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 March 31, 2005
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, Pennsylvania 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 |_|
Indicate by checkmark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares outstanding of the Registrant's Common Stock as of April
29, 2005 was 4,266,810.
Paragon Technologies, Inc.
TABLE OF CONTENTS
Page
Number
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets (Unaudited)............................ 1
Consolidated Statements of Operations (Unaudited).................. 3
Consolidated Statements of Cash Flows (Unaudited).................. 4
Notes to Consolidated Financial Statements (Unaudited)............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................................ 19
Item 4. Controls and Procedures............................................... 20
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 21
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds........................................................ 21
Item 3. Defaults Upon Senior Securities....................................... 21
Item 4. Submission of Matters to a Vote of Security Holders................... 21
Item 5. Other Information..................................................... 21
Item 6. Exhibits.............................................................. 22
SIGNATURES.............................................................................. 23
EXHIBIT INDEX........................................................................... 24
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 2005 and December 31, 2004
(In Thousands, Except Share Data)
(UNAUDITED)
March 31, December 31,
2005 2004
------------------- ------------------
Assets
- ------
Current assets:
Cash and cash equivalents...................... $ 4,118 3,602
Receivables:
Trade (net of allowance for doubtful
accounts of $331 as of March 31,
2005 and $231 as of December
31, 2004)................................... 5,715 5,756
Notes and other receivables................... 147 244
------ ------
Total receivables........................... 5,862 6,000
------ ------
Costs and estimated earnings in excess
of billings................................... 1,040 1,059
Inventories:
Raw materials................................. 1,210 1,175
Work-in-process............................... 203 246
Finished goods................................ 214 195
------ ------
Total inventories........................... 1,627 1,616
------ ------
Deferred income tax benefits.................... 897 889
Prepaid expenses and other current assets....... 589 636
------ ------
Total current assets........................ 14,133 13,802
------ ------
Property, plant and equipment, at cost:
Leasehold improvements.......................... 228 228
Machinery and equipment......................... 3,721 3,752
------ ------
3,949 3,980
Less: accumulated depreciation................. 2,677 2,744
------ ------
Net property, plant and equipment............. 1,272 1,236
------ ------
Goodwill........................................... 17,657 17,657
Other assets....................................... 10 10
------ ------
Total assets....................................... $ 33,072 32,705
====== ======
See accompanying notes to consolidated financial statements.
1
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 2005 and December 31, 2004
(In Thousands, Except Share Data)
(UNAUDITED)
March 31, December 31,
2005 2004
------------------- ------------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable................................ $ 2,535 3,000
Customers' deposits and billings
in excess of costs and
estimated earnings ........................... 2,256 1,560
Accrued salaries, wages, and
commissions................................... 411 428
Income taxes payable............................ 44 58
Accrued product warranty........................ 595 655
Deferred gain on sale-leaseback................. 165 165
Accrued other liabilities....................... 981 1,042
------ ------
Total current liabilities................... 6,987 6,908
------ ------
Long-term liabilities:
Deferred gain on sale-leaseback................. 316 358
Deferred income taxes payable................... 2,253 2,131
------ ------
Total long-term liabilities................. 2,569 2,489
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; authorized
20,000,000 shares; issued and
outstanding 4,266,710 shares as
of March 31, 2005 and 4,265,310
shares as of December 31, 2004.............. 4,267 4,265
Additional paid-in capital.................... 8,008 7,996
Retained earnings............................. 11,241 11,047
------ ------
Total stockholders' equity.................. 23,516 23,308
------ ------
Total liabilities and stockholders' equity.. $ 33,072 32,705
====== ======
See accompanying notes to consolidated financial statements.
2
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
(In Thousands, Except Share and Per Share Data)
Three Months Ended
------------------------------------
March 31, March 31,
2005 2004
---------------- ----------------
Net sales................................................... $ 10,308 10,576
Cost of sales............................................... 7,696 7,946
--------- ---------
Gross profit on sales....................................... 2,612 2,630
--------- ---------
Selling, general and
administrative
expenses................................................. 2,329 2,043
Product development
costs.................................................... 43 72
Interest expense............................................ 1 -
Interest income............................................. (13) (11)
Other income, net........................................... (55) (46)
--------- ---------
2,305 2,058
--------- ---------
Earnings before
income taxes............................................. 307 572
Income tax expense.......................................... 113 231
--------- ---------
Net earnings................................................ $ 194 341
========= =========
Basic earnings
per share................................................ $ .05 .08
========= =========
Diluted earnings
per share................................................ $ .04 .08
========= =========
Weighted average
shares outstanding....................................... 4,266,323 4,277,595
Dilutive effect of
stock options............................................ 47,425 89,738
--------- ---------
Weighted average
shares outstanding
assuming dilution........................................ 4,313,748 4,367,333
========= =========
See accompanying notes to consolidated financial statements.
