Gilman J. Hallenbeck 3,889,588 36,105 300,942
William R. Johnson 3,738,488 187,205 300,942
Leon C. Kirschner 3,763,488 162,205 300,942
Theodore W. Myers 3,889,588 36,105 300,942
Anthony W. Schweiger 3,749,878 175,815 300,942
Steven Shulman 3,889,588 36,105 300,942
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits-- None.
(b) The following report on Form 8-K was filed during the quarter
ended June 30, 2002:
A Form 8-K was filed on June 24, 2002 regarding the
announcement that Theodore W. Myers has been named Chairman
of the Board of Directors replacing Anthony W. Schweiger as
Chairman, and Leonard S. Yurkovic has been appointed to the
Board of Directors. The Board of Directors increased the size
of Paragon's Board to eight and appointed Mr. Yurkovic to
fill the vacancy created by that action.
22
Paragon Technologies, Inc. and Subsidiary
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAGON TECHNOLOGIES, INC.
/s/ William R. Johnson
-----------------------------------------------
William R. Johnson
President & CEO
/s/ Ronald J. Semanick
-----------------------------------------------
Ronald J. Semanick
Chief Financial Officer
Dated: August 14, 2002
---------------------
23