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 September 30, 2000
Commission File No. 1-15729
PARAGON TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Pennsylvania 22-1643428
------------------------------- -------------------
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
600 Kuebler Road, Easton, PA 18040
---------------------------------------- -------------
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 610-252-7321
------------
SI HANDLING SYSTEMS, INC.
--------------------------------------------------------------------------------
(Former Name of Registrant)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock, par value $1.00 per share, outstanding as of
September 30, 2000: 4,194,869.
---------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September December
30, 2000 31, 1999
-------------- ----------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, principally
time deposits $ 7,058 6,242
------ ------
Receivables:
Trade (net of allowance for doubtful
accounts of $78 as of September 30, 2000
and $54 as of December 31, 1999) 7,277 6,824
Notes and other receivables 378 952
------ ------
Total receivables 7,655 7,776
------ ------
Costs and estimated earnings in excess
of billings 1,160 1,864
------ ------
Inventories:
Raw materials 2,322 1,819
Work-in-process 217 343
Finished goods 636 1,243
------ ------
Total inventories 3,175 3,405
------ ------
Deferred income tax benefits 1,684 1,684
Prepaid expenses and other current assets 518 715
------ ------
Total current assets 21,250 21,686
------ ------
Property, plant and equipment, at cost:
Land 257 327
Buildings and improvements 3,717 3,717
Machinery and equipment 6,326 6,078
------ ------
10,300 10,122
Less: accumulated depreciation 7,240 6,788
------ ------
Net property, plant and equipment 3,060 3,334
------ ------
Deferred income tax benefits 260 260
Investments in joint ventures 1,621 1,399
Excess of cost over fair value of net assets
acquired, less amortization of $468 as of
September 30, 2000 and $116 as of
December 31, 1999 18,242 18,524
Other assets, at cost less accumulated
amortization of $170 as of September 30, 2000
and $121 as of December 31, 1999 152 203
------ ------
Total assets $ 44,585 45,406
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September December
30, 2000 31, 1999
-------------- ----------
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 1,252 1,578
Accounts payable 4,771 5,169
Customers' deposits and billings in excess
of costs and estimated earnings 4,363 5,154
Accrued salaries, wages, and commissions 1,594 1,356
Income taxes payable 979 49
Accrued royalties payable 223 284
Accrued product warranties 939 903
Accrued pension and retirement
savings plan liabilities 622 463
Accrued other liabilities 465 1,355
------ ------
Total current liabilities 15,208 16,311
------ ------
Long-term liabilities:
Long-term debt, excluding current installments:
Term loan 10,350 12,438
Subordinated notes payable 3,000 3,000
Other 13 13
------ ------
Total long-term debt 13,363 15,451
Deferred compensation 109 219
------ ------
Total long-term liabilities 13,472 15,670
------ ------
Stockholders' equity:
Common stock, $1 par value; authorized
20,000,000 shares; issued and outstanding
4,194,869 shares as of September 30, 2000
and 4,184,878 shares as of
December 31, 1999 4,195 4,185
Additional paid-in capital 6,882 6,817
Retained earnings 4,828 2,423
------ ------
Total stockholders' equity 15,905 13,425
------ ------
Total liabilities and stockholders' equity $ 44,585 45,406
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
For the Nine Months Ended September 30, 2000 and September 30, 1999
(In Thousands, Except Share And Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 13,473 10,709 48,506 32,381
Cost of sales 9,286 9,948 35,371 27,200
------ ------ ------ ------
Gross profit on sales 4,187 761 13,135 5,181
------ ------ ------ ------
Selling, general and
administrative expenses 2,506 1,707 7,764 4,981
Product development costs 28 57 137 305
Amortization of goodwill 119 30 352 44
Employee severance and
termination benefits - - 337 -
Interest expense 400 8 1,237 23
Interest income (126) (15) (262) (85)
Equity in income of joint
ventures (45) (71) (116) (120)
Other income, net (81) (65) (290) (157)
------ ------ ------ ------
2,801 1,651 9,159 4,991
------ ------ ------ ------
Earnings (loss) before
income taxes 1,386 (890) 3,976 190
Income tax expense (benefit) 538 (357) 1,571 62
------ ------ ------ ------
Net earnings (loss) $ 848 (533) 2,405 128
====== ====== ====== ======
Basic earnings (loss)
per share $ .20 (.14) .57 .03
======= ====== ====== ======
Diluted earnings (loss)
per share $ .20 (.14) .56 .02
======= ====== ====== ======
Weighted average shares
outstanding 4,194,869 3,705,084 4,188,208 3,704,836
Dilutive effect of stock
options 1,649 15,646 1,626 13,214
Dilutive effect of phantom
stock units 14,673 14,223 15,587 15,023
--------- --------- --------- ----------
Weighted average shares
outstanding assuming
dilution 4,211,191 3,734,953 4,205,421 3,733,073
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2000 and September 30, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September September
30, 2000 30, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,405 128
Adjustments to reconcile net earnings
to net cash provided (used)
by operating activities:
Depreciation of plant and equipment 452 201
Amortization of intangibles 401 35
Gain on disposition of equipment (2) (3)
Equity in income of joint ventures (116) (120)
Issuance of 9,991 common shares as
non-cash interest payment on
subordinated notes 75 -
Change in operating assets and liabilities,
net of effects of the acquisition of
Modular Automation Corp. and
Ermanco Incorporated:
Receivables 121 (7,939)
Costs and estimated earnings in
excess of billings 704 6,300
Inventories 230 872
Deferred income tax benefits - (531)
Prepaid expenses and other current assets 197 (6)
Other noncurrent assets 2 (335)
Accounts payable (398) (1,436)
Customers' deposits and billings in excess
of costs and estimated earnings (791) (808)
Accrued salaries, wages, and commissions 238 56
Income taxes payable 930 148
Accrued royalties payable (61) (97)
Accrued pension and retirement
savings plan liabilities 159 96
Accrued product warranties 36 341
Accrued other liabilities (659) 370
Deferred compensation (110) (20)
------ ------
Net cash provided (used) by operating activities 3,813 (2,748)
------ ------
Cash flows from investing activities:
Proceeds from the disposition of equipment 2 3
Investment in SI-Egemin joint venture (106) (97)
Additional consideration paid in connection
with Ermanco acquisition (231) -
Acquisition of Modular Automation Corp.,
net of cash acquired - (928)
Acquisition of Ermanco Incorporated, net
of cash acquired - (1,980)
Additions to property, plant and equipment (248) (312)
------ ------
Net cash used by investing activities (583) (3,314)
