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, 2000
Commission File No. 0-3362
PARAGON TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Pennsylvania 22-1643428
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(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
600 Kuebler Road, Easton, PA 18040
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(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 610-252-7321
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SI HANDLING SYSTEMS, INC.
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(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
March 31, 2000: 4,184,878.
---------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------ --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
---------- ----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents, principally
time deposits $ 777 6,242
------ ------
Receivables:
Trade (net of allowance for doubtful
accounts of $55 as of March 31, 2000
and $54 as of December 31, 1999) 10,629 6,824
Notes and other receivables 804 952
------ ------
Total receivables 11,433 7,776
------ ------
Costs and estimated earnings in excess
of billings 1,713 1,864
------ ------
Inventories:
Raw materials 2,779 1,819
Finished goods and work-in-process 1,171 1,586
------ ------
Total inventories 3,950 3,405
------ ------
Deferred income tax benefits 1,684 1,684
Prepaid expenses and other current assets 483 715
------ ------
Total current assets 20,040 21,686
------ ------
Property, plant and equipment, at cost:
Land 327 327
Buildings and improvements 3,717 3,717
Machinery and equipment 6,193 6,078
------ ------
10,237 10,122
Less: accumulated depreciation 6,938 6,788
------ ------
Net property, plant and equipment 3,299 3,334
------ ------
Deferred income tax benefits 260 260
Investments in joint ventures 1,423 1,399
Excess of cost over fair value of net assets
acquired, less amortization of $233 as of
March 31, 2000 and $116 as of
December 31, 1999 18,407 18,524
Other assets, at cost less accumulated
amortization of $137 as of March 31, 2000
and $121 as of December 31, 1999 186 203
------ ------
Total assets $ 43,615 45,406
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Item 1. Financial Statements (Continued)
- ------ --------------------
Paragon Technologies, Inc. and Subsidiary
Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
---------- ----------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 1,261 1,578
Accounts payable 5,820 5,169
Customers' deposits and billings in excess
of costs and estimated earnings 3,241 5,154
Accrued salaries, wages, and commissions 966 1,356
Income taxes payable 584 49
Accrued royalties payable 91 284
Accrued product warranties 953 903
Accrued pension and retirement
savings plan liabilities 494 463
Accrued other liabilities 671 1,355
------ ------
Total current liabilities 14,081 16,311
------ ------
Long-term liabilities:
Long-term debt, excluding current installments:
Term loan 12,125 12,438
Subordinated notes payable 3,000 3,000
Other 13 13
------ ------
Total long-term debt 15,138 15,451
Deferred compensation 199 219
------ ------
Total long-term liabilities 15,337 15,670
------ ------
Stockholders' equity:
Common stock, $1 par value; authorized
20,000,000 shares; issued and outstanding
4,184,878 shares as of March 31, 2000
and 4,184,878 shares as of
December 31, 1999 4,185 4,185
Additional paid-in capital 6,817 6,817
Retained earnings 3,195 2,423
------ ------
Total stockholders' equity 14,197 13,425
------ ------
Total liabilities and stockholders' equity $ 43,615 45,406
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Item 1. Financial Statements (Continued)
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Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999
(In Thousands, Except Share And Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March March
31, 2000 31, 1999
---------- ----------
<S> <C> <C>
Net sales $ 18,344 9,738
Cost of sales 13,912 7,541
--------- ---------
Gross profit on sales 4,432 2,197
--------- ---------
Selling, general and
administrative expenses 2,390 1,498
Product development costs 49 69
Amortization of goodwill 117 -
Employee severance and
termination benefits 337 -
Interest expense 421 11
Interest income (61) (42)
Equity in income of joint
ventures (24) (7)
Other income, net (86) (54)
--------- ---------
3,143 1,475
--------- ---------
Earnings before
income taxes 1,289 722
Income tax expense 517 281
--------- ---------
Net earnings $ 772 441
========= =========
Basic earnings per share $ .18 .12
========= =========
Diluted earnings per share $ .17 .12
========= =========
Weighted average shares
outstanding 4,184,878 3,705,048
Dilutive effect of stock
options 2,246 17,819
Dilutive effect of phantom
stock units 18,120 13,525
--------- ---------
Weighted average shares
outstanding assuming
dilution 4,205,244 3,736,392
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
Item 1. Financial Statements (Continued)
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Paragon Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March March
31, 2000 31, 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 772 441
Adjustments to reconcile net earnings
to net cash used
by operating activities:
Depreciation of plant and equipment 150 58
Amortization of intangibles 133 7
Gain on disposition of equipment (2) -
Equity in income of joint ventures (24) (7)
Change in operating assets and liabilities,
net of effects of the acquisition of
Ermanco Incorporated:
Receivables (3,657) (2,433)
Costs and estimated earnings in
excess of billings 151 904
Inventories (545) 239
Deferred income tax benefits - (165)
Prepaid expenses and other current assets 232 138
Other noncurrent assets 1 (88)
Accounts payable 651 (943)
Customers' deposits and billings in excess
of costs and estimated earnings (1,913) (1,472)
Accrued salaries, wages, and
commissions (390) 31
Income taxes payable 535 315
Accrued royalties payable (193) 27
Accrued pension and retirement
savings plan liabilities 31 (3)
Accrued product warranties 50 124
Accrued other liabilities (453) 22
Deferred compensation (20) (3)
------ ------
Net cash used by operating activities (4,491) (2,808)
------ ------
Cash flows from investing activities:
Proceeds from the disposition of equipment 2 -
Additional consideration paid in connection
with Ermanco acquisition (231) -
Additions to property, plant and equipment (115) (202)
------ ------
Net cash used by investing activities (344) (202)
------ ------
</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 Three Months Ended March 31, 2000 and March 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March March
31, 2000 31, 1999
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Sale of common shares in connection
with employee incentive stock option plan - 14
Repayment of long-term debt (630) (2)
Repurchase and retirement of common stock - (242)
------ ------
Net cash used by financing activities (630) (230)
------ ------
Decrease in cash and cash equivalents (5,465) (3,240)
Cash and cash equivalents, beginning
of period 6,242 4,785
------ ------
Cash and cash equivalents, end of period $ 777 1,545
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 780 1
====== ======
Income taxes $ 36 12
====== ======
Supplemental disclosures of noncash
investing and financing activities:
Issuance of 6,011 common shares in
exchange for 2,250 common shares
delivered to the Company by an officer
in connection with the employee
incentive stock option. $ - 28
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
Item 1. Financial Statements (Continued)
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Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Three Months Ended March 31, 2000 and March 31, 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, which 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 inter-company
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 January, February, and March 1999.