3
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
(In Thousands, Except Share Data)
Three Months Ended
------------------------------------
March 31, March 31,
2005 2004
---------------- ----------------
Cash flows from operating activities:
Net earnings ....................................... $ 194 341
Adjustments to reconcile net earnings
to net cash provided (used) by operating
activities:
Depreciation of plant and equipment............. 113 110
Amortization of deferred gain on sale-
leaseback..................................... (42) (41)
Other non-cash items affecting
earnings...................................... 5 -
Change in operating assets and liabilities:
Receivables................................. 138 379
Costs and estimated earnings in
excess of billings....................... 19 85
Inventories................................. (11) (298)
Deferred tax expenses....................... 114 643
Prepaid expenses and other
current assets........................... 47 13
Accounts payable............................ (465) 1,417
Customers' deposits and billings
in excess of costs and estimated
earnings................................. 696 (879)
Accrued salaries, wages, and
commissions.............................. (17) 209
Income taxes payable........................ (14) (863)
Accrued product warranty.................... (60) (68)
Accrued other liabilities................... (61) (1,206)
Deferred compensation....................... - 4
------- ------
Net cash provided (used) by
operating activities.............................. 656 (154)
------- ------
Cash flows from investing activities:
Additions to property, plant and equipment.......... (149) (66)
------- ------
Net cash used by investing activities............... (149) (66)
------- ------
See accompanying notes to consolidated financial statements.
4
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the Three Months Ended March 31, 2005 and 2004
(In Thousands, Except Share Data)
Three Months Ended
------------------------------------
March 31, March 31,
2005 2004
---------------- ----------------
Cash flows from financing activities:
Sale of common shares in connection
with employee incentive stock
option plan.................................... 9 -
------- ------
Net cash provided by
financing activities....................... 9 -
------- ------
Increase (decrease) in cash and
cash equivalents............................... 516 (220)
Cash and cash equivalents,
beginning of period............................ 3,602 5,591
------- ------
Cash and cash equivalents,
end of period.................................. $ 4,118 5,371
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest................................... $ 1 -
======= ======
Income taxes............................... $ 42 594
======= ======
See accompanying notes to consolidated financial statements.
5
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
(1) In the opinion of the management of Paragon Technologies, Inc. ("Paragon"
or the "Company"), the unaudited 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 full 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 for
the year ended December 31, 2004 as filed with the Securities and Exchange
Commission. Refer to the Company's Form 10-K for the year ended December
31, 2004 for more complete financial information.
(2) Accrued Product Warranty
------------------------
The Company's products are warranted against defects in materials and
workmanship for varying periods of time depending on customer requirements
and the type of system sold, with a typical warranty period of one year.
The Company provides an accrual for estimated future warranty costs and
potential product liability claims based upon a percentage of cost of
sales, ranging from one to two percent depending on the type of system
sold, and a detailed review of products still in the warranty period.
A roll-forward of warranty activities is as follows (in thousands):
Beginning Ending
Balance Balance
January 1 Additions Deductions March 31
------------- ------------------ ----------------- ------------------
2005................. $ 655 27 (87) 595
2004................. $ 925 12 (80) 857
(3) Major Segments of Business
--------------------------
Company Overview
----------------
Paragon Technologies, Inc. ("the Company") provides a variety of material
handling solutions, including systems, technologies, products, and services
for material flow applications. The Company has gone to market with a
multiple brand, multiple channel strategy under the SI Systems and Ermanco
brands. The Company's capabilities include horizontal transportation, rapid
dispensing, order fulfillment, computer software, sortation, integrating
conveyors and conveyor systems, and aftermarket services.
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 of products offered for sale. The
Company operates in two major market segments, and products are sold
worldwide.
6
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
SI Systems
----------
The Company's Easton, Pennsylvania operation (hereafter referred to as "SI
Systems") is a specialized systems integrator supplying branded automated
material handling systems to manufacturing, assembly, order fulfillment,
and distribution operations customers located primarily in North America,
including the U.S. government. The automated material handling systems are
marketed, designed, sold, installed, and serviced by its own staff or
subcontractors as labor-saving devices to improve productivity, quality,
and reduce costs. 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. The
engineering staff develops and designs computer control programs required
for the efficient operation of the systems and for optimizing
manufacturing, assembly, and fulfillment operations.