------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the Nine Months Ended September 30, 2000 and September 30, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September September
30, 2000 30, 1999
------------ --------------
<S> <C> <C>
Cash flows from financing activities:
Advance of revolving credit loan
payable to bank - 2,153
Sale of common shares in connection
with employee incentive stock option plan - 48
Repayment of long-term debt (2,414) (27)
Dividends paid on common stock - (371)
Repurchase and retirement of common stock - (348)
------ ------
Net cash provided (used) by financing activities (2,414) 1,455
------ ------
Increase (decrease) in cash and cash equivalents 816 (4,607)
Cash and cash equivalents, beginning
of period 6,242 4,785
------ ------
Cash and cash equivalents, end of period $ 7,058 178
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,474 3
====== ======
Income taxes $ 619 431
====== ======
Supplemental disclosures of noncash
investing and financing activities:
Adjustment to excess of cost
over fair value of net assets acquired
due to a change in the estimated
fair value of land acquired $ 70 -
====== ======
Issuance of 8,861 common shares in
exchange for 3,743 common shares delivered
to the Company by officers
in connection with the employees'
incentive stock option $ - 43
====== ======
Issuance of 481,284 common shares
for Ermanco acquisition $ - 4,500
====== ======
Issuance of $14,000 of term debt for
Ermanco acquisition $ - 14,000
====== ======
Issuance of subordinated notes payable
for Ermanco acquisition $ - 3,000
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Nine Months Ended September 30, 2000 and September 30, 1999
(1) The information contained in this Form 10-Q report is unaudited and is
subject to year-end adjustments and audit. However, in the opinion of
management, the interim financial statements furnished reflect all
adjustments and accruals that are necessary to a fair statement of results
for the interim periods presented. The financial statements include the
accounts of the Company and Ermanco Incorporated ("Ermanco"), a wholly
owned subsidiary company, after elimination of intercompany balances and
transactions. Results for interim periods are not necessarily indicative of
results expected for the fiscal year. Refer to the Company's Form 10-K for
the ten months ended December 31, 1999 for more complete financial
information.
On September 30, 1999, the Board of Directors of the Company approved an
amendment to Article I, Section 1.03 of the Company's Bylaws to change the
fiscal year end of the Company from the Sunday nearest to the last day of
February to December 31. The Company filed a Form 10-K for the 10-month
period ending December 31, 1999 to cover the transition period. The prior
year comparative financial information in this Form 10-Q report reflects
the months of July, August, and September 1999, and January through
September 1999, respectively.
On February 9, 2000, the Board of Directors of the Company approved an
amendment to Article 1 of the Company's Articles of Incorporation to change
the name of the Company from SI Handling Systems, Inc. to Paragon
Technologies, Inc. ("Paragon" or the "Company"). Paragon will be the
corporate entity currently consisting of two separate brands: SI Systems
(formerly referred to as "SI Easton") and Ermanco Incorporated ("Ermanco").
This amendment became effective on April 5, 2000.
On March 9, 2000, the Company's common stock began trading on the American
Stock Exchange (Amex) under the symbol "PTG." Prior to this date, the
Company's common stock was traded on The Nasdaq Stock Market under the
symbol "SIHS."
(2) SI/BAKER, INC.
--------------
Paragon Technologies, Inc., (formerly, "SI Handling Systems, Inc.") and
McKesson Automated Prescription Systems, Inc.("McKesson APS"), formerly
known as Automated Prescription Systems, Inc., are co-venturers in a joint
venture named SI/BAKER, INC. ("SI/BAKER" or the "joint venture"). On
September 29, 1998, McKesson Corporation [NYSE: MCK], a healthcare supply
management company, announced the completion of its acquisition of
Automated Prescriptions Systems, Inc. Automated Prescription Systems, Inc.
was renamed McKesson Automated Prescription Systems, Inc. The SI/BAKER
joint venture draws upon the automated materials handling systems
experience of SI Systems and the automated pill counting and dispensing
products of McKesson APS to provide automated pharmacy systems. Each
member company contributed $100,000 in capital to fund the joint venture.
The joint venture designs and installs computer controlled, fully
automated, integrated systems for managed care pharmacy operations. The
joint venture's systems are viewed as labor saving devices, which address
the issues of improved productivity and cost reduction. Systems can be
expanded as customers' operations grow and they may be integrated with a
wide variety of components to meet specific customer needs.
Schedule A contains the SI/BAKER, INC. financial statements. The
information contained in the SI/BAKER, INC. financial statements is
unaudited and is subject to year-end adjustments and audit. However, in the
opinion of management, the interim financial statements furnished reflect
all adjustments and accruals that are necessary to a fair statement of
results for the interim periods presented.
- 7 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Nine Months Ended September 30, 2000 and September 30, 1999
On November 4, 1999, the Board of Directors of SI/BAKER approved an
amendment to Article VII, Section 5 of the Bylaws to change the fiscal year
end of the Company from the last day of February to December 31. SI/BAKER's
financial statements for the 10-month period ending December 31, 1999 were
included in the Company's report on Form 10-K for the 10-month period
ending December 31, 1999. The prior year comparative financial information
in this Form 10-Q report reflects the months of July, August, and September
1999, and January through September 1999, respectively.
(3) Modular Automation Corp.
-----------------------
On April 13, 1999, the Company acquired all of the outstanding common stock
of Modular Automation Corp. ("MAC") of Greene, New York for $1,957,000. The
acquisition required a net cash outlay of $928,000. The purchase price of
the acquisition was allocated to the assets acquired based on fair value
with the remainder representing goodwill. The acquired Automated Guided
Vehicle ("AGV") products and personnel were integrated into the SI Systems
operation. As of December 31, 1999, the AGV product line associated with
the MAC acquisition was abandoned. The write-off of certain long-lived
assets, including goodwill, totaling $561,000 was recognized in the
Consolidated Statement of Operations for the ten months ended December 31,
1999 in accordance with the criteria set forth by SFAS No. 121.