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
- 7 -
<PAGE>
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Three Months Ended March 31, 2000 and March 31, 1999
statements furnished reflect all adjustments and accruals, which are
necessary to a fair statement of results for the interim periods presented.
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 was
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 January, February, and
March 1999.
(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 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 recorded at the time of acquisition was $18,640,000 and
is being amortized over a period of 40 years.
- 8 -
<PAGE>
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Three Months Ended March 31, 2000 and March 31, 1999
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 three months ended March 31,
1999 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999
--------------------------
<S> <C>
Net sales $ 16,638
======
Net earnings $ 535
======
Basic earnings per share $ .13
======
Diluted earnings per share $ .13
======
</TABLE>
(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
- 9 -
<PAGE>
Item 1. Financial Statements (Continued)
- ------- --------------------
Paragon Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
Three Months Ended March 31, 2000 and March 31, 1999
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.
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 (in
thousands):
<TABLE>
<CAPTION>
For the three months ended Automated Material Conveyor
March 31, 2000: Handling Systems Systems Total
--------------------------------- ------------------ --------- ------
<S> <C> <C> <C>
Sales $ 7,740 10,604 18,344
Earnings before interest expense,
interest income, equity in
income of joint ventures, and
income taxes 301 1,324 1,625
Total assets 13,354 30,261 43,615
Capital expenditures 25 90 115
Depreciation and amortization
expense 101 182 283
</TABLE>
Geographic segment information was as follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended
March 31, 2000: Domestic Europe and Asia Canada Total
---------------------------- -------- --------------- ------ ------
<S> <C> <C> <C> <C>
Sales $ 16,828 1,243 273 18,344
Earnings (loss) before
interest expense, interest
income, equity in income
of joint ventures,
and income taxes 1,625 - - 1,625
Total assets 43,615 - - 43,615
Capital expenditures 115 - - 115
Depreciation and
amortization expense 283 - - 283
</TABLE>
Intersegment sales for the three months ended March 31, 2000 totaled
$3,000.
(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 payment of interest
on subordinated debt.
- 10 -
<PAGE>
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 decreased to $777,000 at March 31,
2000 from $6,242,000 at December 31, 1999. The decrease resulted from cash used
by operating activities totaling $4,491,000, repayment of long-term debt of
$630,000, purchases of capital equipment of $115,000, and additional
consideration and costs of $231,000 paid in connection with the Ermanco
acquisition. Funds used by operating activities during the three months ended
March 31, 1999 were $2,808,000.
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.
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 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 recorded at the time of acquisition was $18,640,000 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, and 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 March 31,
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
- 11 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Liquidity And Capital Resources (Continued)
- -------------------------------
equal to the three-month LIBOR Market Index Rate plus three percent. 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%.
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 March 31, 2000.
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. Effective
April 1, 2000, the Company is prohibited from making any cash payments of
subordinated debt and interest until the Company is in full compliance with all
the financial covenants as originally set forth in the Loan Agreement with the
Company's principal bank.
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 March 31, 2000, SI/BAKER did not have any
borrowings under the facility, the facility expires effective August 31, 2000.
The Company believes that its financial resources consisting of its current
assets, anticipated cash flow, and the available line of credit facility will
adequately finance its operating requirements for the foreseeable future.
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 March 31, 2000.
- 12 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Results Of Operations
- ---------------------
Three Months Ended March 31, 2000 Versus Three Months Ended March 31, 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 January, February, and March 1999.
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 three
months ended March 31, 2000 include the operations of Ermanco. However, the
prior year comparative information in the Form 10-Q does not reflect the
operations of Ermanco.
The Company's net earnings for the three months ended March 31, 2000 were
$772,000 compared to net earnings of $441,000 for the three months ended March
31, 1999. Unfavorably impacting the net earnings of $772,000 for the three
months ended March 31, 2000 were employee severance and termination benefits of
$337,000.
The total backlog at March 31, 2000 was approximately $24,290,000. During
the first three months of 2000, the Company received orders totaling
approximately $18,950,000.
Net sales of $18,344,000 for the three months ended March 31, 2000
increased 88.4% compared to net sales of $9,738,000 for the three months ended
March 31, 1999. The sales increase of $8,606,000 is comprised of Ermanco's
contribution to product sales approximating $10,604,000, offset by a decrease in
SI Systems' sales of approximately $1,998,000 for the three months ended March
31, 2000, when compared to the three months ended March 31, 1999. The SI
Systems' sales decrease in the three months ended March 31, 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 all product lines, with the majority of the decrease relating to
sales of the Cartrac, Lo-Tow, and Order Selection product lines. The Company's
business is dependent upon a limited number of large contracts with certain
customers. This dependence can cause unexpected fluctuations in sales volume.
Gross profit as a percentage of sales was 24.2% for the three months ended
March 31, 2000 compared to 22.6% for the three months ended March 31, 1999.
Ermanco's gross profit as a percentage of sales was 23.8% for the three months
ended March 31, 2000. The increase in the gross profit percentage for the three
months ended March 31, 2000 was attributable to enhanced internal controls
relative to pricing practices and favorable performances on several contracts,
principally for SI Systems' higher margin proprietary products lines, initiated
in the prior fiscal year that were completed or nearing completion during the
first three months ended March 31, 2000. Partially offsetting the impact of the
favorable performances on several contracts was the recognition of approximately
$1,125,000 in sales at no gross profit margin on three major contracts where
significant cost overruns, resulting in losses, were experienced during the ten
months ended December 31, 1999.