Ermanco
-------
The Company's Spring Lake, Michigan operation (hereafter referred to as
"Ermanco") is a manufacturer of Ermanco branded light to medium duty unit
handling conveyor and sortation products, serving the material handling
industry through a worldwide network of approximately 100 experienced
material handling equipment distributors and one licensee. Ermanco also
provides complete conveyor systems for a variety of applications, including
distribution centers and automated manufacturing, 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 months ended March 31, 2005 and 2004 are as follows
(in thousands):
For the three months ended March 31, 2005:
% of Total
SI Systems Ermanco Total Sales
-------------- ------------- -------------- --------------
Systems sales................. $ 3,037 5,988 9,025 87.6%
Aftermarket sales............. 829 454 1,283 12.4%
------ ------ ------ -----
Total sales................... $ 3,866 6,442 10,308 100.0%
====== ====== ====== =====
As a % of total sales......... 37.5% 62.5% 100.0%
For the three months ended March 31, 2004:
% of Total
SI Systems Ermanco Total Sales
-------------- ------------- -------------- --------------
Systems sales................. $ 2,081 7,142 9,223 87.2%
Aftermarket sales............. 832 521 1,353 12.8%
------ ------ ------ -----
Total sales................... $ 2,913 7,663 10,576 100.0%
====== ====== ====== =====
As a % of total sales......... 27.5% 72.5% 100.0%
7
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
The Company's products are sold worldwide through its own sales personnel,
along with a network of independent distributors and one licensee. Domestic
and international sales by brand during the three months ended March 31,
2005 and 2004 are as follows (in thousands):
For the three months ended March 31, 2005:
% of Total
SI Systems Ermanco Total Sales
-------------- ------------- -------------- --------------
Domestic sales................ $ 3,374 6,006 9,380 91.0%
International sales........... 492 436 928 9.0%
------ ------ ------ -----
Total sales................... $ 3,866 6,442 10,308 100.0%
====== ====== ====== =====
For the three months ended March 31, 2004:
% of Total
SI Systems Ermanco Total Sales
-------------- ------------- -------------- --------------
Domestic sales................ $ 2,225 7,532 9,757 92.3%
International sales........... 688 131 819 7.7%
------ ------ ------ -----
Total sales................... $ 2,913 7,663 10,576 100.0%
====== ====== ====== =====
The Company operates in two major market segments, and products are sold
worldwide as follows:
For the Three Months Ended
March 31, 2005 (In Thousands): SI Systems Ermanco Total
------------------------------------------------ ------------ ----------- -----------
Sales.......................................... $ 3,866 6,442 10,308
Earnings before interest
expense, interest income, and
income taxes................................. 92 203 295
Total assets................................... 6,218 26,854 33,072
Capital expenditures........................... 32 117 149
Depreciation and amortization
expense...................................... 22 91 113
For the Three Months Ended
March 31, 2004 (In Thousands): SI Systems Ermanco Total
----------------------------------------------- ------------ ----------- -----------
Sales.......................................... $ 2,913 7,663 10,576
Earnings (loss) before interest
expense, interest income, and
income taxes................................. (37) 598 561
Total assets................................... 4,421 28,394 32,815
Capital expenditures........................... 25 41 66
Depreciation and amortization
expense...................................... 24 86 110
All of the Company's sales originate in the United States, and there are no
long lived assets existing outside the United States.
8
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
The Company's business is largely 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 or 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. Since the Company
recognizes sales on a percentage of completion basis for its systems
contracts, fluctuations in the Company's sales and earnings occur with
increases or decreases in major installations.
(4) Recently Issued Accounting Pronouncements
-----------------------------------------
In November 2004, the Financial Accounting Standards Board issued SFAS No.
151, "Inventory Costs an Amendment of ARB No. 43, Chapter 4" ("FAS 151").
FAS 151 provides for certain fixed production overhead cost to be reflected
as a period cost and not capitalized as inventory. FAS 151 is effective for
the beginning of 2006. The adoption of FAS 151 is not expected to have a
material impact on the Company's financial statements.
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123 (revised) "Share-Based Payment" ("FAS 123R"). FAS 123R addresses all
forms of share-based payment awards, including shares issued under employee
stock purchase plans, stock options, restricted stock, and stock
appreciation rights. It will require companies to recognize in the
statement of operations the grant-date fair value of stock options and
other equity-based compensation issued to employees, but expresses no
preference for a type of valuation model. The statement eliminates the
intrinsic value-based method prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, that the
Company currently uses. The Company is required to adopt FAS 123R beginning
in 2006. The adoption of FAS 123R is not expected to have a material impact
on the Company's financial statements.
(5) Sale-Leaseback
--------------
SI Systems' principal office is located in a 173,000 square foot, concrete,
brick, and steel facility in Easton, Pennsylvania. In connection with the
February 2003 sale of the Company's Easton, Pennsylvania facility, the
Company entered into a leaseback arrangement for 25,000 square feet of
office space for five years. The leasing agreement requires fixed monthly
rentals of $18,234 (with annual increases of 3%). The terms of the lease
also require the payment of a proportionate share of the facility's
operating expenses. The lease expires on February 21, 2008. In accordance
with SFAS 13 and SFAS 28, the leaseback does not meet the criteria for
classification as a capital lease; hence, it is classified as an operating
lease. The sale-leaseback resulted in a total gain of $2,189,000, of which
$1,363,000 was recorded as a gain in 2003. The seller-lessee (Company)
retained more than a minor part (25,000 square feet) but less than
substantially all of the use of the property (173,000 square feet) through
the leaseback and realized a profit on the sale in excess of the present
value of the minimum lease payments over the lease term. The present value
of the stream of lease payments utilizing the Company's incremental
borrowing rate of 10.0% was $826,000. The $826,000 of deferred profit is
amortized in equal amounts as a reduction in rent expense over the
five-year term of the lease. During the three months ended March 31, 2005
and 2004, $42,000 and $41,000, respectively, of the deferred gain was
recognized.
9
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
(6) Line of Credit
--------------
The Company has a line of credit facility which may not exceed $5,000,000,
$4,800,000 is available, and is to be used primarily for working capital
purposes. Interest on the line of credit facility is at the LIBOR Market
Index Rate plus 1.4%.
The line of credit facility contains various non-financial covenants and is
secured by all accounts receivables and inventory. The Company was in
compliance with all covenants as of March 31, 2005. As of March 31, 2005,
the Company did not have any borrowings under the line of credit facility,
and the line of credit facility expires effective June 30, 2005. The
Company expects to renew the line of credit facility under similar terms
and conditions during 2005.