On the basis of a pro forma consolidation of the result of operations as if
the acquisition of MAC had taken place on January 1, 1999, management
believes that the acquisition would not have had a material effect on the
reported amounts.
(4) Ermanco Incorporated
--------------------
On September 30, 1999, the Company acquired all of the outstanding common
stock of Ermanco Incorporated. Ermanco, headquartered in Spring Lake,
Michigan, designs and installs complete conveyor systems for a variety of
manufacturing and warehousing applications. Under terms of the Stock
Purchase Agreement and based on the definitive closing balance sheet, the
Company acquired all of the outstanding common stock of Ermanco for a
purchase price of $22,801,000 consisting of $15,301,000 in cash, of which
$1,551,000 is held in escrow ($801,000 was released in January 2000),
$3,000,000 in promissory notes payable to fourteen stockholders of Ermanco,
and 481,284 shares of the Company's common stock with a value of $4,500,000
based on the average closing price of $9.35 of the Company's common stock
for the five trading days immediately preceding the date of the Stock
Purchase Agreement, August 6, 1999. The Company financed $14,000,000 of the
acquisition through term debt. The acquisition required a net cash outlay
of $2,264,000.
The acquisition was accounted for as a purchase in accordance with APB No.
16 and, accordingly, the acquired assets and assumed liabilities have been
recorded at their estimated fair value at the date of acquisition. The
amount of goodwill associated with the acquisition was $18,710,000 and is
being amortized over a period of 40 years.
On the basis of a pro forma consolidation of the results of operations of
Ermanco, as if the acquisition had taken place on January 1, 1999, the
following pro forma financial results for the nine months ended September
30, 1999 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1999
------------------------------
<S> <C>
Net sales $ 56,384
======
Net earnings $ 1,403
======
Basic earnings per share $ .34
======
Diluted earnings per share $ .32
======
</TABLE>
- 8 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Nine Months Ended September 30, 2000 and September 30, 1999
(5) Major Segments of Business
--------------------------
Operating segments are defined as components of an enterprise in which
separate financial information is available and evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company identified such segments based on both
management responsibility and types of products offered for sale.
On September 30, 1999, Paragon Technologies, Inc. (formerly, "SI Handling
Systems, Inc.") ("the Company") concluded the acquisition of all of the
outstanding common stock of Ermanco Incorporated ("Ermanco"). Ermanco
operates as a wholly-owned subsidiary of the Company.
The Company's Easton, Pennsylvania operations (hereafter referred to as "SI
Systems") is a systems integrator supplying automated materials handling
systems to manufacturing, order selection, and distribution operations. The
systems are designed, sold, manufactured, installed, and serviced by its
own staff or by others for SI Systems, at its direction, generally as
labor-saving devices to improve productivity and reduce costs. SI Systems'
products are utilized to automate the movement or selection of products and
are often integrated with other automated equipment, such as conveyors and
robots. SI Systems' products involve both standard and specially designed
components and include integration of non-proprietary automated handling
technologies so as to provide solutions for its customers' unique materials
handling needs. SI Systems' staff develops and designs computer control
programs required for the efficient operation of the systems.
Although SI Systems is not dependent on any single customer, much of its
revenue is derived from contracts to design, manufacture, and install
large-scale materials handling systems for major North American
corporations and the federal government.
Ermanco is a manufacturer of light to medium duty unit handling conveyor
products, serving the material handling industry through local independent
distributors in North America. Ermanco also provides complete conveyor
systems for a variety of applications, including distribution, and
manufacture of computers and electronic products, utilizing primarily its
own manufactured conveyor products, engineering services by its own staff
or subcontracted, and subcontracted installation services. The systems
product line of Ermanco accounts for approximately 40% of Ermanco's total
revenues, and the balance is from distribution (resale).
SI Systems' products are sold on a fixed price basis. Generally, contract
terms provide for progress payments and a portion of the purchase price is
withheld by the buyer until the system has been accepted. Ermanco's
products and services are also sold on a fixed price basis. Generally,
contract terms are net 30 days for product sales, with progressive payments
for system-type projects.
- 9 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Nine Months Ended September 30, 2000 and September 30, 1999
Prior to the acquisition, the Company operated in one major market segment. With
the addition of the Ermanco operations, the Company now operates in two major
market segments, and products are sold worldwide as follows:
<TABLE>
<CAPTION>
For the nine months ended Automated Material Conveyor
September 30, 2000 (in thousands): Handling Systems Systems Total
-------------------------------- ------------------- --------- ---------
<S> <C> <C> <C>
Sales $ 23,163 25,343 48,506
Earnings before interest expense,
interest income, equity in
income of joint ventures, and
income taxes 2,646 2,189 4,835
Total assets 14,774 29,811 44,585
Capital expenditures 83 165 248
Depreciation and amortization
expense 303 550 853
</TABLE>
Geographic segment information was as follows (in thousands):
<TABLE>
<CAPTION>
For the nine months ended
September 30, 2000 (in thousands): Domestic Europe and Asia Canada Total
-------------------------------- -------- --------------- ------ ---------
<S> <C> <C> <C> <C>
Sales $ 45,037 2,609 860 48,506
Earnings before interest
expense, interest
income, equity in income
of joint ventures,
and income taxes 4,835 - - 4,835
Total assets 44,585 - - 44,585
Capital expenditures 248 - - 248
Depreciation and
amortization expense 853 - - 853
</TABLE>
Inter-segment sales for the nine months ended September 30, 2000 totaled
$108,000.
<TABLE>
<CAPTION>
For the three months ended Automated Material Conveyor
September 30, 2000 (in thousands): Handling Systems Systems Total
-------------------------------- ------------------ --------- ---------
<S> <C> <C> <C>
Sales $ 7,942 5,531 13,473
Earnings before interest expense,
interest income, equity in
income of joint ventures, and
income taxes 1,602 13 1,615
Total assets 14,774 29,811 44,585
Capital expenditures 6 24 30
Depreciation and amortization
expense 101 185 286
</TABLE>
- 10 -
<PAGE>
Item 1. Financial Statements (Continued)
--------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Nine Months Ended September 30, 2000 and September 30, 1999
Geographic segment information was as follows:
<TABLE>
<CAPTION>
For the three months ended
September 30, 2000 (in thousands): Domestic Europe and Asia Canada Total
-------------------------------- -------- --------------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 12,450 658 365 13,473
Earnings before interest
expense, interest
income, equity in income
of joint ventures,
and income taxes 1,615 - - 1,615
Total assets 44,585 - - 44,585
Capital expenditures 30 - - 30
Depreciation and
amortization expense 286 - - 286
</TABLE>
Inter-segment sales for the three months ended September 30, 2000 totaled
$20,000.