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
- 13 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Results Of Operations (Continued)
- ---------------------
Three Months Ended March 31, 2000 Versus Three Months Ended March 31, 1999
- --------------------------------------------------------------------------
(Continued)
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. Also the backlog of orders of approximately $2,800,000 attributable
to these contracts will be recognized at no gross profit throughout the
remainder of this calendar year.
Selling, general and administrative expenses of $2,390,000 were higher by
$892,000 in the three months ended March 31, 2000 than in the three months ended
March 31, 1999. The increase of $892,000 is comprised of additional costs of
operations totaling approximately $1,050,000 related to Ermanco, offset by a
decrease in SI Systems' selling, general and administrative expenses of
approximately $160,000 for the three months ended March 31, 2000, when compared
to the three months ended March 31, 1999. The decrease in SI Systems' selling,
general and administrative expenses was primarily attributable to the prior year
comparable period containing larger amount of costs associated with product
promotion and sales efforts aimed at expanding the customer base of the
business.
Product development costs of $49,000 were lower by $20,000 in the three
months ended March 31, 2000, than in the three months ended March 31, 1999.
Development progress in the three months ended March 31, 2000 and March 31, 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. Goodwill amortization expense for
the three months ended March 31, 2000 totaled approximately $117,000. There was
no goodwill amortization expense associated with the Ermanco acquisition in the
comparable prior year period.
Employee severance and termination benefits of $337,000 for the three
months ended March 31, 2000 was associated with a restructuring initiative,
whereby the Company separated approximately sixteen employees.
Interest income of $61,000 for the three months ended March 31, 2000,
increased by $19,000, when compared to the three months ended March 31, 1999.
The increase in interest income was primarily attributable to higher level of
funds available for short-term investments during the three months ended March
31, 2000.
Equity in income of joint ventures represents the Company's proportionate
share of its investment in the SI-Egemin and SI/BAKER joint ventures, which are
being accounted for under the equity method. The net favorable variance of
approximately $17,000 in the equity in income of joint ventures for the three
months ended March 31, 2000, was comprised of a favorable variance of
approximately $59,000 attributable to the SI/BAKER joint venture, as compared to
the three months ended March 31, 1999. Offsetting the increase of SI/BAKER's
favorable variance was an unfavorable variance of approximately $42,000
attributable to the SI-Egemin joint venture.
The favorable variance of $59,000 for the three months ended March 31, 2000
in the equity in income of SI/BAKER joint venture was primarily due to its
increased sales of approximately $1,067,000 as compared to the three months
ended March 31, 1999. SI/BAKER also experienced a reduction in product
development expenses in the amount of approximately $59,000, and an increase in
interest income, net of approximately $43,000 for the three months ended March
31, 2000, as compared to the three months ended March 31, 1999. Partially
offsetting these favorable variances was SI/BAKER's increase of $43,000 in
revenue-based royalty costs due to the parent companies.
- 14 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Results Of Operations (Continued)
- ---------------------
Three Months Ended March 31, 2000 Versus Three Months Ended March 31, 1999
- --------------------------------------------------------------------------
(Continued)
The unfavorable variance of $42,000 for the three months ended March 31,
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 in other income, net was primarily attributable to
an increase in the revenue-based royalty income related to the SI/BAKER joint
venture.
The Company incurred income tax expense of $517,000 during the three months
ended March 31, 2000, compared to income tax expense of $281,000 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.
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.
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 three
months ended March 31, 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.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 5. Other Information
- ------- -----------------
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(sm) under the symbol "SIHS."
Effective April 5, 2000, SI Handling Systems, Inc. amended its Articles of
Incorporation in order to change its name to Paragon Technologies, Inc. A Form
8-K was filed on April 7, 2000 regarding this change to the name of the
Corporation.
Effective May 10, 2000, Ronald J. Semanick became Vice President - Finance,
Chief Financial Officer, and Treasurer of the Company.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
2000.
- 16 -
<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: May 15, 2000
------------
- 17 -
<PAGE>
Schedule A
----------
SI/BAKER, INC.
Financial Statements
March 31, 2000
- 18 -
<PAGE>
SI/BAKER, INC.
Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
---------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, principally
time deposits $ 2,626 2,895
----- -----
Receivables:
Trade 1,438 1,358
Other receivables 127 129
----- -----
Total receivables 1,565 1,487
----- -----
Costs and estimated earnings in
excess of billings 3,426 2,159
Deferred income tax benefits 391 391
Prepaid expenses and other current
assets 128 53
----- -----
Total current assets 8,136 6,985
----- -----
Machinery and equipment, at cost 201 194
Less: accumulated depreciation 126 121
----- -----
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 $ 8,233 7,100
===== =====
</TABLE>
- 19 -
<PAGE>
SI/BAKER, INC.
Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
---------- ---------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Trade $ 674 739
Affiliated companies 137 64
----- -----
Total accounts payable 811 803
----- -----
Customers' deposits and billings in
excess of costs and estimated
earnings 2,985 2,114
Accrued salaries, wages, and
commissions 238 247
Income taxes payable 40 143
Accrued royalties payable 475 361
Accrued product warranties 958 842
Accrued other liabilities 80 77
----- -----
Total current liabilities 5,587 4,587
----- -----
Stockholders' equity:
Common stock, $1 par value; authorized
1,000 shares; issued 200 shares - -
Additional paid-in capital 200 200
Retained earnings 2,446 2,313
----- -----
Total stockholders' equity 2,646 2,513
----- -----
Total liabilities and stockholders'
equity $ 8,233 7,100
===== =====
</TABLE>
- 20 -
<PAGE>
SI/BAKER, INC.
Statements of Operations (Unaudited)
Three Months Ended March 31, 2000 and and March 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March March
31, 2000 31, 1999
------------ ----------
<S> <C> <C>
Net sales $ 3,433 2,366
Cost of sales 2,875 1,929
----- -----
Gross profit on sales 558 437
----- -----
Selling, general and
administrative
expenses 269 267
Product development
costs 16 75
Royalty expense to
parent companies 137 94
Interest income (43) (9)
Interest expense - 9
Other income, net (45) (41)
----- -----
334 395
----- -----
Earnings before
income taxes 224 42
Income tax expense 91 28
----- -----
Net earnings $ 133 14
===== =====
</TABLE>
- 21 -
<PAGE>
SI/BAKER, INC.
Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2000 and March 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March March
31, 2000 31, 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 133 14
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation of machinery and
equipment and leased equipment 25 39
Changes in operating assets and
liabilities:
Receivables (78) 76
Costs and estimated earnings
in excess of billings (1,267) 168
Deferred tax benefit - 35
Prepaid expenses and other
current assets (75) 142
Other assets - -
Accounts payable 8 (68)
Customers' deposits and
billings in excess of costs
and estimated earnings 871 (89)
Accrued salaries, wages, and
commissions (9) (30)
Income taxes payable (103) 18
Accrued royalties payable 114 57
Accrued product warranties 116 45
Accrued other liabilities 3 4
Deferred compensation - 12
----- -----
Net cash provided (used)
by operating activities (262) 423
----- -----
Cash flows from investing activities:
Additions to machinery and equipment (7) (7)
----- -----
Net cash used by investing activities (7) (7)
----- -----
Increase (decrease) in cash and cash equivalents (269) 416
Cash and cash equivalents,
beginning of period 2,895 250
----- -----
Cash and cash equivalents, end of period $ 2,626 666
===== =====
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes $ 254 (175)
===== =====
Interest $ - -
===== =====
</TABLE>
- 22 -
<PAGE>
PARAGON TECHNOLOGIES, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit No.
- ----------
10.17 First Amendment to Term Note and Loan Agreement.
10.18 Modification Number One to Loan Agreement.
10.19 Second Amendment to Line of Credit.
27 Financial Data Schedule.
- 23 -
Exhibit 10.17
-------------
FIRST AMENDMENT TO TERM NOTE AND LOAN AGREEMENT
-----------------------------------------------
(TERM LOAN)
Paragon Technologies, Inc. (formerly, "SI Handling Systems, Inc.")
600 Kuebler Road
Easton, Pennsylvania 18040
Ermanco Incorporated
6870 Grand Haven Road
Spring Lake, Michigan 49456
(Individually and collectively, "Borrower")
First Union National Bank
702 Hamilton Street
Allentown, Pennsylvania 18101
(Hereinafter referred to as "Bank")
THIS FIRST AMENDMENT TO TERM NOTE AND LOAN AGREEMENT ("First
Amendment") is entered into as of March 30, 2000, by and between the Bank and
Borrower.
BACKGROUND
A. Bank is the holder of a Promissory Note executed and delivered by
Borrower, dated September 30, 1999, in the original principal amount of
$14,000,000.00 (the "Note"); and certain other loan documents, including,
without limitation, a Loan Agreement dated September 30, 1999 (the "Loan
Agreement").
B. The term "Loan Documents", as used in this Agreement, is defined
in the Note. All capitalized terms used but not defined herein shall have the
meanings assigned in the Loan Documents.
C. Borrower has requested Bank to waive the following Defaults
(collectively, the "Existing Defaults") under the Loan Documents:
(i) Borrower failed to maintain the requisite Funds Flow
Coverage Ratio for the period ending December 31, 1999;
(ii) Borrower's aggregate outstanding Obligations exceeded the
amount permitted under the Borrowing Base determined pursuant to the terms of
the Loan Agreement for the $6,000,000.00 Line of Credit with the Bank for the
period ending December 31, 1999; and
(iii) Borrower defaulted under the terms of that certain
Subordination Agreement dated September 30, 1999 (the "Subordination
Agreement"), executed by Borrower, Bank and the Creditors identified therein, in
that Borrower made payments of interest on the Subordinated Debt for the
quarterly periods ending December 31, 1999 and March 31, 2000, at a time when
Borrower was in default under the Loan Documents.
D. Bank is willing to waive the Existing Defaults in consideration
of Borrower's execution and delivery of this Agreement together with the receipt
by Bank of the Waiver Fee (as defined herein).
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of Bank's continued extension of
credit, the payment of the Waiver Fee and the agreements contained herein, the
parties agree as follows:
1. Incorporation of Background. The background provisions set forth
----------------------------
above (including, without limitation, any defined terms set forth therein) are
hereby incorporated by reference into this First Amendment and made a part
hereof as though set forth in their entirety herein.
2. Funds Flow Coverage Ratio. The Funds Flow Coverage Ratio of
-------------------------
the Loan Agreement is hereby amended from and after the date hereof and
shall read in its entirety as follows:
Funds Flow Coverage Ratio. Borrower shall maintain a Funds
--------------------------
Flow Coverage Ratio of not less than 1.25 to 1.00, to be
measured quarterly on a rolling four quarters basis at each
quarter's end. "Funds Flow Coverage Ratio" shall mean the sum
of earnings (excluding SI Baker and Egemin) before interest,
taxes, depreciation and amortization, divided by the sum of
all current maturities of long term debt and capital lease
obligations plus interest expense. For purposes of calculating
the Funds Flow Coverage Ratio, the amounts indicated below
will be added on a non-cumulative basis to the earnings for
the periods indicated:
Period Ending Add Back Amount
------------- ---------------
March 31, 2000 $1,800,000.00
June 30, 2000 $2,400,000.00
September 30, 2000 $1,900,000.00
3. Total Liabilities to Net Worth Ratio. The Total Liabilities
------------------------------------
to Net Worth Ratio of the Loan Agreement is hereby amended from and after the
date hereof and shall read in its entirety as follows:
Total Liabilities to Net Worth Ratio. Borrower shall, from
-------------------------------------
closing until fiscal year-end December 31, 2000, maintain a
ratio of Total Liabilities to Net Worth of not more than 1.80
to 1.00, and thereafter, Borrower shall maintain a ratio of
Total Liabilities to Net Worth of not more than 1.75 to 1.00,
to be measured quarterly at each quarter's end. "Net Worth"
shall mean total assets (including the investment in SI Baker
and Egemin) minus Total Liabilities. "Total Liabilities" shall
mean all liabilities of Borrower, excluding debt fully
subordinated to Bank on terms and conditions acceptable to
Bank, and including capitalized leases and all reserves for
deferred taxes and other deferred sums appearing on the
liabilities side of a balance sheet, in accordance with
generally accepted accounting principles applied on a
consistent basis.