(7) Pension Benefits
----------------
The Company maintains a defined benefit plan for employees covered by its
collective bargaining agreement. Retirement benefits are based on the
employee's years of service multiplied by the appropriate monthly benefit
amount. Employee compensation does not impact pension benefits. The
Company's policy is to fund retirement plans in compliance with applicable
laws and regulations. Assets of the Company's defined benefit plan are
primarily invested in publicly traded common stocks, corporate and
government debt securities, mutual funds, and cash or cash equivalents.
Components of Net Periodic Pension Expense
------------------------------------------
The Company uses the projected unit credit actuarial method to compute
pension expense, which includes amortization of past service costs over the
average remaining service lives of the employees expected to receive
benefits. The net periodic pension expense for the three months ended March
31, 2005 and 2004 includes the following components (in thousands):
Three Months Ended
--------------------------------------
March 31, March 31,
2005 2004
------------------ -------------------
Service cost-benefits earned during the period.... $ 25 24
Interest cost on projected benefit obligation..... 13 12
Expected return on plan
assets - increase............................... (18) (15)
Recognized net actuarial loss..................... 2 2
------ ------
Net periodic pension expense...................... $ 22 23
====== ======
Contributions
-------------
The Company did not make any contributions to its defined benefit plan
during the three months ended March 31, 2005. The Company expects total
pension plan contributions to its defined benefit plan to approximate
$90,000 for the year ended December 31, 2005.
10
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
(8) Stock Repurchase Program
------------------------
In August 2004, the Company's Board of Directors approved a program to
repurchase up to $1,000,000 of its outstanding common stock. As of March
31, 2005, the Company had repurchased 34,700 shares of common stock at a
weighted average cost, including brokerage commissions, of $9.38 per share.
Cash expenditures for the stock repurchases were $325,632. As of March 31,
2005, $674,368 remained available for repurchases under the stock
repurchase program. Based on market conditions and other factors,
additional repurchases may be made from time to time, in compliance with
SEC regulations, in the open market or through privately negotiated
transactions at the discretion of the Company. There is no expiration date
with regards to the stock repurchase program. There were no repurchases in
the three months ended March 31, 2005.
(9) Stock-Based Compensation
------------------------
The Company grants stock options for a fixed number of shares to employees
and non-employee directors with an exercise price equal to the fair value
of the shares at the date of grant. The Company has elected to continue to
account for its stock-based compensation plans under the guidelines of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense on options
granted to employees for the stock option grants. The Company recognizes
compensation expense on options granted to non-employee directors.
Additional disclosure as required under the guidelines of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), as amended by FAS
148, is included below. If the Company had elected to recognize stock-based
compensation expense for options granted to employees based on the fair
value of granted options at the grant date (as determined under FAS 123),
net earnings (in thousands) and basic and diluted earnings per share for
the three months ended March 31, 2005 and 2004, would have been as follows:
Three Months Ended
---------------------------------------
March 31, March 31,
2005 2004
----------------- -----------------
Net earnings, as reported.................... $ 194 341
Deduct: total stock-based employee
compensation determined under
fair value method, net of related tax
effects.................................... (11) (34)
----- -----
Pro forma net earnings....................... $ 183 307
===== =====
Earnings per share:
Basic - as reported........................ $ .05 .08
===== =====
Basic - pro forma.......................... $ .04 .07
===== =====
Diluted - as reported...................... $ .04 .08
===== =====
Diluted - pro forma........................ $ .04 .07
===== =====
The above pro forma net earnings and basic and diluted earnings per share
were computed using the fair value of granted options at the date of grant
as calculated by the Black-Scholes option pricing method. No options were
granted to employees during the three months ended March 31, 2005 and the
year ended December 31, 2004.
11
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2005 and 2004
The Company also grants phantom stock units to its directors as deferred
compensation. Such awards are redeemable in cash or the Company's common
stock at the director's option and are accounted for in accordance with APB
Opinion No. 25 as stock appreciation rights. The Company did not have any
expense for the phantom stock unit plan for the three months ended March
31, 2005 and the year ended December 31, 2004.
(10) Legal Proceedings
-----------------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or
liquidity.
-------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the unaudited
consolidated financial statements for the period ended March 31, 2005, and the
cautionary statements and consolidated financial statements and related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2004. The discussion and analysis contains "forward-looking
statements" based on management's current expectations, assumptions, estimates,
and projections. These forward-looking statements involve risks and
uncertainties. The Company's actual results could differ materially from those
included in these "forward-looking statements" 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.
-------------------------------------------
Business Overview
- -----------------
Paragon Technologies, Inc. provides a variety of material handling
solutions, including systems, technologies, products, and services for material
flow applications. The Company has gone to market with a multiple brand,
multiple channel strategy under the SI Systems and Ermanco brands.
Founded in 1958, SI Systems material handling solutions are based on core
technologies in horizontal transportation and order fulfillment and are aimed at
improving productivity for manufacturing, assembly, and distribution center
operations. Since 1964, Ermanco conveyor technologies and integrated conveyor
systems are based on core technologies in transportation, accumulation, and
sortation and continue to address the needs of the distribution, assembly, and
manufacturing marketplace. Ermanco is known as the originator of the
line-shaft-driven, live-roller conveyor.