(6) Long-Term Debt
-------------
On March 30, 2000, the Company received a waiver of certain loan covenants
as well as an amendment to the term loan and line of credit agreements
relative to future covenant requirements, a variable term loan interest
rate increase to LIBOR plus 3%, and limitations on the cash payment of
interest on subordinated debt. The limitations on the cash payment of
interest on subordinated debt were eliminated on August 22, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents increased to $7,058,000 at
September 30, 2000 from $6,242,000 at December 31, 1999. The increase resulted
from cash provided by operating activities totaling $3,813,000. Partially
offsetting the increase in cash and cash equivalents from this source was the
repayment of long-term debt of $2,414,000, purchases of capital equipment of
$248,000, an investment of $106,000 in the SI-Egemin joint venture, and
additional consideration and costs of $231,000 paid in connection with the
Ermanco acquisition. Funds used by operating activities during the nine months
ended September 30, 1999 were $2,748,000.
On April 13, 1999, the Company acquired all of the outstanding common stock
of Modular Automation Corp. ("MAC") of Greene, New York for $1,957,000. The
acquisition required a net cash outlay of $928,000. The purchase price of the
acquisition was allocated to the assets acquired based on fair value with the
remainder representing goodwill. The acquired Automated Guided Vehicle ("AGV")
products and personnel were integrated into the SI Systems operation. However,
as of December 31, 1999, the AGV product line associated with the MAC
acquisition was abandoned. The write-off of certain long-lived assets, including
goodwill, totaling $561,000 was recognized in the Consolidated Statement of
Operations for the ten months ended December 31, 1999 in accordance with the
criteria set forth by SFAS No. 121. The Company is in the process of assessing
strategic alternatives for the AGV product line.
- 11 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources (Continued)
-------------------------------
On September 30, 1999, the Company completed the acquisition of all the
outstanding common stock of Ermanco Incorporated ("Ermanco"). Ermanco,
headquartered in Spring Lake, Michigan, designs and installs complete conveying
systems for a variety of manufacturing and warehousing applications. Under the
terms of the Stock Purchase Agreement, the Company acquired all of the
outstanding common stock of Ermanco for a purchase price of $22,801,000
consisting of $15,301,000 in cash, of which $1,551,000 is held in escrow
($801,000 was released in January 2000), $3,000,000 in promissory notes payable
to the fourteen stockholders of Ermanco, and 481,284 shares of the Company's
common stock with a value of $4,500,000 based on the average closing price of
$9.35 of the Company's common stock for the five trading days immediately
preceding the date of the Stock Purchase Agreement, August 6, 1999. The Company
financed $14,000,000 of the acquisition through term debt. The acquisition
required a net cash outlay of $2,264,000. The remaining escrow of $750,000,
including any earnings thereon, shall be distributed to the selling shareholders
eighteen months after the September 30, 1999 closing date of the acquisition.
The acquisition was accounted for as a purchase in accordance with APB No.
16 and, accordingly, the acquired assets and assumed liabilities have been
recorded at their estimated fair value at the date of acquisition. The amount of
goodwill associated with the acquisition was $18,710,000 and is being amortized
over a period of 40 years.
On the closing date of the acquisition, the Company entered into employment
agreements with four employees. Leon C. Kirschner and Steven Shulman, both
principal stockholders of Ermanco, joined the Board of Directors of the Company.
In order to complete the Ermanco acquisition, the Company obtained
financing from its principal bank. The Company entered into a new three-year
line of credit facility which may not exceed the lesser of $6,000,000 or an
amount based on a borrowing base formula tied principally to accounts
receivable, inventory, fair market value of the Company's property and plant,
and liquidation value of equipment, plus an amount equal to $2,500,000. This
amount will be reduced by $625,000 every six months during the first two years
of the line of credit facility until such amount reaches zero, minus the unpaid
principal balance of the term loan described below. The line of credit facility
is to be used primarily for working capital purposes. As of September 30, 2000,
the Company did not have any borrowings under the line of credit facility.
The Company financed $14,000,000 of the acquisition through a seven-year
term loan from its bank. During the first two years of the term loan, the
Company will repay equal quarterly payments of $312,500 plus accrued interest.
After the second anniversary of the September 30, 1999 closing date, the Company
will make equal quarterly payments of $575,000, plus interest. The interest rate
on $7,000,000 of the term loan is variable at a rate equal to the three-month
LIBOR Market Index Rate, plus three percent (9.66%). The Company also entered
into an interest rate swap agreement for fifty percent of the term loan to hedge
the floating interest rate. The seven-year interest rate swap for $7,000,000 was
at a fixed rate of 9.38%. On July 27, 2000, the Company prepaid, without
penalty, $1,150,000 of the term loan with the variable interest rate. The
prepayment consisted of two quarterly payments of $575,000 pertaining to the
final year of the term loan.
To obtain the line of credit and term loan, the Company granted the bank a
security interest in all personal property, including, without limitation, all
accounts, deposits, documents, equipment, fixtures, general intangibles, goods,
instruments, inventory, letters of credit, money, securities, and a first
mortgage on all real estate. The line of credit facility and term loan contain
various restrictive covenants relating to additional indebtedness, asset
acquisitions or dispositions, investments, guarantees, payment of dividends, and
maintenance of certain financial ratios. The Company was in compliance with all
covenants, as amended, as of September 30, 2000.