4. Current Ratio. The Current Ratio of the Loan Agreement is
-------------
hereby modified and amended from and after the date hereof and shall read in its
entirety as follows:
Current Ratio. Borrower shall maintain a Current Ratio of not
-------------
less than 1.20 to 1.00, measured quarterly at each quarter's
end. "Current Ratio" shall mean the ratio of Current Assets to
Current Liabilities. "Current Assets" shall mean all assets
which are so classified in accordance with generally accepted
accounting principles. "Current Liabilities" shall mean all
liabilities
<PAGE>
which are so classified in accordance with generally accepted
accounting principles.
5. Interest Rate. The Note is hereby modified and amended from
-------------
and after the date hereof to provide that commencing on March 30, 2000, the
unpaid principal balance shall bear interest at a rate equal to 3-months LIBOR
plus 3.00%.
6. Subordinated Debt. Commencing on April 1, 2000, Borrower
-----------------
shall not make any payments of Subordinated Debt until Borrower is in full
compliance with all Financial Covenants as originally set forth in the Loan
Agreement prior to the addition of the amounts to be added to the calculation of
the Funds Flow Coverage Ratio as set forth in this First Amendment.
Simultaneously with the execution of this First Amendment or immediately
thereafter, Borrower and Bank shall execute and deliver to the Creditors a
letter notifying the Creditors that no further payments will be made on the
Subordinated Debt except as provided herein.
7. Waiver Fee. Simultaneously with the execution of this First
----------
Amendment by Borrower, Borrower shall deliver to Bank a modification/waiver fee
(the "Waiver Fee") in the amount of $5,000.00.
8. Waiver of Existing Defaults. Bank hereby waives the Existing
-----------------------------
Defaults. This waiver is limited to the Existing Defaults and shall not be
construed as a waiver of any subsequent Default under the referenced Financial
Covenants or Subordination Agreement, or of any existing or future Defaults
under any other provisions of any Loan Documents.
9. Acknowledgment of Balance. Borrower acknowledges that the
-------------------------
most recent Commercial Loan Invoice sent to Borrower with respect to the
Obligations under the Note is correct.
10. Acknowledgments and Representations. Borrower acknowledges
-----------------------------------
and represents that the Note, Loan Agreement and other Loan Documents, as
amended hereby, are in full force and effect without any defense, counterclaim,
right or claim of set-off; that, after giving effect to this First Amendment, no
Default or event that with the passage of time or giving of notice would
constitute a Default under the Loan Documents has occurred, all representations
and warranties contained in the Loan Documents are true and correct as of this
date, all necessary action to authorize the execution and delivery of this
Agreement has been taken; and this First Amendment is a modification of an
existing obligation and is not a novation. Effective the date hereof, all
references in the Loan Documents to the Note or the Loan Agreement shall mean
the Note and the Loan Agreement as amended by this First Amendment.
11. Collateral. Borrower acknowledges and confirms that there have
----------
been no changes in the ownership of any collateral pledged to secure the
Obligations (the "Collateral") since the Collateral was originally pledged;
Borrower acknowledges and confirms that the Bank has existing, valid first
priority security interests and liens in the Collateral; and that such security
interests and liens shall secure Borrower's Obligations to Bank, including any
modification of the Note or Loan Agreement, if any, and all future
modifications, extensions, renewals and/or replacements of the Loan Documents.
12. Miscellaneous. This First Amendment shall be construed in
-------------
accordance with and governed by the laws of the applicable state as originally
provided in the Loan Documents, without reference to that state's conflicts of
law principles. This First Amendment and the other Loan Documents constitute the
sole agreement of the parties with respect to the subject matter thereof and
supersede all oral negotiations and prior writings with respect to the subject
matter thereof. No amendment of this First Amendment, and no waiver of any one
or more of the provisions hereof shall be effective unless set forth in writing
and signed by the parties
<PAGE>
hereto. The illegality, unenforceability or inconsistency of any provision of
this First Amendment shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this First
Amendment or the other Loan Documents. This First Amendment and the other Loan
Documents are intended to be consistent. However, in the event of any
inconsistencies among this First Amendment and any of the Loan Documents, the
terms of this First Amendment, and then the Note, shall control. This First
Amendment may be executed in any number of counterparts and by the different
parties on separate counterparts. Each such counterpart shall be deemed an
original, but all such counterparts shall together constitute one and the same
agreement.
IN WITNESS WHEREOF, the undersigned have signed and sealed this First
Amendment the day and year first above written.
PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this
First Amendment and the Loan Documents were executed in the Commonwealth of
Pennsylvania and delivered to Bank in the Commonwealth of Pennsylvania.
Paragon Technologies, Inc.
(formerly, "SI Handling Systems, Inc.")
Taxpayer Identification Number: 22-1643428
CORPORATE By: /s/ William R. Johnson, President & CEO
------------------------------------------------
SEAL William R. Johnson, President & CEO
By: /s/ William F. Moffitt, Vice President - Finance
------------------------------------------------
William F. Moffitt, Vice President - Finance
First Union National Bank
By: /s/ William M. Hogan, Vice President
------------------------------------------
William M. Hogan, Vice President
Exhibit 10.18
-------------
MODIFICATION NUMBER ONE
TO LOAN AGREEMENT
Paragon Technologies, Inc. (formerly, "SI Handling Systems, Inc.")
600 Kuebler Road
Easton, Pennsylvania 18040
Ermanco Incorporated
6870 Grand Haven Road
Spring Lake, Michigan 49456
(Individually and collectively, "Borrower")
First Union National Bank
702 Hamilton Mall
Allentown, Pennsylvania 18101
(Hereinafter referred to as "Bank")
THIS AGREEMENT is entered into as of January 31, 2000 by and between Bank and
Borrower .