-------------------------------------------
12
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Key Performance Metrics Relevant to the Company
- -----------------------------------------------
Capacity Utilization
--------------------
Capacity Utilization, as documented in the Federal Reserve Statistical
Release(1), is a key economic indicator that the Company follows as a barometer
that may lead to capital spending for material handling systems. Capacity
Utilization attempts to measure what percent of available capacity is actually
being utilized. Management believes that when Capacity Utilization rises above
80%, as occurred in fiscal 2000, the Company may see an increase in rate of new
orders, and therefore, an increase in backlog and sales may also occur. The
backlog of orders represents the uncompleted portion of systems contracts along
with the value of parts and services from customer purchase orders related to
goods that have not been shipped or services that have not been rendered.
Backlog is generally indicative of customer demand for the Company's products.
As the demand for the Company's products increases, the backlog of orders, the
rate of new orders, and sales also typically increases. The following table
depicts the Company's backlog, orders, sales, and Capacity Utilization for the
three months ended March 31, 2005, and for the years ended December 31, 2004,
2003, 2002, 2001, and 2000:
Three Months
Ended Year Ended December 31,
March 31, ----------------------------------------------
(Dollars in Thousands) 2005 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ----
Backlog of orders - Beginning..... $ 11,206 10,525 6,924 13,342 22,913 23,685
Add: orders..................... 16,198 42,936 40,896 31,806 41,181 63,534
Less: sales..................... 10,308 42,255 37,295 38,224 50,752 64,306
------ ------ ------ ------ ------ ------
Backlog of orders - Ending........ $ 17,096 11,206 10,525 6,924 13,342 22,913
====== ====== ====== ====== ====== ======
Capacity Utilization(1)........... 79.3% 78.0% 74.9% 75.6% 77.4% 82.6%
The Company's backlog of orders as of March 31, 2005 associated with
Ermanco and SI Systems was $10,221,000 and $6,875,000, respectively.
Current Ratio
-------------
The Company's current ratio, which is the ratio of current assets to
current liabilities, has been relatively consistent. Management of the Company
monitors the current ratio as a measure of determining liquidity and believes
the current ratio illustrates that the Company's financial resources are
adequate to satisfy its future cash requirements through the next year. The
following table depicts the Company's current assets, current liabilities, and
current ratio as of March 31, 2005 and as of December 31, 2004, 2003, 2002,
2001, and 2000:
As of As of December 31,
March 31, ----------------------------------------------------
(Dollars in Thousands) 2005 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ----
Current assets.............. $ 14,133 13,802 14,691 15,444 19,200 22,850
------ ------ ------ ------ ------ ------
Current liabilities......... 6,987 6,908 9,554 9,416 13,357 15,193
Current ratio............... 2.02 2.00 1.54 1.64 1.44 1.50
13
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Debt to Equity Ratio
--------------------
With an emphasis over the past several years on generating cash flows to
eliminate the Company's senior and subordinated debt, the Company has eliminated
its financial leverage as evidenced by its debt to equity ratio, which is the
ratio of total debt to stockholders' equity. Management believes the absence of
debt provides greater protection for its shareholders and enhances the Company's
ability to obtain additional financing, if required. The following table
illustrates the calculation of the debt to equity ratio as of March 31, 2005 and
as of December 31, 2004, 2003, 2002, 2001, and 2000:
As of As of December 31,
March 31, ----------------------------------------------------
(Dollars in Thousands) 2005 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ----
Current installments of
long-term debt........ $ - - - 1,437 2,305 1,521
Long-term debt........... - - - 7,263 9,900 12,780
------ ------ ------ ------ ------ ------
Total debt............... - - - 8,700 12,205 14,301
------ ------ ------ ------ ------ ------
Total stockholders'
equity................ $ 23,516 23,308 22,061 17,885 16,912 16,980
====== ====== ====== ====== ====== ======
Debt to equity ratio..... - - - .49 .72 .84
-------------------------------------------
Critical Accounting Policies and Estimates
- ------------------------------------------
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues
and expenses, and other financial information, including the related disclosure
of commitments and contingencies at the date of our financial statements. Actual
results may, under different assumptions and conditions, differ significantly
from our estimates.
We believe that our accounting policies related to revenue recognition on
system sales, warranty, inventories, allowance for doubtful accounts, and asset
impairment as described below, are our "critical accounting policies." These
policies have been reviewed with the Audit Committee of the Board of Directors
and are discussed in greater detail below.