- 12 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources (Continued)
-------------------------------
The promissory notes issued to the fourteen stockholders of Ermanco totaled
$3,000,000, have a term of seven years, and bear interest at an annual rate of
ten percent in years one through three, twelve percent in years four and five,
and fourteen percent in years six and seven. The weighted average interest rates
on the promissory notes is 11.714% over the term of the notes. Interest shall be
payable quarterly, in cash or under certain conditions, in the Company's common
stock upon approval of the Company's Board of Directors. The promissory notes
may be prepaid prior to the end of the seven-year term provided that there is no
debt outstanding under its line of credit facility and term loan. During the
period April 1, 2000 through August 21, 2000, the Company was prohibited from
making any cash payments of subordinated debt and interest due to covenants set
forth in the Loan Agreement with the Company's principal bank. On July 1, 2000,
the Company issued 9,991 shares of common stock to the fourteen stockholders for
non-cash interest payments on the subordinated notes.
On March 4, 1996, SI/BAKER established a $2,500,000 line of credit facility
(the "facility") with its principal bank (the "bank"). Under the terms of the
facility, SI/BAKER's parent companies, Paragon Technologies, Inc. (formerly, "SI
Handling Systems, Inc.") and McKesson Automated Prescription Systems, Inc., have
each provided a limited guarantee and surety in an amount not to exceed
$1,000,000 for a combined guarantee of $2,000,000 to the bank for the payment
and performance of the related note, including any further renewals or
modifications of the facility. During the fiscal year ended March 1, 1998, the
bank increased the borrowing availability to $3,000,000 and extended the
expiration date of the facility. On September 30, 2000, SI/BAKER did not have
any borrowings under the facility. The facility has an expiration date of August
31, 2001.
The Company anticipates that borrowings under its credit facility, cash
generated from operations, and term debt will be adequate to satisfy its future
cash requirements in the foreseeable future. Due to the dependence upon a
limited number of large contracts with certain customers, sales volume, as well
as cash liquidity, may experience fluctuations. The foreseeable future, as
mentioned in this context, relates to forecasted cash flows analyzed over the
next twelve-month period. Due to the unpredictability of the future contract
sales, cash liquidity beyond this twelve-month period is difficult for the
Company to forecast with reasonable accuracy.
The Company, as part of its focus on its core business and strategy, has
decided to sell unused land and is assessing strategic alternatives for the AGV
and Automated Storage and Retrieval Systems ("ASRS") product lines. Shortly
after the end of the third quarter of 2000, the Company completed the sale of a
vacant parcel of land adjacent to the Ermanco facility in Spring Lake, Michigan.
Net proceeds from the sale of the vacant land were approximately $230,000, and
resulted in no gain or loss to the Company.
The Company plans to consider expansion opportunities as they arise,
although ongoing operating results of the Company, the restrictive covenants
associated with the recent financing obtained from the Company's principal bank,
the economics of the expansion, and the circumstances justifying the expansion
will be key factors in determining the amount of resources the Company will
devote to further expansion. The Company did not have any material capital
commitments as of September 30, 2000.
Results Of Operations
---------------------
(a) Nine Months Ended September 30, 2000 Versus Nine Months Ended September 30,
---------------------------------------------------------------------------
1999
----
On September 30, 1999, the Board of Directors of the Company approved an
amendment to Article I, Section 1.03 of the Bylaws to change the fiscal year end
of the Company from the Sunday nearest to the last day of February to December
31. For the year ended December 31, 1999, the fiscal year consisted of ten
months. The prior year comparative financial information in this Form 10-Q
report reflects the months of July, August and September 1999, and January
through September 1999, respectively.
- 13 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Results Of Operations (Continued)
---------------------
(a) Nine Months Ended September 30, 2000 Versus Nine Months Ended September 30,
---------------------------------------------------------------------------
1999 (Continued)
----
On September 30, 1999, the Company concluded the acquisition of all of the
outstanding common stock of Ermanco Incorporated. Ermanco operates as a wholly
owned subsidiary of Paragon Technologies, Inc. and the results for the nine
months ended September 30, 2000 include the operations of Ermanco. However, the
prior year comparative information in this Form 10-Q does not reflect the
operations of Ermanco.
The Company's net earnings for the nine months ended September 30, 2000
were $2,405,000 compared to net earnings of $128,000 for the nine months ended
September 30, 1999. Unfavorably impacting the net earnings of $2,405,000 for the
nine months ended September 30, 2000 were employee severance and termination
benefits of $337,000.
Net sales of $48,506,000 for the nine months ended September 30, 2000
increased 49.8% compared to net sales of $32,381,000 for the nine months ended
September 30, 1999. The sales increase of $16,125,000 is comprised of Ermanco's
contribution to product sales approximating $25,343,000, offset by a decrease in
SI Systems' sales of approximately $9,218,000 for the nine months ended
September 30, 2000, when compared to the nine months ended September 30, 1999.
The SI Systems' sales decrease in the nine months ended September 30, 2000 was
primarily attributable to a smaller backlog of orders at December 31, 1999,
versus a larger backlog of orders at December 31, 1998. SI Systems experienced a
decline in sales across most of their product lines, with the majority of the
decrease relating to sales of the Order Selection product line. SI Systems'
business is dependent upon a limited number of large contracts with certain
customers. This dependence can cause unexpected fluctuations in sales volume.
Along with sales recognized on the percentage of completion accounting method,
the monthly rate of new orders can also vary substantially, causing fluctuations
in the current backlog of orders. Various external factors affect the customers'
decision-making 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.
Although SI Systems' sales have declined in the nine months ended September
30, 2000 as compared to the nine months ended September 30, 1999, gross profit
on sales for the nine months ended September 30, 2000 has increased compared to
the nine months ended September 30, 1999.
Gross profit, as a percentage of sales, was 27.1% for the nine months ended
September 30, 2000 compared to 16.0% for the nine months ended September 30,
1999. The increase in the gross profit percentage for the nine months ended
September 30, 2000 was attributable to effective business controls relative to
pricing practices and favorable performance on several contracts, principally
for SI Systems' higher margin proprietary products, initiated in the prior
fiscal year that were completed or nearing completion during the nine months
ended September 30, 2000. Offsetting the impact of the favorable performances on
several contracts was the recognition of an additional loss in the second
quarter of fiscal 2000 on a major contract, which experienced additional cost
overruns. Gross profit on sales for the nine months ended December 31, 1999 was
unfavorably impacted by significant cost overruns on certain projects,
competitive pricing pressures, as well as to first-time design inefficiencies
associated with the development of enhanced order fulfillment systems related to
these projects.