RECITALS
Bank is the holder of a Promissory Note executed and delivered by Borrower,
dated September 30, 1999, in the original principal amount of $6,000,000.00 (the
"Note"); and certain other loan documents, including without limitation, a Loan
Agreement, dated September 30, 1999 (the "Loan Agreement");
Borrower and Bank have agreed to modify the terms of the Loan Agreement.
In consideration of Bank's continued extension of credit and the agreements
contained herein, the parties agree as follows:
AGREEMENT
ACKNOWLEDGMENT OF BALANCE. Borrower acknowledges that the most recent Commercial
Loan Invoice sent to Borrower with respect to the Obligations under the Note is
correct.
MODIFICATIONS.
The Loan Agreement is hereby modified by adding the following
provisions:
LETTERS OF CREDIT. Bank will issue standby letters of credit, (each, a "Letter
of Credit" and collectively, the "Letters of Credit") provided, the aggregate
amount available to be drawn under all standby Letters of Credit plus the
aggregate amount of unreimbursed drawings under all standby Letters of Credit
and the outstanding unpaid principal balance of the Note at any one time does
not exceed $6,000,000, and further provided, no standby Letter of Credit shall
expire more than 365 days after the date it is issued. Notwithstanding anything
to the contrary contained herein, the aggregate outstanding principal balance of
Advances (as defined in the Note) plus the aggregate amount available to be
drawn under all Letters of Credit plus the aggregate amount of unreimbursed
drawings under all Letters of Credit at any one time shall not exceed
$6,000,000.00. The Letters of Credit are to be used by Borrower
<PAGE>
solely for the purpose of expediting the purchase of inventory. Bank's
obligation to issue Letters of Credit shall terminate if Borrower is in default
(however denominated) under the Note or the other Loan Documents, or in any
case, if not sooner terminated, on September 30, 2002.
LETTER OF CREDIT FEES. Borrower shall pay to Bank, at such times as Bank shall
require, Bank's standard fees in connection with Letters of Credit, as in effect
from time to time, and with respect to standby Letters of Credit, at the time of
issuance of each standby Letter of Credit, a fee equal to 1.00% per annum on the
face amount of the standby Letter of Credit for the period of time the standby
Letter of Credit will be outstanding.
ACKNOWLEDGMENTS AND REPRESENTATIONS. Borrower acknowledges and
represents that the Loan Agreement and other Loan Documents, as amended hereby,
are in full force and effect without any defense, counterclaim, right or claim
of set-off; that, after giving effect to this Agreement, no default or event
that with the passage of time or giving of notice would constitute a default
under the Loan Documents has occurred, all representations and warranties
contained in the Loan Documents are true and correct as of this date, all
necessary action to authorize the execution and delivery of this Agreement has
been taken; and this Agreement is a modification of an existing obligation and
is not a novation.
COLLATERAL. Borrower acknowledges and confirms that there have been no changes
in the ownership of any collateral pledged to secure the Obligations (the
"Collateral") since the Collateral was originally pledged; Borrower acknowledges
and confirms that the Bank has existing, valid first priority security interests
and liens in the Collateral; and that such security interests and liens shall
secure Borrower's Obligations to Bank, including any modification of the Note or
Loan Agreement, if any, and all future modifications, extensions, renewals
and/or replacements of the Loan Documents .
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the applicable state as originally provided in the Loan
Documents, without reference to that state's conflicts of law principles. This
Agreement and the other Loan Documents constitute the sole agreement of the
parties with respect to the subject matter thereof and supersede all oral
negotiations and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the provisions
hereof shall be effective unless set forth in writing and signed by the parties
hereto. The illegality, unenforceability or inconsistency of any provision of
this Agreement shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this Agreement or
the other Loan Documents. This Agreement and the other Loan Documents are
intended to be consistent. However, in the event of any inconsistencies among
this Agreement and any of the Loan Documents, the terms of this Agreement, and
then the Note, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement. Terms used in this Agreement
which are capitalized and not otherwise defined herein shall have the meanings
ascribed to such terms in the Loan Agreement.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between parties hereto (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, a dispute as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does
<PAGE>
not apply to disputes under or related to swap agreements. Special Rules. All
arbitration hearings shall be conducted in the city named in the address of Bank
first stated above. A hearing shall begin within 90 days of demand for
arbitration and all hearings shall conclude within 120 days of demand for
arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties do not waive applicable Federal or state substantive law
except as provided herein. Preservation and Limitation of Remedies.
Notwithstanding the preceding binding arbitration provisions, the parties agree
to preserve, without diminution, certain remedies that any party may exercise
before or after an arbitration proceeding is brought. The parties shall have the
right to proceed in any court of proper jurisdiction or by self-help to exercise
or prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale or under applicable law by judicial foreclosure including a proceeding to
confirm the sale; (ii) all rights of self-help including peaceful occupation of
real property and collection of rents, set-off, and peaceful possession of
personal property; (iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment, appointment of
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Any claim or controversy with
regard to any party's entitlement to such remedies is a Dispute. Waiver of
Exemplary Damages. The parties agree that they shall not have a remedy of
punitive or exemplary damages against other parties in any Dispute and hereby
waive any right or claim to punitive or exemplary damages they have now or which
may arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially. Waiver of Jury Trial. THE PARTIES
ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED
ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the
day and year first above written.
PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this Agreement
and the Loan Documents were executed in the Commonwealth of Pennsylvania and
delivered to Bank in the Commonwealth of Pennsylvania.
Paragon Technologies, Inc. (formerly, "SI Handling Systems, Inc.")
Taxpayer Identification Number: 22-1643428
CORPORATE By: /s/ William R. Johnson
-----------------------------------------------------------
SEAL William R. Johnson, President & CEO
By: /s/ William F. Moffitt
-----------------------------------------------------------
William F. Moffitt, Vice President - Finance
First Union National Bank
By: /s/ Peter A. Gray
-----------------------------------------------------------
Peter A. Gray, Vice President
Exhibit 10.19
-------------
SECOND AMENDMENT TO LINE OF CREDIT
NOTE AND LOAN AGREEMENT
-----------------------
(LINE OF CREDIT)
Paragon Technologies, Inc. (formerly, "SI Handling Systems, Inc.")