Revenue Recognition on Systems Sales
------------------------------------
Revenues on systems contracts, accounted for in accordance with SOP 81-1 of
the American Institute of Certified Public Accountants, are recorded on the
basis of the Company's estimates of the percentage of completion of individual
contracts. Gross margin is recognized on the basis of the ratio of aggregate
costs incurred to date to the most recent estimate of total costs. As contracts
may extend over one or more years, revisions in cost and profit estimates during
the course of the work are reflected in the accounting periods in which the
facts requiring revisions become known. At the time a loss on a contract becomes
known, the entire amount of the estimated ultimate loss is accrued. As of March
31, 2005, there are no contracts that are anticipated to result in a loss.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
The Company believes that it has the ability to reasonably estimate the
total costs and applicable gross profit margins at the inception of the contract
for all of its systems contracts. However, where cost estimates change, there
could be a significant impact on the amount of revenue recognized. The Company's
failure to estimate accurately can result in cost overruns which will result in
the loss of profits if the Company determines that it has significantly
underestimated the costs involved in completing contracts. The Company has not
had any significant cost overruns resulting in loss of profits during the three
months ended March 31, 2005.
Accrued Product Warranty
------------------------
The Company's products are warranted against defects in materials and
workmanship for varying periods of time depending on customer requirements and
the type of system sold, with a typical warranty period of one year. The Company
provides an accrual for estimated future warranty costs and potential product
liability claims based upon a percentage of cost of sales, ranging from one to
two percent depending on the type of system sold, and a detailed review of
products still in the warranty period. Historically, the level of warranty
reserve has been appropriate based on management's assessment of estimated
future warranty claims. However, if unanticipated warranty issues arise in the
future, there could be a significant impact on the recorded warranty reserve.
The recorded warranty reserve as of March 31, 2005 was $595,000.
Inventories
-----------
Inventories are valued at the lower of average cost or market. The Company
provides an inventory reserve determined by a specific identification of
individual slow moving items and other inventory items based on historical
experience. The reserve is considered to be a write-down of inventory to a new
cost basis. Upon disposal of inventory, the cost and related inventory reserve
are removed from the accounts. Historically, the level of inventory reserve has
been appropriate based on management's assessment of estimated future inventory
disposals.
Allowance for Doubtful Accounts
-------------------------------
The Company provides an allowance for doubtful accounts determined by a
specific identification of individual accounts and other accounts based on
historical experience. The Company writes off receivables upon determination
that no further collections are probable. Historically, receivable write-offs
have not had a material impact on the Company's financial statements.
Asset Impairment
----------------
During 2004, the Company performed the required impairment test of goodwill
and determined that there was no impairment. In assessing the recoverability of
the Company's goodwill, the Company must make assumptions regarding estimated
future cash flows and other factors to determine the fair value of its reporting
units. If these estimates or their related assumptions change, the Company may
be required to record impairment charges in the future. The book value of
goodwill as of March 31, 2005 was $17,657,000.
-------------------------------------------
15
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Results of Operations -- Three Months Ended March 31, 2005 Compared to the
- --------------------------------------------------------------------------
Three Months Ended March 31, 2004
- ---------------------------------
Earnings Summary
- ----------------
The Company had net earnings of $194,000 (or $0.05 basic earnings per
share) for the three months ended March 31, 2005, compared to net earnings of
$341,000 (or $0.08 basic earnings per share) for the three months ended March
31, 2004. The decrease in net earnings was primarily due to an increase of
$286,000 in selling, general and administrative expenses as mentioned below.
Net Sales and Gross Profit on Sales
- -----------------------------------
2005 2004
------------------ ------------------
Net sales............................................ $ 10,308,000 10,576,000
Cost of sales........................................ 7,696,000 7,946,000
---------- ----------
Gross profit on sales................................ $ 2,612,000 2,630,000
========== ==========
Gross profit as a percentage of sales................ 25.3% 24.9%
==== ====
The net sales decrease was primarily attributable to a decrease in Ermanco
branded sales of $1,221,000, partially offset by an increase of $953,000 in SI
Systems branded sales. The decrease in Ermanco branded sales was primarily
attributable to a smaller backlog of Ermanco branded orders entering fiscal 2005
when compared to the backlog of Ermanco branded orders entering fiscal 2004.
Contributing to the lower Ermanco branded backlog of orders at the beginning of
the year and hence Ermanco branded sales in the first quarter of 2005, were
delays by prospective customers in signing contracts due to expanding project
scope and other customer activities. Also, contributing to lower Ermanco branded
sales in the first quarter of 2005 was the impact of several longer duration
contracts whereby job completion requirements relate to periods subsequent to
the end of the first quarter of 2005. The increase in SI Systems branded sales
was associated with a larger backlog of SI Systems branded orders entering
fiscal 2005 when compared to the backlog of SI Systems branded orders entering
fiscal 2004. Contributing to the increase in SI Systems branded sales was
progress made on contracts received prior to the start of the year and during
the first quarter of 2005 in accordance with job completion requirements.
Gross profit, as a percentage of sales, for the three months ended March
31, 2005, when compared to the three months ended March 31, 2004, was favorably
impacted by approximately 0.2% due to product mix, and by approximately 0.2% due
to a reduction in overhead costs.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses of $2,329,000 were higher by
$286,000 for the three months ended March 31, 2005 than for the three months
ended March 31, 2004. The increase was attributable to the addition of resources
aimed at expanding the customer base and an increase in salaries and fringe
benefits totaling $93,000, an increase in consulting and marketing expenses
primarily associated with trade shows, product promotion, and marketing research
totaling $121,000, and bad debt expense of $100,000 for accounts receivable
recognized as potentially uncollectible.