- 14 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Results Of Operations (Continued)
---------------------
(a) Nine Months Ended September 30, 2000 Versus Nine Months Ended September 30,
---------------------------------------------------------------------------
1999 (Continued)
----
Estimates relative to loss contracts, which the Company experienced to an
unusual extent in the period ended December 31, 1999, are inherently more
difficult to make than those in which the contract has proceeded according to
original expectations. Uncertainty exists with respect to the resources required
to accomplish the contractual scope or work dealing with the final integration
of state-of-the-art automated materials handling systems. Consequently, while
the Company believes the full effect of both projected and presently incurred
cost overruns has been accrued, current estimates may need to be revised as
additional information becomes available. As a result of the experience with
cost overruns while integrating new computer technology to its order fulfillment
product line, the Company has established enhanced business controls,
estimating, and procurement disciplines to attempt to reduce future cost
overruns. Also the backlog of orders of approximately $2,870,000 attributable to
these contracts will be recognized at no gross profit throughout the remainder
of this calendar year.
Selling, general and administrative expenses of $7,764,000 were higher by
$2,783,000 for the nine months ended September 30, 2000 than in the nine months
ended September 30, 1999. The increase of $2,783,000 is comprised of the
addition of selling, general and administrative expenses totaling $3,448,000
related to the Ermanco operation, offset by a decrease in SI Systems' selling,
general and administrative expenses of approximately $665,000 for the nine
months ended September 30, 2000, when compared to the nine months ended
September 30, 1999. The decrease in SI Systems' selling, general and
administrative expenses was primarily attributable to the prior year comparable
period containing a larger amount of costs associated with product promotion and
sales efforts aimed at expanding the customer base. These expenses were impacted
as a result of the restructuring initiative whereby employees were separated
from the Company.
Product development costs of $137,000 were lower by $168,000 for the nine
months ended September 30, 2000 than in the nine months ended September 30,
1999. Development programs in the nine months ended September 30, 2000 included
enhancements to the Company's conveyor technology, horizontal transportation,
sortation, and order selection product lines. Development programs in the nine
months ended September 30, 1999 included enhancements to the Company's
horizontal transportation and order selection product lines.
Amortization of goodwill represented costs associated with the acquisition
of Ermanco Incorporated on September 30, 1999 and Modular Automation Corp.
("MAC") on April 13, 1999. Goodwill amortization expense associated with the
Ermanco acquisition during the nine months ended September 30, 2000 totaled
$352,000. There was no goodwill amortization expense associated with the Ermanco
acquisition in the comparable prior year period. Goodwill amortization expense
associated with the MAC acquisition during the nine months ended September 30,
1999 totaled $44,000. There was no goodwill amortization expense pertaining to
the MAC acquisition included in the nine months ended September 30, 2000 due to
the write-off, during the ten months ended December 31, 1999, of certain
long-lived assets, primarily goodwill, associated with the elimination of the
Automated Guided Vehicle product line related to the acquisition of MAC.
Employee severance and termination benefits of $337,000 for the nine months
ended September 30, 2000 was associated with a first quarter restructuring
initiative, whereby the Company separated approximately sixteen employees.
Interest expense of $1,237,000 was higher by $1,214,000 for the nine months
ended September 30, 2000 than in the nine months ended September 30, 1999. The
increase in interest expense was primarily attributable to the term debt and
subordinated notes issued in connection with the Ermanco acquisition, which was
completed on September 30, 1999.
- 15 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Results Of Operations (Continued)
---------------------
(a) Nine Months Ended September 30, 2000 Versus Nine Months Ended September 30,
---------------------------------------------------------------------------
1999 (Continued)
----
Interest income of $262,000 was higher by $177,000 for the nine months
ended September 30, 2000 compared to the nine months ended September 30, 1999.
The increase in interest income was primarily attributable to the higher level
of funds available for short-term investments.
Equity in income of joint ventures represents the Company's proportionate
share of its investments in the SI-Egemin and SI/BAKER joint ventures that are
being accounted for under the equity method. The net unfavorable variance of
$4,000 in the equity in income of joint ventures for the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999 was
comprised of increased losses of approximately $158,000 attributable to the
SI-Egemin joint venture. Offsetting the losses of SI-Egemin was a favorable
variance of increased earnings of $154,000 attributable to the SI/BAKER joint
venture.
The unfavorable variance of $158,000 for the nine months ended September
30, 2000 in the equity in income of the SI-Egemin joint venture was attributable
to start-up costs. The SI-Egemin joint venture was initiated in July 1999.
The favorable variance of $154,000 for the nine months ended September 30,
2000 in the equity in income of the SI/BAKER joint venture was primarily due to
its increased sales of approximately $2,385,000 as compared to the nine months
ended September 30, 1999, plus a reduction of $127,000 in product development
expenses, a reduction of $73,000 in selling, general and administration
expenses, an increase of $72,000 in interest income, net, and an increase of
$61,000 in other income, net, associated with royalty income. Partially
offsetting these favorable variances was SI/BAKER's increase of $95,000 in
revenue-based royalty costs due to the parent companies.
The favorable variance in other income, net was primarily attributable to
an increase in the revenue-based royalty income related to the SI/BAKER joint
venture and Ermanco license agreements.
The Company incurred income tax expense of $1,571,000 during the nine
months ended September 30, 2000, compared to income tax expense of $62,000 in
the comparable prior year period. Income tax expense was generally recorded at
statutory federal and state tax rates expected to apply for each fiscal year.
The total backlog at September 30, 2000 was approximately $24,800,000.
Backlog represents unrealized revenue believed by the Company to be fulfilled
and recognized within the next twelve-month period. During the nine months
ending September 30, 2000, the Company received orders totaling approximately
$49,600,000.
(b) Three Months Ended September 30, 2000 Versus Three Months Ended September
--------------------------------------------------------------------------
30, 1999
--------
With the exception of the following Statement of Operations captions,
changes in the third quarter of calendar year 2000 compared to the prior year
were consistent with those previously noted above for the nine-month period.
Net sales of $13,473,000 for the three months ended September 30, 2000
increased 25.8% compared to net sales of $10,709,000 for the three months ended
September 30, 1999. The sales increase of $2,764,000 is comprised of Ermanco's
contribution to product sales approximating $5,531,000, offset by a decrease in
SI Systems' sales of approximately $2,767,000 for the three months ended
September 30, 2000, when compared to the three months ended September 30, 1999.