600 Kuebler Road
Easton, Pennsylvania 18040
Ermanco Incorporated
6870 Grand Haven Road
Spring Lake, Michigan 49456
(Individually and collectively, "Borrower")
First Union National Bank
702 Hamilton Street
Allentown, Pennsylvania 18101
(Hereinafter referred to as "Bank")
THIS SECOND AMENDMENT TO LINE OF CREDIT NOTE AND LOAN
AGREEMENT ("Second Amendment") is entered into as of March 30, 2000, by and
between the Bank and Borrower.
BACKGROUND
A. Bank is the holder of a Promissory Note executed and delivered by
Borrower, dated September 30, 1999, in the original principal amount of
$6,000,000.00 (the "Note"); and certain other loan documents, including, without
limitation, a Loan Agreement dated September 30, 1999 as amended by that certain
Modification Number One to Loan Agreement dated January 31, 2000 (collectively,
the "Loan Agreement").
B. The term "Loan Documents", as used in this Agreement, is
defined in the Note. All capitalized terms used but not defined herein shall
have the meanings assigned in the Loan Documents.
C. Borrower has requested Bank to waive the following Defaults
(collectively, the "Existing Defaults") under the Loan Documents:
(i) Borrower failed to maintain the requisite Funds Flow
Coverage Ratio for the period ending December 31, 1999;
(ii) Borrower's aggregate outstanding Obligations exceeded the
amount permitted under the Borrowing Base determined pursuant to the terms of
the Loan Agreement for the period ending December 31, 1999; and
(iii) Borrower defaulted under the terms of that certain
Subordination Agreement dated September 30, 1999 (the "Subordination
Agreement"), executed by Borrower, Bank and the Creditors identified therein, in
that Borrower made payments of interest on the Subordinated Debt for the
quarterly periods ending December 31, 1999 and March 31, 2000, at a time when
Borrower was in default under the Loan Documents.
D. Bank is willing to waive the Existing Defaults in consideration
of Borrower's execution and delivery of this Agreement together with the receipt
by Bank of the Waiver Fee (as defined herein).
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of Bank's continued extension of
credit, the payment of the Waiver Fee and the agreements contained herein, the
parties agree as follows:
1. Incorporation of Background. The background provisions set forth
---------------------------
above (including, without limitation, any defined terms set forth therein) are
hereby incorporated by reference into this Second Amendment and made a part
hereof as though set forth in their entirety herein.
2. Funds Flow Coverage Ratio. The Funds Flow Coverage Ratio of the
-------------------------
Loan Agreement is hereby amended from and after the date hereof and shall read
in its entirety as follows:
Funds Flow Coverage Ratio. Borrower shall maintain a Funds
--------------------------
Flow Coverage Ratio of not less than 1.25 to 1.00, to be
measured quarterly on a rolling four quarters basis at each
quarter's end. "Funds Flow Coverage Ratio" shall mean the sum
of earnings (excluding SI Baker and Egemen) before interest,
taxes, depreciation and amortization (including the historical
operations of Ermanco Incorporated prior to the September 30,
1999 acquisition of said entity by Paragon Technologies, Inc.,
(formerly, "SI Handling Systems, Inc." ), divided by the sum
of all current maturities of long term debt and capital lease
obligations plus interest expense. For purposes of calculating
the Funds Flow Coverage Ratio, the amounts indicated below
will be added on a non-cumulative basis to the earnings for
the periods indicated:
Period Ending Ad Back Amount
------------- --------------
March 31, 2000 $1,800,000.00
June 30, 2000 $2,400,000.00
September 30, 2000 $1,900,000.00
3. Total Liabilities to Net Worth Ratio. The Total Liabilities to
------------------------------------
Net Worth Ratio of the Loan Agreement is hereby amended from and after the date
hereof and shall read in its entirety as follows:
Total Liabilities to Net Worth Ratio. Borrower shall, from
-------------------------------------
closing until fiscal year-end December 31, 2000, maintain a
ratio of Total Liabilities to Net Worth of not more than 1.80
to 1.00, and thereafter, Borrower shall maintain a ratio of
Total Liabilities to Net Worth of not more than 1.75 to 1.00,
to be measured quarterly at each quarter's end. "Net Worth"
shall mean total assets (including the investment in SI Baker
and Egemen) minus Total Liabilities. "Total Liabilities" shall
mean all liabilities of Borrower, excluding debt fully
subordinated to Bank on terms and conditions acceptable to
Bank, and including capitalized leases and all reserves for
deferred taxes and other deferred sums appearing on the
liabilities side of a balance sheet, in accordance with
generally accepted accounting principles applied on a
consistent basis.
4. Current Ratio. The Current Ratio of the Loan Agreement is
-------------
hereby modified and amended from and after the date hereof and shall read in its
entirety as follows:
Current Ratio. Borrower shall maintain a Current Ratio of not
-------------
less than 1.20 to 1.00, measured quarterly at each quarter's
end. "Current Ratio" shall mean the ratio of Current Assets to
Current Liabilities. "Current Assets" shall
<PAGE>
mean all assets which are so classified in accordance with
generally accepted accounting principles. "Current
Liabilities" shall mean all liabilities which are so
classified in accordance with generally accepted accounting
principles.