Product Development Costs
- -------------------------
Product development costs, including patent expense, of $43,000 was lower
by $29,000 for the three months ended March 31, 2005 than for the three months
ended March 31, 2004. Development programs in the three months ended March 31,
2005 were aimed at enhancements to conveyor technologies. Development programs
in the three months ended March 31, 2004 were aimed at enhancements to the
Company's sortation and accumulation conveyor technologies, and improvements to
the Company's Order Fulfillment systems technologies.
16
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Income Tax Expense
- ------------------
The Company recognized income tax expense of $113,000 during the three
months ended March 31, 2005 compared to income tax expense of $231,000 during
the three months ended March 31, 2004. Income tax expense was generally recorded
at statutory federal and state tax rates.
-------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company's cash and cash equivalents increased to $4,118,000 at March
31, 2005 from $3,602,000 at December 31, 2004. The increase resulted primarily
from cash provided by operating activities totaling $656,000, partially offset
by purchases of capital equipment of $149,000.
Cash provided by operating activities of $656,000 during the three months
ended March 31, 2005 as compared to cash used by operating activities of
$154,000 during the three months ended March 31, 2004 increased primarily due to
an increase in customers' deposits and billings in excess of costs and estimated
earnings. Contributing to cash used by operating activities during the three
months ended March 31, 2004 was the payment of settlement and legal costs of
$1,197,000 associated with an action against the Company by a competitor
relating to the Company's intellectual property, and the payment of $594,000 in
income taxes, partially offset by an increase of $1,417,000 in accounts payable.
The Company's line of credit facility may not exceed $5,000,000; $4,800,000
is available, and is to be used primarily for working capital purposes. The line
of credit facility contains various non-financial covenants and is secured by
all accounts receivables and inventory. As of March 31, 2005, the Company did
not have any borrowings under the line of credit facility, and the line of
credit facility expires effective June 30, 2005. The Company expects to renew
the line of credit facility under similar terms and conditions during 2005.
The Company anticipates that its financial resources, consisting of cash
generated from operations and its line of credit, will be adequate to satisfy
its future cash requirements through the next year. Sales volume, as well as
cash liquidity, may experience fluctuations due to the unpredictability of
future contract sales and the dependence upon a limited number of large
contracts with a limited number of customers.
The Company is currently exploring various business strategies designed to
enhance the value of the Company's assets for its stockholders over the long
term. The Company has retained the investment banking firm, Boenning &
Scattergood, Inc., to advise the Company in evaluating its strategic options.
The Company is continuing to evaluate and actively explore a range of possible
options, including mergers, acquisitions, the possible sale of the Company or
one or more of its divisions. The Company may not be able to effect any of these
strategic options on favorable terms or at all.
-------------------------------------------
17
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Contractual Obligations
- -----------------------
Ermanco's operations are located in a 94,000 square foot steel building in
Spring Lake, Michigan. The building is leased from a limited liability company
that is affiliated with the Company through a common director and officer of the
Company, Messrs. Shulman and Kirschner. The leasing agreement, as amended,
requires fixed monthly rentals of $29,310 (with annual increases of 2.5%). The
terms of the lease require the payment by Ermanco of all taxes, insurance, and
other ownership related costs of the property. The lease, as amended on April 1,
2004, expires on September 30, 2008.
SI Systems' principal office is located in a 173,000 square foot, concrete,
brick, and steel facility in Easton, Pennsylvania. In connection with the
February 2003 sale of the Company's Easton, Pennsylvania facility, the Company
entered into a leaseback arrangement for 25,000 square feet of office space for
five years. The leasing agreement requires fixed monthly rentals of $18,234
(with annual increases of 3%). The terms of the lease also require the payment
of a proportionate share of the facility's operating expenses. The lease expires
on February 21, 2008.
The Company also leases certain office equipment, computer equipment, and
software under various operating leases with terms extending through September
2007.
Future contractual obligations and commercial commitments at March 31, 2005
as noted above are as follows:
Payments Due by Period
-------------------------------------------------------------------------------
Total 2005 2006 2007 2008 2009
----- ---- ---- ---- ---- ----
Contractual
obligations:
Operating
leases........ $ 1,982,000 468,000 590,000 606,000 318,000 -
--------- -------- ------- ------- ------- -------
Total......... $ 1,982,000 468,000 590,000 606,000 318,000 -
========= ======= ======= ======= ======= =======
Amount of Commitment
Expiration Per Period
Total Amounts --------------------------------------------------------------
Committed 2005 2006 2007 2008 2009
--------- ---- ---- ---- ---- ----
Other
commercial
commitments:
Letters of
credit........ $ 200,000 - 200,000 - - -
In addition to the obligations noted above, the Company also has an
employment agreement with Leon C. Kirschner, Chief Operating Officer of the
Company and President of Ermanco Incorporated. Terms of the employment agreement
include a base salary of $272,328 per year. Mr. Kirschner has the right to
terminate the employment agreement voluntarily by giving the Company written
notice of such termination no less than 180 days prior to the effective date of
the termination. Under certain circumstances, the employment agreement provides
for post termination severance payments.
