-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CNcfD33cTZzC7i/3BabZG7TlD7Y+6F5GEEgpBUZ8NgPA66toLXeajf0j7DFv6yoc m9PQTEjYOdh/EpyyNt+6rA== 0000090045-05-000011.txt : 20050513 0000090045-05-000011.hdr.sgml : 20050513 20050513115229 ACCESSION NUMBER: 0000090045-05-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050513 DATE AS OF CHANGE: 20050513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARAGON TECHNOLOGIES INC CENTRAL INDEX KEY: 0000090045 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION, MINING & MATERIALS HANDLING MACHINERY & EQUIP [3530] IRS NUMBER: 221643428 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15729 FILM NUMBER: 05827269 BUSINESS ADDRESS: STREET 1: 600 KUEBLER ROAD CITY: EASTON STATE: PA ZIP: 18040 -929 BUSINESS PHONE: 6102523205 MAIL ADDRESS: STREET 1: 600 KUEBLER RD CITY: EASTON STATE: PA ZIP: 18040-9295 FORMER COMPANY: FORMER CONFORMED NAME: SI HANDLING SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 f10-q.txt FORM 10-Q - QUARTER ENDED MARCH 31, 2005 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 ---------- 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 EX-31 2 ex31-1.txt SECTION 302 - CERTIFICATION - YURKOVIC Exhibit 31.1 ------------ SECTION 302 CERTIFICATION I, Leonard S. Yurkovic, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Paragon Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 13, 2005 -------------------------------- /s/ Leonard S. Yurkovic - --------------------------------------- Leonard S. Yurkovic President and CEO EX-31 3 ex31-2.txt SECTION 302 - CERTIFICATION - SEMANICK Exhibit 31.2 ------------ SECTION 302 CERTIFICATION I, Ronald J. Semanick, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Paragon Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 13, 2005 -------------------------------- /s/ Ronald J. Semanick - --------------------------------------- Ronald J. Semanick Chief Financial Officer, and Vice President - Finance and Treasurer EX-32 4 ex32-1.txt EXHIBIT 32.1 - YURKOVIC Exhibit 32.1 ------------ CERTIFICATION OF PRESIDENT AND CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Paragon Technologies, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leonard S. Yurkovic, President and CEO of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Leonard S. Yurkovic --------------------------------------------------- Leonard S. Yurkovic President and Chief Executive Officer May 13, 2005 EX-32 5 ex32-2.txt EXHIBIT 32.2 - SEMANICK Exhibit 32.2 ------------ CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Paragon Technologies, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald J. Semanick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Ronald J. Semanick ---------------------------------------------------- Ronald J. Semanick Chief Financial Officer and Vice President - Finance and Treasurer May 13, 2005 -----END PRIVACY-ENHANCED MESSAGE-----