5. Borrowing Base. The first paragraph of the Loan Agreement
--------------
concerning the Borrowing Base is hereby amended from and after the date hereof
and shall read in its entirety as follows:
Borrowing Base. "Borrowing Base" means (a) 80% of the net
---------------
amount of Eligible Accounts, plus (b) 40% of the value of
Eligible Inventory, plus (c) 80% of the current fair market
value of the Property (as hereinafter defined) as determined
by appraisal satisfactory to Bank, plus (d) 100% of the
Orderly Liquidation Value of Equipment, unencumbered by any
liens other than in favor of Bank, plus (e) an amount equal to
$2,500,000.00, which amount shall be reduced by $625,000.00
every 6 months during the first 2 years of this Loan, until
such amount reaches zero (0) on the second anniversary of the
date of this Agreement, minus (f) the unpaid principal balance
of the Term Loan. If the foregoing calculation of the
Borrowing Base results in a negative number, Bank shall notify
Borrower in writing, and within five (5) days after receiving
such written notice, Borrower shall either (i) make a
principal payment under the Term Loan sufficient to eliminate
such deficiency, or (ii) deposit with Bank cash in an amount
sufficient to eliminate such deficiency, which cash amount
shall be held in a separate escrow account by Bank until such
time as the cash escrow account is no longer required in order
to achieve compliance with the foregoing Borrowing Base
calculation.
6. Subordinated Debt. Commencing on April 1, 2000, Borrower shall
-----------------
not make any cash payments of Subordinated Debt until Borrower is in full
compliance with all Financial Covenants as originally set forth in the Loan
Agreement prior to the addition of the amounts to be added to the calculation of
the Funds Flow Coverage Ratio as set forth in this Second Amendment.
Simultaneously with the execution of this Second Amendment or immediately
thereafter, Borrower and Bank shall execute and deliver to the Creditors a
letter notifying the Creditors that no further payments will be made on the
Subordinated Debt except as provided herein.
7. Waiver Fee. Simultaneously with the execution of this Second
----------
Amendment by Borrower, Borrower shall deliver to Bank a modification/waiver fee
(the "Waiver Fee") in the amount of $5,000.00.
8. Waiver of Existing Defaults. Bank hereby waives the Existing
---------------------------
Defaults. This waiver is limited to the Existing Defaults and shall not be
construed as a waiver of any subsequent Default under the referenced Financial
Covenants or Subordination Agreement, or of any existing or future Defaults
under any other provisions of any Loan Documents.
9. Acknowledgment of Balance. Borrower acknowledges that the most
-------------------------
recent Commercial Loan Invoice sent to Borrower with respect to the Obligations
under the Note is correct.
10. Acknowledgments and Representations. Borrower acknowledges and
-----------------------------------
represents that the Note, Loan Agreement and other Loan Documents, as amended
hereby, are in full force and effect without any defense, counterclaim, right or
claim of set-off; that, after giving effect to this Second Amendment, no Default
or event that with the passage of time or giving of notice would constitute a
Default under the Loan Documents has occurred, all representations and
warranties contained in the Loan Documents are true and correct as
<PAGE>
of this date, all necessary action to authorize the execution and delivery of
this Agreement has been taken; and this Second Amendment is a modification of an
existing obligation and is not a novation. Effective the date hereof, all
references in the Loan Documents to the Note or the Loan Agreement shall mean
the Note and the Loan Agreement as amended by this Second Amendment.
11. Collateral. Borrower acknowledges and confirms that there have
----------
been no changes in the ownership of any collateral pledged to secure the
Obligations (the "Collateral") since the Collateral was originally pledged;
Borrower acknowledges and confirms that the Bank has existing, valid first
priority security interests and liens in the Collateral; and that such security
interests and liens shall secure Borrower's Obligations to Bank, including any
modification of the Note or Loan Agreement, if any, and all future
modifications, extensions, renewals and/or replacements of the Loan Documents.
12. Miscellaneous. This Second Amendment shall be construed in
-------------
accordance with and governed by the laws of the applicable state as originally
provided in the Loan Documents, without reference to that state's conflicts of
law principles. This Second Amendment and the other Loan Documents constitute
the sole agreement of the parties with respect to the subject matter thereof and
supersede all oral negotiations and prior writings with respect to the subject
matter thereof. No amendment of this Second Amendment, and no waiver of any one
or more of the provisions hereof shall be effective unless set forth in writing
and signed by the parties hereto. The illegality, unenforceability or
inconsistency of any provision of this Second Amendment shall not in any way
affect or impair the legality, enforceability or consistency of the remaining
provisions of this Second Amendment or the other Loan Documents. This Second
Amendment and the other Loan Documents are intended to be consistent. However,
in the event of any inconsistencies among this Second Amendment and any of the
Loan Documents, the terms of this Second Amendment, and then the Note, shall
control. This Second Amendment may be executed in any number of counterparts and
by the different parties on separate counterparts. Each such counterpart shall
be deemed an original, but all such counterparts shall together constitute one
and the same agreement.
IN WITNESS WHEREOF, the undersigned have signed and sealed this Second
Amendment the day and year first above written.
PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this
Second Amendment and the Loan Documents were executed in the Commonwealth of
Pennsylvania and delivered to Bank in the Commonwealth of Pennsylvania.
Paragon Technologies, Inc. (formerly, "SI Handling Systems, Inc.")
Taxpayer Identification Number: 22-1643428
CORPORATE By: /s/ William R. Johnson, President & CEO
-----------------------------------------------------------
SEAL William R. Johnson, President & CEO
By: /s/ William F. Moffitt, Vice President - Finance and CFO
-----------------------------------------------------------
William F. Moffitt, Vice President - Finance and CFO
First Union National Bank
By: /s/ William M. Hogan, Vice President
-----------------------------------------------------------
William M. Hogan, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000090045
<MULTIPLIER> 1,000
<NAME> PARAGON TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 777
<SECURITIES> 0
<RECEIVABLES> 10,684
<ALLOWANCES> 55
<INVENTORY> 3,950
<CURRENT-ASSETS> 20,040
<PP&E> 10,237
<DEPRECIATION> 6,938
<TOTAL-ASSETS> 43,615
<CURRENT-LIABILITIES> 14,081
<BONDS> 15,138
0
0
<COMMON> 4,185
<OTHER-SE> 10,012
<TOTAL-LIABILITY-AND-EQUITY> 43,615
<SALES> 18,344
<TOTAL-REVENUES> 18,344
<CGS> 13,912
<TOTAL-COSTS> 13,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 1,289
<INCOME-TAX> 517
<INCOME-CONTINUING> 772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 772
<EPS-BASIC> .18
<EPS-DILUTED> .17
</TABLE>