SI Systems' sales decreases were experienced across all the Company's product
lines with the majority of the decrease relating to sales of the Company's
Lo-Tow product line. The decrease of approximately $1,400,000 in Lo-Tow product
line sales is primarily attributable to performance on contracts in accordance
with customer specifications for job completion requirements during the nine
months ended September 30, 1999. Although SI Systems sales have declined in the
three months ended
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Results Of Operations (Continued)
---------------------
(b) Three Months Ended September 30, 2000 Versus Three Months Ended September
-------------------------------------------------------------------------
30, 1999 (Continued)
--------
September 30, 2000 as compared to the nine months ended September 30, 1999,
gross profit on sales for the three months ended September 30, 2000 has
increased compared to the three months ended September 30, 1999.
Gross profit as a percentage of sales was 31.1% for the three months ended
September 30, 2000 compared to 7.1% for the three months ended September 30,
1999. The increase in the gross profit percentage for the three months ended
September 30, 2000 was attributable to effective business controls relative to
pricing practices and favorable performance on several contracts, principally
for SI Systems' higher margin proprietary products.
Selling, general and administrative expenses of $2,506,000 were higher by
$799,000 for the three months ended September 30, 2000 than in the three months
ended September 30, 1999. The increase of $799,000 is comprised of the addition
of selling, general and administrative expenses totaling approximately
$1,080,000 related to the Ermanco operation, offset by a decrease in SI Systems'
selling, general and administrative expenses of approximately $281,000 for the
three months ended September 30, 2000, when compared to the three months ended
September 30, 1999. The decrease in SI Systems' selling, general and
administrative expenses was primarily attributable to the prior year comparable
period containing a larger amount of costs associated with product promotion and
sales efforts aimed at expanding the customer base. These expenses were impacted
as a result of the restructuring initiative whereby employees were separated
from the Company.
The Company incurred income tax expense of $538,000 during the three months
ended September 30, 2000 compared to the recognition of an income tax benefit of
$357,000 during the three months ended September 30, 1999. Income tax expense
for the three months ended September 30, 2000 was generally recorded at
statutory federal and state tax rates. The income tax benefit that was
recognized for the three months ended September 30, 1999 represented the
carry-back of current fiscal quarter losses against prior year income.
Cautionary Statement
--------------------
Certain statements contained herein are not based on historical fact and
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 or by the Securities and Exchange Commission
rules, regulations, and releases. The Company intends that such forward-looking
statements be subject to the safe harbors created thereby. Among other things,
they regard the Company's acquisition activities, earnings, liquidity, financial
condition, and certain operational matters. Words or phrases denoting the
anticipated results of future events, such as "anticipate," "believe,"
"estimate," "expect," "may," "will," "will likely," "are expected to," "will
continue," "should," "project," and similar expressions that denote uncertainty,
are intended to identify such forward-looking statements. The Company's actual
results, performance, or achievements could differ materially from the results
expressed in, or implied by, such "forward-looking statements": (1) as a result
of risks and uncertainties identified in connection with those forward-looking
statements, including those factors identified herein, and in the Company's
other publicly filed reports; (2) as a result of risks and uncertainties
associated with the Ermanco acquisition, including the failure to realize
anticipated benefits of such acquisition, the failure to integrate Ermanco
successfully with the Company, and any unforeseen complications related to the
Ermanco acquisition; (3) as a result of risks associated with the Company's
restructuring, including the failure to achieve anticipated operating savings,
and the possibility that the restructuring charges will be greater than
anticipated; (4) as a result of factors over which the Company has no control,
including the strength of domestic and foreign economies, sales growth,
competition, certain costs increases, and any potential exposures relating to
Year 2000 matters; or (5) if the factors on which the Company's conclusions are
based do not conform to the Company's expectations.
- 17 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations (Continued)
---------------------
Quantitative and Qualitative Disclosures
----------------------------------------
The Company's primary market risk exposure is from changes in interest
rates. The Company's policy is to manage interest rate exposure through the use
of a combination of fixed and floating rate debt instruments, and in the nine
months ended September 30, 2000, an interest rate swap agreement. Generally, the
Company seeks to match the terms of its debt with its purpose. The Company uses
a variable rate line of credit facility to provide working capital for
operations. On September 30, 1999, the Company entered into an interest rate
swap agreement for 50% of its new term loan from its principal bank to
effectively convert half of the term loan from a variable rate note to a fixed
rate note. A standard interest rate swap agreement involves the payment of a
fixed rate times a notional amount by one party in exchange for a floating rate
times the same notional amount from another party. The counterpart to the swap
agreement is the Company's principal bank.
The Company does not believe that its exposures to interest rate risk or
foreign currency exchange risk, risks from commodity prices, equity prices and
other market changes that affect market risk sensitive instruments, including
the interest rate swap agreement, are material to its results of operations.
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities and Use of Proceeds
------ -----------------------------------------
On July 1, 2000, the Company issued 9,991 shares of common stock to the
fourteen stockholders of Ermanco for non-cash interest payments on the
subordinated notes.
- 18 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
------ ---------------------------------------------------
The Company's Annual Meeting of Shareholders was held on August 24, 2000
with the following items being submitted to a vote of shareholders:
1. The election of six directors to the Board of Directors.
2. The approval of the proposed amendment to the 1997 Equity Compensation
Plan to increase the number of shares of the Company's common stock
reserved for grants under the Plan by 300,000.
3. The recommendation that the Board of Directors take all necessary steps
to reincorporate the Company from Pennsylvania to Delaware.
4. The approval of the proposed amendment of Section 3.03 of the Bylaws
of the Company concerning Special Meetings of the Shareholders.
Details of the proposals noted above were provided to shareholders in the
form of a Notice of Annual Meeting and Proxy Statement dated and mailed on July
14, 2000, with such solicitation being in accordance with Regulation 14 of the
Securities and Exchange Act of 1934.
There was no solicitation in opposition to the management's nominees listed
in the Proxy Statement, and all the management's nominees were elected.