Off-Balance Sheet Arrangements
- ------------------------------
As of March 31, 2005, the Company had no off-balance sheet arrangements in
the nature of guarantee contracts, retained or contingent interests in assets
transferred to unconsolidated entities (or similar arrangements serving as
credit, liquidity, or market risk support to unconsolidated entities for any
such assets), or obligations (including contingent obligations) arising out of
variable interests in unconsolidated entities providing financing, liquidity,
market risk, or credit risk support to the Company, or that engage in leasing,
hedging, or research and development services with the Company.
18
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Recently Issued Accounting Pronouncements
- -----------------------------------------
In November 2004, the Financial Accounting Standards Board issued SFAS No.
151, "Inventory Costs an Amendment of ARB No. 43, Chapter 4" ("FAS 151"). FAS
151 provides for certain fixed production overhead cost to be reflected as a
period cost and not capitalized as inventory. FAS 151 is effective for the
beginning of 2006. The adoption of FAS 151 is not expected to have a material
impact on the Company's financial statements.
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123 (revised) "Share-Based Payment" ("FAS 123R"). FAS 123R addresses all forms
of share-based payment awards, including shares issued under employee stock
purchase plans, stock options, restricted stock, and stock appreciation rights.
It will require companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees, but expresses no preference for a type of valuation model.
The statement eliminates the intrinsic value-based method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, that the Company currently uses. The Company is required to
adopt FAS 123R beginning in 2006. The adoption of FAS 123R is not expected to
have a material impact on the Company's financial statements.
-------------------------------------------
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 earnings, liquidity, financial condition, review of
strategic alternatives, and other 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 factors over which the Company
has no control, including the strength of domestic and foreign economies, sales
growth, competition, and certain costs increases; or (3) if the factors on which
the Company's conclusions are based do not conform to the Company's
expectations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
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 are material
to its results of operations.
19
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Item 4. Controls and Procedures
- ------- -----------------------
(a) Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including its Chief Executive
Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness
of the Company's disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") as of March 31, 2005. Based on
that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act, is
accumulated and communicated to the Company's management, including the
Company's CEO and CFO, to allow timely decisions regarding required
disclosure, and is recorded, processed, summarized and reported as
specified in Securities and Exchange Commission rules and forms.
(b) Change in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting identified in connection with the evaluation of such controls
that occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect the
Company's internal control over financial reporting.
20
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- ------- -----------------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
- ------- ------------------------------------------------------------
The following table represents the periodic repurchases of equity
securities made by the Company during the three months ended March 31, 2005:
- -------------------------------------------------------------------------------------------------------
Total Number Approximate
Average of Shares Approximate Dollar Value
Price Paid Repurchased Dollar Value of Shares
Total Per Share as Part of a of Shares That May Yet
Number (Including Publicly Purchased Be Purchased
Fiscal of Shares Brokerage Announced Under the Under the
Period Repurchased Commissions) Program Program Program
- -------------------------------------------------------------------------------------------------------
1/1/05 - 1/31/05 - $ - - $ - $ 674,368
2/1/05 - 2/28/05 - $ - - $ - $ 674,368
3/1/05 - 3/31/05 - $ - - $ - $ 674,368
- -------------------------------------------------------------------------------------------------------
In August 2004, the Company's Board of Directors approved a program to
repurchase up to $1,000,000 of its outstanding common stock. As of March 31,
2005, the Company had repurchased 34,700 shares of common stock at a weighted
average cost, including brokerage commissions, of $9.38 per share. Cash
expenditures for the stock repurchases were $325,632. As of March 31, 2005,
$674,368 remained available for repurchases under the stock repurchase program.
Based on market conditions and other factors, additional repurchases may be made
from time to time, in compliance with SEC regulations, in the open market or
through privately negotiated transactions at the discretion of the Company.
There is no expiration date with regards to the stock repurchase program. There
were no repurchases in the three months ended March 31, 2005.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
Item 5. Other Information
- ------- -----------------
Not applicable.
21
Item 6. Exhibits
- ------- --------
Exhibits:
31.1 Certification by Chief Executive Officer pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 signed by Leonard S. Yurkovic, President
and CEO (filed herewith).
31.2 Certification by Chief Financial Officer pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 signed by Ronald J. Semanick, Chief
Financial Officer and Vice President - Finance and
Treasurer (filed herewith).
32.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 signed by Leonard S.
Yurkovic, President and CEO (filed herewith).
32.2 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 signed by Ronald J.
Semanick, Chief Financial Officer and Vice
President - Finance and Treasurer (filed herewith).
22
SIGNATURES
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/ Leonard S. Yurkovic
-----------------------------------------------
Leonard S. Yurkovic
President & CEO
/s/ Ronald J. Semanick
-----------------------------------------------
Ronald J. Semanick
Chief Financial Officer
Dated: May 13, 2005
---------------
23
EXHIBIT INDEX
-------------
Exhibits
- --------
31.1 Certification by Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 signed by Leonard S.
Yurkovic, President and CEO (filed herewith).
31.2 Certification by Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 signed by Ronald J.
Semanick, Chief Financial Officer and Vice President -
Finance and Treasurer (filed herewith).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 signed by Leonard S. Yurkovic, President and
CEO (filed herewith).
32.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 signed by Ronald J. Semanick, Chief Financial
Officer and Vice President - Finance and Treasurer (filed
herewith).
24