Proposal Number 2 for the approval of the amendment to the 1997 Equity
Compensation Plan and Proposal Number 4 for the approval of the amendment of
Section 3.03 of the Bylaws of the Company were duly approved by the
shareholders. However, Proposal Number 3 for the recommendation that the Board
of Directors take all necessary steps to reincorporate the Company from
Pennsylvania to Delaware was not approved by the shareholders.
The voting results on the four matters noted above are set forth as
follows:
1. Election of Directors:
Name of Nominee Votes For Votes Withheld Non-Voting
--------------- --------- -------------- ----------
L. Jack Bradt 2,487,584 1,527,914 169,380
Elmer D. Gates 2,384,207 1,631,291 169,380
Michael J. Gausling 2,354,364 1,661,134 169,380
William R. Johnson 2,389,695 1,625,803 169,380
Leon C. Kirschner 2,541,780 1,473,718 169,380
Steven Shulman 2,541,630 1,473,868 169,380
2. Approval of the amendment to the 1997 Equity Compensation Plan:
Votes For Votes Against Abstentions Non-Voting
--------- ------------- ----------- ----------
2,416,354 1,293,313 26,225 448,986
3. Recommendation that the Board of Directors take all necessary steps to
reincorporate from Pennsylvania to Delaware:
Votes For Votes Against Abstentions Non-Voting
--------- ------------- ----------- ----------
1,853,414 1,858,083 24,395 448,986
4. Approval of the amendment to Section 3.03 of the Bylaws of the Company
concerning Special Meetings:
Votes For Votes Against Abstentions Non-Voting
--------- ------------- ----------- ----------
2,219,889 1,482,574 33,429 448,986
Item 6. Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibit 27 - Financial Data Schedule.
- 19 -
<PAGE>
Paragon Technologies, Inc. and Subsidiary
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAGON TECHNOLOGIES, INC.
(formerly, "SI Handling, Systems, Inc.")
/S/ William R. Johnson
----------------------------------------
William R. Johnson
President & CEO
Dated: November 14, 2000
-----------------
- 20 -
<PAGE>
Schedule A
----------
SI/BAKER, INC.
Financial Statements
September 30, 2000
- 21 -
<PAGE>
SI/BAKER, INC.
Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September December
30, 2000 31, 1999
------------ -----------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, principally
time deposits $ 2,745 2,895
------ ------
Receivables:
Trade 1,846 1,358
Other receivables 107 129
------ ------
Total receivables 1,953 1,487
------ ------
Costs and estimated earnings in
excess of billings 1,778 2,159
Deferred income tax benefits 391 391
Prepaid expenses and other current
assets 104 53
------ ------
Total current assets 6,971 6,985
------ ------
Machinery and equipment, at cost 219 194
Less: accumulated depreciation 144 121
------ ------
Net machinery and equipment 75 73
------ ------
Equipment leased to customer 487 487
Less: accumulated depreciation 487 467
------ ------
Net equipment leased to customer - 20
------ ------
Deferred income tax benefits 22 22
------ ------
Total assets $ 7,068 7,100
====== ======
</TABLE>
- 22 -
<PAGE>
SI/BAKER, INC.
Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September December
30, 2000 31, 1999
------------ -----------
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable:
Trade $ 487 739
Affiliated companies 33 64
------ ------
Total accounts payable 520 803
------ ------
Customers' deposits and billings in
excess of costs and estimated
earnings 1,677 2,114
Accrued salaries, wages, and
commissions 174 247
Income taxes payable 46 143
Accrued royalties payable 525 361
Accrued product warranties 993 842
Accrued other liabilities 73 77
------ ------
Total current liabilities 4,008 4,587
------ ------
Stockholders' equity:
Common stock, $1 par value; authorized
1,000 shares; issued 200 shares - -
Additional paid-in capital 200 200
Retained earnings 2,860 2,313
------ ------
Total stockholders' equity 3,060 2,513
------ ------
Total liabilities and stockholders'
equity $ 7,068 7,100
====== ======
</TABLE>
- 23 -
<PAGE>
SI/BAKER, INC.
Statements of Operations (Unaudited)
Nine Months Ended September 30, 2000 and September 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ----------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,714 2,995 10,732 8,347
Cost of sales 2,149 2,365 8,817 6,660
----- ----- ------ -----
Gross profit on sales 565 630 1,915 1,687
----- ----- ------ -----
Selling, general and
administrative
expenses 206 265 748 821
Product development
costs 10 55 85 212
Royalty expense to
parent companies 109 120 429 334
Interest income (24) (18) (95) (35)
Interest expense - - - 12
Other income, net (47) (27) (143) (82)
----- ----- ------ -----
254 395 1,024 1,262
----- ----- ------ -----
Earnings before
income taxes 311 235 891 425
Income tax expense 114 94 344 185
----- ----- ------ -----
Net earnings $ 197 141 547 240
===== ===== ====== =====
</TABLE>
- 24 -
<PAGE>
SI/BAKER, INC.
Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 and September 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
September September
30, 2000 30, 1999
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 547 240
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation of machinery and
equipment and leased equipment 43 157
Changes in operating assets and
liabilities:
Receivables (466) (1,106)
Costs and estimated earnings
in excess of billings 381 (581)
Deferred income tax benefits - 35
Prepaid expenses and other
current assets (51) 224
Accounts payable (283) 400
Customers' deposits and
billings in excess of costs
and estimated earnings (437) 1,987
Accrued salaries, wages, and
commissions (73) 44
Income taxes payable (97) (3)
Accrued royalties payable 164 182
Accrued product warranties 151 118
Accrued other liabilities (4) (2)
Deferred compensation - (111)
----- -----
Net cash provided (used)
by operating activities (125) 1,584
----- -----
Cash flows from investing activities:
Additions to machinery and equipment (25) (17)
----- -----
Net cash used by investing activities (25) (17)
----- -----
Increase (decrease) in cash and cash equivalents (150) 1,567
Cash and cash equivalents,
beginning of period 2,895 250
----- -----
Cash and cash equivalents, end of period $ 2,745 1,817
===== =====
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes $ 10 (135)
===== =====
Interest $ - 21
===== =====
</TABLE>
- 25 -
<PAGE>
PARAGON TECHNOLOGIES, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit No.
----------
27 Financial Data Schedule.
- 26 -
